AUS DEM SPIEGEL
Ausgabe 45/2009

The Apps Boom Gold Rush in the Smartphone Software Market

Programs for smart mobile phones are popular and currently applications for the iPhone by Apple are ruling the market. The hype, the marketing and the developers' rags-to-riches stories make for fascinating reading. But is anyone other than Apple actually making any money, or use, out of the apps boom?

There is almost nothing you cannot find developed into an iPhone application.

There is almost nothing you cannot find developed into an iPhone application.

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Last summer Armin Heinrich wrote a program that didn't really do much. Within a few minutes, he had built a digital gemstone out of a few lines and colors. Then Heinrich, an engineer in Salzgitter in the German state of Lower Saxony, added a few sentences of descriptive text, complete with spelling errors, and offered his glittering piece of nothing much at all for sale on computer company Apple's online accessories page -- as a program, or application, for the company's iPhone -- for the grand sum of $999 (about €675).

Eight people bought the program, called "I Am Rich." Seven of them allegedly bought it by mistake. And a day later, Apple removed the program from its site. Heinrich, 46, says that he just wanted to see how far he could go, to try and see "what people are willing to buy." The answer to his question: Almost anything, apparently.

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There is almost nothing you cannot get on your iPhone. With a little help from their mobile phone, the truly determined can find almost anything on their phone -- from marijuana dealers to free taxis to the title of a song being played on the radio at any given time. Thanks to these small programs, mobile phones can become your spirit level or your compass. They can even serve as a moral compass, pointing the Muslim faithful the way to Mecca at prayer time.

An iPhone user can now download more than 100,000 of these applications, colloquially known as "apps", through Apple's proprietary iTunes Store. Some are free, some cost very little and some are expensive. Many are useful, some are complete nonsense. Games, navigation systems and office applications are among the most popular.

About a half year ago, Apple decided to let anyone write programs for their iPhone. At first, only a few hundred amateurs responded to the call. But now more than 125,000 developers are registered with Apple. A handful has made a lot of money with their small programs but most have earned little more than pocket money.

But for the California-based computer company, with its cult following and dedicated fan base, the whole thing has become a massive moneymaker. The developers of apps receive 70 percent of revenues while Apple collects the remaining 30 percent. Programmers pay $99 (€66) per annum to register as a developer with Apple. In return, they receive assistance in processing payments, as well as an internal review of the quality of the programs they submit. Apple's reviewers did not find fault with Heinrich's digital gem.

iPhone Applications Business Worth $6 Billion In Three Years

iPhone owners have downloaded over two billion apps since the store opened in July 2008 and US mobile advertising company AdMob, which specializes in partnering advertisers with such things as iPhone apps, estimates total sales at about $200 million (€135 million) for the month of August alone. But this is only the beginning. International digital technologies consulting firm Strategy Analytics predicts that more than $6 billion worth of apps will be sold in 2013.

According to AdMob, the average iPhone user downloads 10 applications a month and they're willing to pay more than $9 a month for around one in every three of those.

All of this indicates a new market developing in an industry that, after years of rapid growth, has been stagnant for some time. Only India and China are still growth markets for mobile telephony while sales are shrinking in places like Germany.

Meanwhile at Apple, business is booming. The iPhone has become a cult accessory -- but only partly because of the trend for apps. Thanks to the apps boom though, Apple has managed to do something many other telephone manufacturers can only dream of: It continues to make money with iPhones long after they have been sold to customers.

The Perfect Egg Timer

Author Mirko Müller, who has written several reference books for computer uses, wants his own slice of the action. His app, "The Perfect Egg Timer," sold about 1,000 times within a month. However, the research that went into the programming did require some effort and money. Müller, 39, did a lot of egg boiling. He used the gas stove in his kitchen, the electric stove at his parent's and at friends' homes. He placed refrigerated eggs into water at room temperature and vice-versa. "We boiled -- and ate -- hundreds of eggs," he says.

The resulting program can calculate, based on several variables, how long it takes to boil the ideal egg. According to Müller's calculation, it takes one minute and 59 seconds to boil a soft-boiled egg with an internal temperature of 72 degrees Celsius (162 degrees Fahrenheit). That's assuming the egg has a diameter of 26 millimeters (1 inch), an initial temperature of 8 degrees Celsius, and is being boiled at 1,592 meters above sea level. Müller had his egg timer application translated into several languages, and he now sells it for €1.59.

To even stand a chance at widespread success, an app has to appear on the lists of the top applications and to receive positive user comments.

It May Seem That Way Now But Apple Was Not First

Sometimes it also takes a little luck. Sophia Teutschler, 26, wrote her tip-calculating program, "Tipulator," mainly for herself. She wanted to know how much the right amount to tip service personnel was. When Apple used her program as part of a television ad in the United States, sales skyrocketed almost overnight. Teutschler, who spent about €2,000 on developing her app, has already made about €80,000.

These sorts of success stories abound -- and just the story of the iPhone itself, they are all the more astonishing because Apple did not invent either the multimedia mobile phone (or smartphone) nor the applications. Nokia was the first company to develop a smartphone. And supplementary programs for mobile phones have been around for a long time too. Google had the idea relatively early in the game. But in the time that Google took to get its Android applications -- these work on smart phones other than the Apple iPhone and currently there are only around 10,000 of these sorts of Android apps available -- onto the market, Apple had already started its apps program and this had quickly achieved cult status.

Programs now exist for other mobile telephones, as well. Palm, Nokia and Microsoft also sell platforms for apps -- some of which are useful, some not so -- as well as a wide range of smartphones. This spring, Research in Motion, which makes the Blackberry phones, launched App World, an official store offering about 2,500 applications for their devices. While Blackberry apps are targeted mainly at the business world, Apple dominates the much larger general consumer market.

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