iPhone, economy spur better phones and apps

Just two years ago, the mobile phone market was pretty ho-hum. You had your candy bar phones and your flip phones. There were BlackBerry devices and Windows Mobile phones. Those phones had calendars and contact lists, and a few other apps that were too annoying to use. Few people ever added any new applications to their phones. Surfing the Web was for emergency use only, since it was slow and ugly.

Fast forward to this year. You've got the must-have iPhone. For open source fans, there's the Android phone. The idea of shopping for, buying, and downloading new apps isn't remotely unusual. Browsing online means seeing Web sites that look just like they do on a computer.

It's the ultimate dream of the mobile phone industry, but it wasn't created by the mobile phone industry—the dream was actualized by outsiders. The result is that today, the traditional phone makers are playing catch-up and some are in such a struggle to do so that their future existence is uncertain.

What the traditional phone makers must view as a double whammy—competition from the iPhone combined with the economic nose-dive—end users are finding translates into better phones with more applications.

Apple's introduction of the App Store this year dramatically changed the way use their phones. While in the past users rarely downloaded applications to their phones, now the experience is easy enough to go mainstream. That's good news for users of essentially all smart phones, who can expect to see a steady stream of new applications in the future.

In addition to ease-of-use for end users, the App Store also has made it dramatically easier for developers to build applications. As a result there are now 10,000 apps in the store, a figure disproportionately high for the number of iPhones on the market, compared to other phone platforms.

Prior to the App Store, developers had to negotiate with operators to convince them to preload the application on phones, sometimes offering the application to users for free or including the application in a portal where users could buy it.

appstore
The App Store makes downloading software for the iPhone easy.
That's very different than the environment that the App Store has created, said Satoshi Nakajima, president of iPhone application developer Big Canvas and founder of UIEvolution. When he launched UIEvolution, long before the App Store, and released certain applications, "we couldn't even recoup the cost of business development. We're not talking development costs, I'm talking calling AT&T and saying we want to sell this app. Wining and dining and negotiations costs a lot. Then we'd launch and sell 200 copies. What's the point?" he said.

The beauty of the iPhone is that it gets rid of the business development cost, Nakajima said. The 30 percent that developers share with Apple in order to sell the application in the store "is nothing compared to the painful cost of dealing with wireless operators worldwide," he said.

While the Internet bust around the turn of the century sent many wireless application development startups out of business, the effect might not be so dramatic in this market downturn, Nakajima said. That's because while venture capital is drying up at the moment, small developer companies have the potential to earn revenue from their applications in the App Store with relatively little outlay as compared to the old process, he said. "It's not all that difficult to become cash flow positive as long as you keep your company small," he said.

Avi Greengart, analyst at Current Analysis, sees a fundamental shift in the mobile industry that has only just begun. "We've gone from an era of hardware design where all you needed was something pretty to an era of software design where people expect to do more with their phones," said Greengart.

In the near term though, buyers may have fewer phones to choose from.

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