Smartphone apps are the technology world's new gold rush

Smartphone applications represent the new land rush for mobile technology vendors, and the new gold rush for software developers.
Written by Jason Hiner, Editor in Chief

There's a lot of hyperbole about the expected growth of smartphones over the next three to five years, especially when you consider that in 2009 smartphones represent just 15% of total mobile phone sales. But, the X factor that's changing the game and creating one of the hottest new trends in technology is smartphones evolving into an application platform.

The smartphone has arrived where it is today by taking the mobile phone and adding a qwerty keyboard plus "push" email and calendar functionality. But, the success of Apple's iPhone App Store has demonstrated is that simple, functionality-focused applications can unlock a wealth of additional usefulness in the smartphone. Now, the race is on, as mobile vendors and application developers elbow each other in the ribs to gain an advantage in this potentially massive opportunity to capture audience, influence, and revenue.

Apple ran this ad after the App Store hit the 1 billion download mark on April 23, 2009.

Here comes the smartphone

Credit Suisse recently projected that total smartphone sales for 2009 will end up at around 176 million units. In the years ahead, Credit Suisse expects the smartphone market to balloon to around 1.5 billion units. By comparison, worldwide unit sales of all mobile phones in  2009 will be about 1.2 billion and worldwide unit sales of all PCs in 2009 will be about 300 million. Credit Suisse commented: "We believe smartphones represent one of the most attractive secular trends in technology." (In this context, "secular" means not tied to just one vendor.)

Beyond smartphone applications, there are several additional forces at work that are going to drive the growth of the smartphone market:

  • Mobile broadband - The rise of 4G on WiMAX and LTE will bring multi-megabit broadband Internet to the same airwaves that people are currently using for mobile voice service and pedestrian Internet services such as EDGE and 3G. This next generation of mobile broadband will unleash a new wave of software applications and video services on smartphones. It will also enable augmented reality software to let smartphones interact with the real world.
  • Emerging economies - In countries that have largely missed the PC revolution so far but will be be joining the global civilization in a more connected way, many citizens will not be jumping on the information superhighway with a PC - the power grid and Internet infrastructure are still too spotty and underdeveloped in many areas. Instead, the mobile phone will become their PC, because cellular towers are much easier and cheaper to deploy and there are inexpensive ways to generate small bursts of recharging power (remember the hand crank on the OLPC?).
  • All mobile phones become smartphones - The definition and form factor of the smartphone has certainly expanded. It's no longer just a mobile phone with a qwerty keyboard. There are now smartphones with nothing but virtual keyboards (iPhone, HTC MyTouch) and clamshell smartphones with more traditional keypads (BlackBerry Pearl Flip). Today's smartphones are more about an advanced mobile OS under the hood. Thus, all mobile phones will naturally become smartphones as their underlying software takes on more advanced functions and vendors become less likely to build their own OS and more likely to use an open source mobile OS like Android or license Windows Mobile or Palm's webOS.

Apps: Land rush vs. gold rush

Vendors and developers are already anticipating the day when there will be over a billion smartphone users on the planet. Having seen the runaway success of the iPhone App Store (which, frankly, happened as much in spite of Apple as because of it), mobile platform vendors do not want to concede this huge competitive advantage to Apple. Thus, all the big ones are building their own app repositories and are wooing software developers to write applications. The app stores include:

There's no denying that Apple has a huge lead. In June, Apple CEO Steve Jobs said, "The App Store is like nothing the industry has ever seen before in both scale and quality. With 1.5 billion apps downloaded, it is going to be very hard for others to catch up."

A big issue here is that the smartphone market is ripe for consolidation in the next few years. There are simply too many platforms. The five big players will likely narrow down to 2-3 dominant players. And, the big ones know that applications will play a critical role in deciding which platforms survive. That's why smartphone app platforms represent the next big land rush in technology. This is akin to the PC operating systems race of the 1980s, and likewise it will have repercussions that will be felt for decades.

Of course, there's also a huge business here. AdMob estimates that Apple is selling $200 million/month ($2.4 billion/year) in applications. The next biggest competitor is the Android App Market, which is selling $5 million/month ($60 million/year).

However, the gold rush part of this scenario isn't just about the big companies. It's also about individual software developers and small teams of programmers. One low-priced iPhone app (a puzzle game) made $750,000 in just three weeks. A crossword puzzle developer reported that she was surprisingly making about $2000/day for her app. These kinds of reports have inspired a wave of developers who are hoping to make their fortune and be their own boss by selling smartphone apps, and many of them have bigger ambitions than just games and puzzles.

There are even small teams of startups springing up to try to strike gold in the iPhone App Store. One developer, Daniel Monroe, posted on a message board that smartphone app development is quickly getting more sophisticated. Monroe said, "Based on my experience, it's hard to be a one-man shop. You can't just place an app in the AppStore and wait for the money to roll in. An ideal team might have (1) an iPhone programmer, (2) a server-side programmer, (3) an artist/GUI designer, and (4) someone to focus on marketing/PR."

There are also new companies popping up (e.g. Sapient, Magnolia Labs, and Sourcebits) who are selling their services to build and market iPhone apps for bigger companies that want to get on the iPhone to promote their brands.

The challenge is that the iPhone App Store is already getting very crowded with over 70,000 apps. That makes it harder for new developers and new apps to get noticed. As a result, many app developers are already talking about spending more time developing for the Android or BlackBerry app stores, where things are just starting to get warmed up. There might be a better chance to strike gold over on that mountain.

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