The release of the iPhone 3G in July 2008 changed the telecommunications industry forever, and instantly made the device one of the hottest products on the planet.
But it wasn't just the iPhone's cool looks and functionality that drew customers. Where Apple really struck gold was with the App Store, a site where iPhone and iPod users could download applications, games and novelty programs.
The App Store has led to the creation of an entire industry. Across the world, software developers began working on their own applications to sell through the App Store, with application developers splitting revenue with Apple 70/30 (in the developers' favour). The App Store launched with about 500 applications available, but at the time of writing there were 25,000 applications available with over 800 million downloads recorded.
In Australia, a small group of independent developers have been able to cash in on the iPhone craze by developing their own applications and selling them around the world. The eclectic bunch includes full-time software developers, IT workers tinkering in their bedroom, and some of Australia's biggest games development houses.
The application craze has also now spread beyond Apple, with BlackBerry, Windows Mobile, Google and Nokia all launching their own application stores to cash in on the trend. But Australia's leading application developers say the market has become flooded with cheap and useless applications, and warn that the business model of the application market will need to change.
You will find all sorts of applications in the App Store, from the useful to the absurd. While applications delivering news, weather and stocks information are popular, the most downloaded applications are games and novelty programs, such as those that turn the device into an etch-a-sketch or a fake glass of beer.
In fact, research released recently by analysis firm Pinch Media showed most applications are quickly abandoned by users, with less than 5 per cent of buyers still using an app 30 days after they download it. But just because applications are disposable doesn't mean they are not lucrative. Self-employed application developers with little more than some spare time have been able to create programs that have earned them a relatively impressive amount of cash.
There was talk of money to be made, and I already did some stuff at home and thought I could try it
iPhone developer Travis Yates
In the US, developer Steve Demeter created geometry-based game Trism in his spare time and managed to earn US$250,000 in profit from sales of the app, which cost just US$3 per download. He has estimated that the top iPhone developers are earning US$5000 to US$10,000 a day.
Australian developer Graham Dawson of OzPDA developed the OzWeather application that allows users to customise Bureau of Meteorology data to their local area. The app has reached the number one spot in the Australian App Store, and has consistently remained in the top 10 since its release last year. Dawson says his OzWeather application has recorded 34,638 downloads as of 7 April, and at a price of AU$2.49 per download that has provided him with an income of AU$60,374 so far this year, for that app alone.
Cairns-based developer Travis Yates experienced first-hand the type of publicity a popular application can bring after his card-counting application was featured on CNN and even banned by the Nevada Gaming Control Board. "I already worked from home, I'm into different internet marketing companies and I'd done a bit of programming before," he says. "I hadn't done any Apple programming before, and I figured I could learn it quite easily."
Yates says that his AU$6 card-counting app recorded 1650 downloads on its best day, netting him AU$10,000, of which he would have received about AU$7000. "There was talk of money to be made, and I already did some stuff at home and thought I could try it," Yates says. "That was the main reason I started."
Keith Ahern, chief executive of development studio MoGeneration, designed applications for News Limited before entering the industry for himself. "Basically I liked working with the iPhone so much that I left and formed MoGeneration and picked my own team with some contractors," he says.
MoGeneration has created applications across a range of genres, but its most popular is a game designed for children called "MooShake". The AU$1.19 app reached the number two spot for kids' games on the Australian App Store, and managed to reach number four on the US charts.
A dynamic platform
But it is not just money that makes the App Store platform so attractive to programming entrepreneurs. Dawson says another attraction is the fact that developers can avoid huge advertising and marketing budgets: "If you're fortunate enough to rank highly, you don't have to do your marketing."
Another reason is that the iPhone itself is opening up new possibilities in the mobile sector. The iPhone's touchscreen, simple user interface and easy-to-use software make it easy to develop simple and practical everyday applications.
Ahern says that the iPhone's new 3.0 operating system, due for release in the middle of the year, could lead to a new boom for applications as developers will be able to add new features to their applications: "One big thing is push alerts. Apple has finally made available a system that tells the phone when there is something interesting happening, and the user sees a pop-up that they can push it and launch the app."
He says the other big breakthrough is the ability for developers to sell other features or products within existing applications. "Until now, apps are either free or it's a once-off price. Apple hasn't had a good model for that, but now there's in-application commerce. That's going to mean a lot more services and content are going to be available."
Ahern says that while the iPhone's limitations have made some applications unfeasible, the new update will allow him to do "basically anything they ask".
Steve Fawkner of gaming developing group Infinite Interactive also predicts the App Stores will become an even bigger platform for gaming companies. He says developers will even look at bringing old, out-dated games to a new format. "It's certainly built for gaming. The number of small iPhone developers coming out tell me the iPhone game market is going to grow," he says.
But while the App Store has created an entire community and industry around the creation and marketing of these programs, developers say the store's life expectancy in its current format is short.
Ahern says the sheer size of the App Store means developers are becoming lost. "There are too many applications now. Apple are a victim of their own success — they've created their own information management problem," he says.
There are too many applications now. Apple are a victim of their own success
MoGeneration CEO Keith Ahern
Ovum analyst Nathan Burley agrees: "That's a problem with the internet isn't it — how do people find content that's relevant? It's like any other website."
Graham Dawson is more blunt. "I can't see the existing model surviving; it will have to change," he says. "The apps that receive the most downloads are the most visible. Given people buy cheaper apps rather than the most expensive, developers have pressure to put prices down."
Dawson says this means developers then give in to creating cheap, novelty applications that sell well but lack the kind of usability and practicability a high-end business application offers. "If they change the system so that it doesn't reward the volume of applications sold, and bias it towards higher prices, then you'd find the higher quality apps would go towards the top of the rankings," he says.
Travis Yates agrees, and worries that the small application developers who led the development of the sector are about to be squeezed out by larger companies that have discovered there is money to be made. "I've only got limited resources; I'm working by myself," Yates says. "If there are popular brand names they're going to be pushing other titles down. That's my main worry at this stage, that it'll get to a point where it's run by big companies."
But Fawkner says that if the individual developers can't beat them, then they should join them with some simple business tactics. "They need to build a brand as people will like something they know and trust," he says. "If I build four or five applications, I should name them all similarly. If I create a brand, it helps me stand out from the noise and lends an aura of credibility."
Don't quit your day
Despite the success stories and the attractive business model offered by Apple, Australian developers warn that building an application is no guarantee of financial success.
"I feel I just got lucky," Yates says. "I wouldn't recommend people quit their job and do it. It was quite easy to make a fair bit of money early on, and that's why I was in a rush to get into it, but it drops off over time. Some people make it big, but it'd be wrong to expect it to be the norm."
Dawson agrees, saying that it's becoming increasingly difficult to become known as a quality developer among the crowd. "With there being thousands of apps out there, there are a handful that have hit the big time, but they also get the most publicity, so people get the impression anyone can do that," he says.
"It needs to be balanced," Ahern says. "Everybody loves a story about who had a laptop, spare time and is now a millionaire, but not everybody is getting the million-dollar applications."
Ahern says good ideas will work if executed properly, but it's just not enough to have the tools available to you. "Novelty apps have done very well, but follow ups have had no attraction whatsoever," he says. "We've made apps that are more impulse buys, and we're being very careful to spend a week or two on them, not three months or so because the risk is far too high.
"It's not a sure-fire recipe for success, but I encourage anybody to try it ... just don't sell your house in the process."
But despite the drawbacks, these developers and analysts predict the application market will eventually become a major industry in its own right. "Application stores means people need to have a rethink about how their business is going to market," Fawkner says. "The industry is going to be huge. I suspect we'll see a lot of changes over the next few years."
Ahern predicts that as more, smaller developer houses enter the market, larger companies will be eager to work with them and create new content. "Funnily, the big players are excited about that," he says. "So these big players are distributors; when they see a small house get something out they can talk them out and help them out. It's fantastic and everybody is happy with that."
Dawson says that the industry hasn't even begun to explore everything that is possible with application development: "It's all happening very quickly, it's taken on a life of its own. Nobody can be actually certain where it's going, but it's exciting and evolving rapidly."
"This is definitely becoming a market in its own right," Burley says. "There's a lot happening for developers."
This article by SmartCompany.com.au founder and publisher Patrick Stafford is replicated on ZDNet.com.au courtesy of a reciprocal publishing agreement.