Kleiner Perkins' enormous $100 million iFund for iPhone software development may spark a software gold rush not seen since the heyday of PC-platform development in the 1990s, analysts say.
Silicon Valley VC powerhouse Kleiner Perkins Caufield & Byers' surprise pledge Thursday to back iPhone applications developers with a massive investment fund could do as much or more to cement Apple's leadership role in the burgeoning market for mobile devices as the tech darling's own announcements to open the device to outside programmers and to better support corporate customers.
"Money from a firm like Kleiner is more than money, it's sexy money," says Jerome Engel, a professor at Berkeley's Haas School of Business who specializes in venture capital and private equity transactions. "It's cachet."
Since Apple first announced the iPhone about a year ago, geeks have been champing at the bit to write code for it, sometimes more for the sheer fun of it than to make money.
Developers have been allowed to write browser-based iPhone apps from the get-go, with dozens of releases to date. In addition, Apple has been hit with a wave of unauthorized hacks aimed at tapping the phone's considerable computing power directly, and escaping Apple's exclusive service deal with AT&T.
When Apple's SDK is released in June, enthusiasts will certainly continue to tinker with the phone outside of Apple's more open, yet still restrictive, rules. But, with the sudden prospects of a serious payday for serious iPhone programmers, the center of gravity will shift dramatically from the underground to the mainstream.
Smartphone apps for the Blackberry, Palm and Windows Mobile devices have been selling at a brisk pace recently, with business tools and entertainment leading the pack. Smartphone marketplace Handango, which sells mobile apps for dozens of devices over the Web, announced a $9.5 million funding round this month and issued a mobile-apps trends report showing entertainment content was the leading sales category for smartphones for the first time in 2007.
In fact, the report shows that smartphones created and marketed to consumers to use for work and play were among the leading devices for content downloads in 2007. Exactly how big the iPhone software market will be, and how quickly it will grow, is anyone's guess. But, even assuming rapid immediate growth, the size of Kleiner's fund took some aback.
"I'm not really sure there will be that many compelling iPhone apps that would necessitate that kind of investment," says Buzz Andersen, a longtime Mac developer.
For perspective, that $100 million pot is more than 10 times the amount that Bay Partners dangled in front of developers to create apps for Facebook. And Facebook, a company valued at more than $15 billion, was already an established platform when the firm announced that fund.
The iPhone and iPod Touch, on the other hand, hold only promise.
Beyond drawing even more developers to the iPhone, the Kleiner Perkins investment could also influence the types of applications that appear on the device in June (when Apple opens its iPhone software store), fueling more-ambitious projects with larger development teams, Andersen says.
Currently, most Mac and iPhone software companies are small shops, often started by former Apple employees working independently or in small groups. Kleiner's $100 million could turn that model on its head by helping to cultivate new startups whose sole purpose is to create the next killer app for the iPhone and iPod Touch.
But Apple's not only luring developers to a mobile platform. It's also luring them to the Mac. One of the limitations of the company's SDK plan is that making apps for the iPhone and iPod Touch must be done on a Mac. That means programmers who own an iPhone and a PC will need to go out and purchase a Mac before creating any of their own apps for the device.
That, in turn, could boost Mac sales even more in the coming year, analysts say.
The size of Kleiner's investment fund makes it clear that the company expects the iPhone and iPod Touch to follow a path similar to that of PCs in the 1990s, when savvy software entrepreneurs seized on the new platform in the process creating some of today's largest companies.
"A revolutionary new platform is a rare and prized opportunity for entrepreneurs, and that's exactly what Apple has created with iPhone and iPod touch," Kleiner Perkins partner John Doerr said in a statement. "We think several significant new companies will emerge as this new platform evolves, and the iFund will empower them to realize their full potential."
