As the number of iPhone apps multiplies over the next year, it is becoming twice as hard for even the most profitable of application developers to continue to make real money.
Make no mistake, we are still in the early stages of a "gold rush". Research firm IDC predicts that the number of Apple iPhone apps available to consumers will triple over the next year to more than 300,000. Yankee Group Research, in a report released in September titled "Forecasting the U.S. Mobile app Gold Rush", estimates that the mobile app market will increase more than tenfold to $4.2 billion by 2013.
As major brands and more established players move in, pioneering developers who in some cases grossed millions for individual applications fight to maintain attention and market share.
"It's a much different world," explains Andrew Ayre, CEO of Emeryville, Calif.-based Other Ocean Interactive. With the July 2008 release of Super Monkey Ball, Other Ocean developed for Sega one of the first mega-hits of the iTunes App Store, selling more than 300,000 copies of the app (at $9.99 a pop) within three weeks of its launch.
"Now it is a battle to get your app noticed and make sure you have a compelling reason to ship a game," Ayre said.
Super Monkey Ball 2 was released on December 1.
No more one-hit wonders
Steve Demeter became the envy of independent application developers when he told Wired Magazine last year that his game Trism was on pace to gross more than $2 million in sales. That success, in part, invited larger competitors to enter the arena with more marketing resources.
"The key is to make an application that instantly proves its value," Demeter said.
As Demeter struggles to come up with a second act to Trism, companies like Brooklyn-based Freeverse flourish. With Moto Chaser and Flick Fishing, Freeverse developed two out of the 10 best selling apps for Apple. Skee-Ball, released in September, generated more than $175,000 in sales in its first month.
Tapulous remains the heavyweight champion developer of iPhone apps. The Palo Alto-based company, funded by several high-profile Silicon Valley investors, is behind the Tap Tap Revenge series and other high-grossing applications that have combined to reach more than 15,000,000 consumers. After its October release, Tap Tap Revenge 3 was the top selling app on the iTunes Store for 20 days.
Sensing the emerging market, elite venture capital firm Kleiner Perkins Caufield & Byers (which backed Google and Amazon) earlier this year launched the $100 iFund to invest in iPhone app development companies.
"The higher-end studios are the ones getting the most publicity and making it more difficult for most people in the middle to get noticed," said Bryan Sawler, CEO of Muteki Corp., developer of the popular Topple 2 and The Battle of Pirate Bay apps. "Simply making a quality app isn't enough. It's all about the marketing angle."
As the number of iPhone apps grows to 300,000 and beyond, major brands like Walmart, UPS and Starbucks will invest more heavily in mobile applications. Because the vast majority of branded apps are free, other ways to profit from them will emerge.
Magna, a unit of Interpublic Group, estimates that more than $225 million will be spent in mobile advertising this year. Even in this fledgling market, the most popular apps can generate as much as $5,000 per day in advertising revenue.
Less than 18 months after the iTunes App Store opened, mobile applications are becoming bigger business. Despite intense competition, developers remain committed to developing new and innovative apps. In the end, the real winners are Apple and the consumer.