• by Seth Lieberman , December 30, 2008

It is too clichéd to say, yet too true to ignore: phones aren't just phones anymore. When did everything change? I don't know, but when I saw a gardener with a Blackberry Curve I knew the smartphone had truly arrived. But talking about phones is so 2008; 2009 is all about the platform and the applications.

Apple recently announced that over 300 million applications have been downloaded to iPhones, and, with the launch of the G1, among other smart phones, that number is just the tip of the iceberg. Today, there are more than 10,000 applications available for download. Many applications on the iPhone are free, but there are a large number of paid applications ranging from $.99 to $4.99 and even some successes at $10 and above.

There are several factors that make the smart phone application business a particularly good one right now. The first is that smart phones are ubiquitous. As a result, there are growing legions of consumers looking for either useful or just plain "cool" functionality--either for a fee or for free. Second, the fast and relatively inexpensive development cycle means that applications can be produced efficiently with limited startup costs. Finally, destinations such as iTunes provide one-stop marketing for application providers and one-stop purchasing for consumers, thereby simplifying the whole "go to market" strategy.

If you are a developer and you're charging for an application, you don't need to handle billing; the carrier or distributor does it for you. For the carrier, smart phone applications are a way to increase user loyalty and a mechanism for generating greater revenue by receiving a percentage of each application downloaded.

Of course, developers looking to capitalize on the market for mobile applications should be mindful that, even though there are several platforms for which to develop applications, they are competing with multiple developers for the mindshare of consumers and distributors.

How does a consumer even begin to understand the 10,000 applications that they can purchase through iPhone? Meanwhile, carriers may turn away "me too" applications that clutter the market and confuse the consumer or those that will not appeal to their market.

They may even cut "exclusive deals" for specific kinds of applications or "featured" applications. For the user, this competition among providers should lead to higher quality products, but for the developer whose application does not have lasting utility, or who is without budget, contacts, etc., this can make their application a commercial non-starter.

A final thought: While smartphone applications are big business for carriers (AT&T), distributors (iTunes), handset manufacturers and developers, the revenue model is still evolving and the "biggest" winners are yet to be determined-can the application maker expect a windfall, or will the distributor claim most of the profits? Will consumers pay for applications or will they tolerate advertisements in exchange for free applications? Will carriers cut deals that will mint money for a few select developers or will there be more of a market free for all?

With recent news that the iPhone and G1 will be sold at Wal-mart, and the price-point dropping to meet the grasp of consumers outside of the early-adopter realm, the business of smart phones will only grow. Those that can adapt applications to meet the needs of many different consumers will thrive, while the "me too" application developers will need to adjust their business models or prepare to be pushed aside.