This article was taken from the February issue of Wired UK magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online
"I'm a bit of a geek,"Jamie Oliver says between shoots for his US TV show. "I love vintage cookbooks, fiddling around with old kitchen kit. And I love technology and new ways of doing things. So when I first saw the iPhone, I was thinking: 'Recipes!'" It's mid-November, and five weeks ago Oliver extended his multimedia ubiquity to the iPhone platform by launching his 20 Minute Meals application. A combination of 50 new recipes, 75 minutes of video, a touchscreen shopping list and the ability to toggle for portion size, it went on sale at £4.99 ($7.99 in the US) on October 9, and within days had become Apple's top-grossing UK app as well as the top lifestyle app - attracting mostly enthusiastic five-star reviews. Apple then featured it on TV commercials on both sides of the Atlantic, and soon other celebrity-cook publishers were sourcing software developers in search of their own app-store business opportunity, excited by industry rumours (unconfirmed) that Meals' revenue was approaching seven figures.
For Oliver, though, it was just one more "brilliant" way to spread the mission of healthy eating. "If it's inspired people to cook better, then it's succeeded," he says. "I am always on the lookout for new ways to get my message across, and I had all these ideas about all these clever little things you could do. All of those mad ideas ended up in the app. The number of customer reviews I've seen from people who are really getting into cooking through the app - it's brilliant."
Behind the scenes there was a complex six-month process of development led by a small east London software house called Zolmo, with backing from Oliver's friend Ajaz Ahmed, cofounder of digital agency AKQA. "Jamie came up with the context, and the first couple of months we had a very focused team who fleshed it out, working closely with Jamie and his team," explains Zolmo's cofounder, Tristan Celder. "There were around 30 people involved as absolutely everything was purpose-built - project managers, product designer, graphic designer, sound designer, content manager and developers.
And then you have the people involved in content production - from the photographers to an entire video production company."
The iPhone and iPod Touch offered the chance to create an uncompromising new format that went beyond a book or TV show. "The contextual nature of the device, the inherent mobility and convenience, meant that we could put a toolset in your pocket that was always available," Celder says. "We could have simply written recipes in a magazine format, but Jamie wrote them to match the context of the device, with each step having its own photo. The possibilities ahead are astounding - in the next few years we'll see all sorts of hybrid lifestyle and entertainment formats. It's the stuff I used to dream of as a kid. I can't wait."
We are barely 18 months into the era of smartphone app stores, but already they are transforming the mobile software economy. Apple launched its App Store in July 2008 to distribute free and paid-for applications yet, by last September, when there were roughly 30 million iPhone users and 20 million iPod Touch owners, more than two billion apps had been downloaded from a selection of 85,000 (built by more than 125,000 developers) - a number that had risen to 100,000 by November. There are no official estimates of the size of the app economy, but mobile ad-serving business AdMob estimated last July that around $200 million worth of applications were being sold in Apple's App Store every month - some $2.4 billion a year.
Google's Android Market, meanwhile, launched in October 2008 as a rival storefront for its open-source Android phones; within a year there were 15,000 apps. The following April, BlackBerry's parent company Research In Motion had also launched a store, BlackBerry App World, with 3,500 apps now available; Nokia launched its own Ovi Store in May, with a further 7,500 now; and in June, Palm launched its App Catalog for the Pre handset, with 300 apps available.
Then there is the mobile browser itself. Mozilla is betting hard that the emerging HTML5 open-source standard will overtake all the app stores as the developer's platform of choice. "Look at Apple bragging about having 100,000 apps," says Jay Sullivan, vice-president of mobile at Mozilla. "But how many websites and blogs are there? Is any proprietary closed system going to be able to spur the type of innovation that the open web has? I really do doubt it."
Whichever way it goes, we are at the start of an economic and behavioural transformation. According to more than 20 investors, active developers and analysts Wired consulted for this investigation, the app business has the potential to challenge, some say even overtake, the size of the desktop-computer software industry. Welcome to the next smartphone revolution. "We are at the very beginning of the app economy and, yeah, the market for mobile-phone apps will one day soon be as significant as that for software for desktops," according to Ilja Laurs, founder of cross-platform app store GetJar, from where more than half a billion apps have been downloaded to 1,761 supported devices. "Think of apps as music. A song is a disposable item that you pay a dollar or two for; you listen to it five or ten times and then you replace it. The mobile-phone app consumer spends similar amounts of time and money on apps each month as on songs. So the app economy will be at least as big as the music industry. But then throw in what apps are about today; they're like early websites, where anyone could connect with the consumer in a newway. Meanwhile, the phone is becoming a productivity tool, with growing business use.
Already today the ratio of phones to desktops is four to one, and a quarter of these phones will become proper smartphones in the next five years. We're talking of an apps market worth billions of dollars a year."
Joe Hewitt, who developed the immensely popular Facebook app for Apple's App Store, agrees. "The app economy is one of those rare cases where insane hype is actually justified," he says. "The iPhone and its copycats are creating a ton of new ways to use the internet, and in the process changing people's lifestyles."
How did this happen? By Apple persuading 100 million consumers to store their credit card details so that they could buy digital goods with one click on a screen. The iTunes Store's ease of use has led to its selling more than 8.5 billion songs - so when it announced the App Store in March 2008, Apple sought an equally user-friendly interface, and one that was developer friendly.
Software developers pick the retail price, pay no credit-card, marketing or hosting fees, can distribute free apps at no charge, and receive income monthly. At the time, Apple CEO Steve Jobs called it "the best deal going" - and within four days, the software-development kit had been downloaded over 100,000 times, rising to 1,000,000 by June 2009.
Still, the company was unprepared for the speed of adoption. "I've never seen anything like this in my whole career for software,"
Jobs told The Wall Street Journal in August 2008. Bob Borchers, then the iPhone's senior director for product marketing, recalls that Apple was amazed by the store's incredible growth. "The point at which we realised that developers had the capacity for infinite creativity was just before Christmas 2008, when the Ocarina app came out," he says. "It transformed the iPhone - which I'd worked on since concept - into a 16th-century woodwind instrument. We then thought, wow, there's a lot people can do here."
The legend of the millionaire iPhone developer soon took hold.
Ethan Nicholas, who built a war game called iShoot, told Wired.com that he quit his job the day his game reached No 1 in the App Store, earning him $37,000 in a day and $600,000 in a month. Joel Comm's iFart - which makes the sound of, well, you can guess - earned him over $10,000 a day. Steve Demeter, who created the Trism puzzle game, was quoted as saying it earned him $250,000 in two months. "I liken the App Store to a goldrush," Demeter says now. "I feel like one of those guys, sitting in the riverbed in 1848, waving a big chunk of gold in the air. The next year, suddenly you have entire towns set up, panning for gold. Not all of these people are going to find as big a chunk of gold as me, but you know what?
Someone's got to build sifters, conveyor belts and pickaxes."
He won't talk about money now- "I hope you understand what kind of position this has put me in, with regards to friends asking for loans" - but he still sees golden opportunities for developers. "All I knew when I set out to make an iPhone game was that I wanted to make full use of the phone, with its combination of multitouch and tilt. The iPhone can deliver a fundamentally different kind of game. Do your homework, look at what's out there. Make something unique - something your mum would understand."
Demeter's success inspired Kostas Eleftheriou to leave his job at a start-up in Greece and risk moving to London, staying on friends' sofas, to develop apps. The risk paid off: he hit the jackpot with iSteam, which makes the phone's screen appear to mist up so a finger can write on it. It had soon been downloaded 150,000 times at 59p/99 cents a time. "Back then there were about 1,000 apps, so it was much, much easier," says Eleftheriou, now CEO of Silicon Valley-based developer GreatApps. "But the way to get noticed is the same today - to make something really original and hopefully quite viral, so people want to show it to their friends. Keep it simple to begin with. Don't invest three months in a project - you might make something very good, but it might not get noticed. It's a lottery now."
The iPhone and, to a smaller degree, phones running on Google's Android platform are leading a revolution in mobile computing - and the winners won't necessarily be companies that dominated the desktop internet. The smart device in your pocket is now your games and entertainment console, social-networking connection, location-aware map, augmented-reality navigation appliance, sports-data tracker, barcode scanner, TV set, video camera, e-reader, productivity booster, shopping basket and - remember? - communication tool.
In western Europe, we're just at the beginning: 3G mobile penetration has risen from 17 per cent in 2007 to 29 in 2009, and is forecast to reach 67 per cent next year; in Japan it is already 91 per cent. The lesson from Japan is that there's serious money in mobile content. Morgan Stanley estimates that $43 billion was made from the mobile internet in Japan in 2008 - two-thirds from mobile data access, one-fifth from mobile commerce such as virtual goods, and 11 per cent from paid services including mobile banking and travel booking. Eight years earlier, that market in Japan was worth just $6 billion, almost all from mobile data. And today, proportionately, Europe is where Japan stood back in 2000.
We're catching up unbelievably fast. Mary Meeker at Morgan Stanley points out that internet adoption by iPhone and iPod Touch users has exploded eight times as quickly in its first two years as desktop internet usage grew when rolled out in the 90s by AOL. The ease of mobile social networking - using services such as Facebook and Twitter - is fundamentally changing how people communicate and how businesses reach consumers. "Mobile devices will evolve as remote controls for ever-expanding types of real-time cloud-based services, including the emerging category of location-based services," Meeker concludes, "creating opportunities and dislocations, empowering consumers in unprecedented and transformative ways."
And unlike the desktop internet, mobile content and apps tend to attract paying customers. Apple won't give figures, but Pinch Media estimates that 610 million of the first two billion App Store downloads were paid applications. A survey by AdMob last summer found that Android and iPhone users downloaded around ten new apps a month, and iPod Touch owners 18; and that half of iPhone users and 40 per cent of iPod Touch users bought at least one app every month (compared with 19 per cent of Android-based phone owners).
That has meant more than a million dollars each in sales for apps such as Smule's Ocarina, Freeverse's Flick Fishing game, and Pangea's Enigmo. "Apple did it right, changing behaviour by introducing a breakthrough device that is understood from day one to be made for apps and media consumption," according to Tim Chang of Norwest Venture Partners, which has invested $50 million in companies powering the app economy. "Previously, it was like pushing a noodle uphill - you couldn't change behaviour by saying, 'Oh, did you know your phone could do data?' No one bought a phone to consume apps."
That's transformed the balance of power in the digital market. At Microsoft UK, James McCarthy, mobile communications manager, admits it's now a game of catch-up for Windows Mobile's nascent app marketplace. "You're right, we have got quite a lot of work to do," he admits. "We're relatively new into this game. We're very lucky to have a huge number of [existing] applications that work on our platform, so we're trying to take the best of those and get the developers to put them on the marketplace as quickly as possible.
We've got to make our platform the best out there."
The Symbian Foundation, which provides the operating system on nearly half the world's smartphones - notably Nokia's - has also woken up to the threat and launched Horizon, a publishing programme (or "ecosystem") to help developers make their software available to a range of existing app storefronts. When Wired inquired about the new programme in November, "at least 60" developers had signed up and six app stores were supported. But Lee Williams, the Symbian Foundation's executive director, insists that consumers will upgrade to smartphones irrespective of the apps. "This is not the 90s, when you needed a spreadsheet app or word processor to make the purchase of a PC make sense. In the mobile marketplace, you're less dependent on having that killer app. The killer app is the mobile in your pocket that puts you in communication with friends or colleagues."
It is Google that is emerging as Apple's greatest challenger. In its first year, Android went from one handset in one country to 12 phones in 26 countries, with 14,000 apps to choose from. "Such growth is unparalleled," says Erick Tseng, lead product manager.
This open-source approach extends to an open attitude towards developers. "We want to democratise smartphones - to make them minicomputers in your pocket for the masses," Tseng says. "We're giving away the platform so you don't have to price it in when the manufacturers price a handset, which can cut the cost by 30 per cent. There are four to five billion handsets out there, the majority not yet smartphones - and most people in the world do not have a PC. The opportunity is enormous."
Google's weapon is openness as opposed to Apple's tight control. "When you don't have any gatekeeper and you allow third-party app developers to build what they want, with no waiting for approval, you foster an environment for innovative applications," Tseng says. "We're seeing augmented-reality apps, apps that stream music running parallel in the background with other apps. And we're flexible. Take Google Voice, a groundbreaking application delivering great functionality [one number connects all your phones and voicemail]. It's hard for manufacturers to preload Voice as its functionality overlaps. But with Android, you can launch it and make it available to anyone."
There's a counter-argument, says Tim Chang of NVP: "For Apple to win, they really need to be less open. When you're too open, you can flood the app store with a sea of 'crapps' - crappy applications - and users can't find anything. Then no one makes money." Certainly its approval process has frustrated developers.
Fred Wilson of Union Square Ventures, whose investments include Twitter, makes comparisons with the early days of Google Video, which required a delay before submitted videos were made live and so lost out to the immediate YouTube experience. "The web is full of success stories that have embraced the power of instant gratification and of failures that made people wait too long," he says.
Apple's six-week refusal to approve the Google Voice app prompted the US Federal Communications Commission (FCC) last July to launch an inquiry. The refusal was widely seen as due to pressure from AT&T, Apple's US network partner. Apple responded that it was acting independently of AT&T, that the review process was important "to protect consumer privacy, safeguard children from inappropriate content, and avoid applications that degrade the core experience", and that 95 per cent of apps were approved within two weeks. It told the FCC, "Apple has not rejected the Google Voice application, and continues to study it. [It] has not been approved because, as submitted for review, it appears to alter the iPhone's distinctive user experience by replacing the iPhone's core mobile telephone functionality and Apple user interface." Apple was "continuing to study" the app.
Erick Tseng of Google won't comment directly ("there's government regulation involved") but makes a wider point: "If you have a gatekeeper or checkpoint between you and your customer, it will impede progress and innovation because of the constraints."
Joe Hewitt is more direct. "Apple's controlling tendencies are hampering the app economy, right now, today. Not only have they rejected a number of very useful apps, and asked developers to cripple apps by disabling features, but they have no doubt scared off countless developers. How much better could the App Store have been if Apple hadn't introduced so much friction?"
Steve Sheraton is one of the lucky ones. Back in 1999, he wrote a PC program that simulated the gradual emptying of a beer glass.
After the first iPhone was launched in June 2007 - a year before the App Store - he decided to test demand for rewriting his code. "I know this was the platform I needed - the high-resolution screen, the great sound. So I created a fake app and put it on YouTube. People went crazy, so I slapped together an online store and started selling it. It certainly paid the rent."
Then came the App Store. "Apple begged me to finish the iBeer app before they launched the store," Sheraton says. It became one of the ten top-grossing apps of 2008 (and the subject of a $12.5 million lawsuit against Molson Coors Brewing Company after it released the similar iPint). Still, it too faced the opacity of Apple's scrutiny. "I submitted an update and all of a sudden Apple wouldn't accept iBeer because it had a burp at the end," he recalls. "So I publicised the app despite the missing burp, and we got demands to put back the burp, even though we couldn't. And then a month later, iFart was released..."
He is distributing his latest app, iHypno, through a third-party app store, Premier Apps. Why? "You have 65 million iPhone OS devices worldwide. That's the population of France. Now, imagine there only being one shop to buy wine or Camembert in France. A great proposition for the shop owner, but say he doesn't like Bordeaux - well, imagine where France would be then."
Plenty of developers have found success outside the Apple store.
Jazan Wild was a successful comic-book writer. Paper comics are tough to make money with: the distributor typically takes 60 per cent. He started Carnival Comics and published Funhouse of Horror, which sold out (2,000 copies); but since he launched an app through Nokia's Ovi store, the comic has had 250,000 downloads in 181 countries - more, he believes, than any comic book in history. "We've been on all mobile phones, but with Nokia it seemed to explode," Wild says. "As a business you want to be with the company that gets your vision." The result: "Enter freedom - in the form of mobile apps. Mobiles will become the portal for all entertainment - from comics to reality shows. Big TV screens are great, but it's now so easy to reach people in other countries."
Some developers favour BlackBerry. Unlike the iPhone's, its apps can run constantly in the background. This "always-on seamlessness" engages users, according to BlackBerry's Tyler Lessard, and has heralded successes such as the Slacker personal internet radio (in the US) which recommends stations according to taste, and synchronises them to your device for offline listening.
Others have simply wanted to be ubiquitous. British firm Shazam, whose software identifies music using handsets, says it was No 1 in the Ovi store in November, No 3 on Android Market, and No 1 when BlackBerry AppWorld launched. The app now has 50 million users across 150 countries. According to CEO Andrew Fisher, the free service has brought strong freemium revenues as customers click to buy music. "Geolocation will become important, giving Shazam a one-to-one relationship with consumers."
Geolocation - knowing where you are in real time - is an example of how the smartphone's personalisation will alter how businesses interact with customers, according to Android's Erick Tseng. "That mobile device is never more than a metre or two away from my body, even when I'm asleep. It knows all my friends through contacts applications; it knows where I am because it's got a GPS chip; what I'm doing, as I've got my calendar on it; and it's got all this contextual knowledge about me. That's very powerful."
It's a rainy Monday November night in Soho, central London. About 95 people, mostly male, are gathered in the Digress bar sipping bottled beer. Three-quarters are app developers; the rest are involved in app-service businesses - and they look only slightly less anxious.
We're here to find out how to make money from apps. "To app or not to app" is the title of the inaugural AppJam, bringing together developers and entrepreneurs. The panel discussion doesn't prove too revealing for hardcore programmers - "obvious and clichéd", grumbles one - and they are suffocated by the lack of wi-fi; but after the formal Q&A, the event livens up. Face-to-face contact with other entrepreneurs is the big attraction. "You see the same faces," says Tiffany Mitchell of Intomobiles.
Neil Stanley, 45, behind an app called iHi - it displays large messages on the iPhone screen - took a train from Bath to be here. "Every day I learn something new and often realise that things we were doing a month ago were naïve," he says. Stanley used to work at Goldman Sachs. It taught him about the challenges of entering a crowded market: "Even with the greatest app ever, the world does not beat a path to your door." So he's created some viral videos, tweeted celebrity endorsements from the likes of Will Carling, and integrated AdMob software into his latest release.
In recent months, Apple has allowed "in-app purchasing", which Stanley sees as game-changing. "Users download our free version and if they want advanced features they can pay within the app."
The Guardian, similarly, hopes users of its £2.39 app will pay extra for privileged access to in-demand columnists.
For gaming companies, in-app payment has already proved itself. "Opportunities to sell virtual goods will be huge, judging by the current online gaming market in Asia, mostly made of virtual goods and worth over $7 billion a year," according to Benjamin Joffe, CEO of analyst Plus Eight Star. Playfish, a social-gaming firm bought by EA for up to $400 million, sees in-game microtransactions as vastly lucrative. "When we ask users why they spend so much money on virtual Christmas decorations, the answer is the same: 'My friends can't see our real Christmas tree, but Facebook friends can see a virtual one,'" says co-founder Sebastien de Halleux. "You offer the game for free and you monetise from microtransactions - it's a form of self-expression, linked to social emotions. "Where can it go next year? One game alone could get 100 million monthly users - and if they're each paying 50 cents a month, we have a billion-dollar platform."
Others are sticking to traditional models. Apple's top-grossing UK app for much of 2009 was Tom- Tom's UK & Ireland satnav service priced at £59.99, just above its western-Europe version, at £79.99. "If the application is very good, we really don't see a price barrier," explains Benoit Simery, senior vice president of onboard mobile at TomTom.
Getjar's Ilja Laurs, 33, who originally studied banking in Lithuania, offers some tips. "Think: is there a way that some kind of mobile service will help to enhance my business - make it better, cheaper, faster for consumers? And don't just think about the iPhone: if your service is like Facebook, where a 12-year-old is more actively involved, it's rather wrong to assume that they all have iPhones - in fact, Java is much more likely to cover 95 per cent of your consumer base." "The era of the app is just beginning," says Bob Borchers, the former iPhone executive who now runs an investment fund, Opus Capital. As well as earnings from in-app games purchases, Borchers sees potential in sectors such as health. "There's a transformative opportunity," he says. "There's a push for more efficient delivery of healthcare, while keeping the service high. A great example is AirStrip Technologies, who put a small server in the hospital's IT closet. It collects patient data and forms and sends them securely to the physician's phone - information they would normally only get at the bedside."
In March 2008, KleinerPerkinsCaufield & Byers (KPCB), a leading Silicon Valley venture-capital firm, launched a $100 million investment fund with Apple to back start-ups producing iPhone apps.
Matt Murphy, who runs KPCB's iFund, estimates the size of the app economy at $2 billion this year. "We're figuring out business models that lend themselves to recurring revenue opportunities - the freemium ones, subscription, advertising, affiliate fees, in-app commerce. These things will kick in heavily in the next three to six months. If you can monetise an audience of 500,000, you can build a big business."
Murphy, who's on the board of a number of mobile-internet start-ups, is in no doubt that this is the moment of opportunity. "Look at Facebook - the average user who has the iPhone app utilises it 70 per cent more, he says. "Apps will be bigger than the [desktop] internet. There's a huge amount of money to be made."
Our test lab's top ten apps in six stores<img src="http://cdni.wired.co.uk/674x952/a_c/app-chart-top.jpg" alt="Top apps"/><img src="http://cdni.wired.co.uk/674x281/a_c/app-chart-bottom.jpg" alt="Top apps"/>
David Rowan is editor of Wired; Tom Cheshire is editorial assistant
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This article was originally published by WIRED UK
