Apple’s Game Changer, Downloading Now

Apple’s Game Changer, Downloading Now
By JENNA WORTHAM
Copyright by The New York Times
Published: December 5, 2009
http://www.nytimes.com/2009/12/06/technology/06apps.html?_r=1&th&emc=th


IAN LYNCH SMITH, a shaggy-haired ball of energy in his late 30s, beams as he ticks off some of the games that Freeverse, his little Brooklyn software company, has landed on the iPhone App Store’s coveted (and ever-changing) list of best-selling downloads: Moto Chaser, Flick Fishing, Flick Bowling and Skee-ball.

Ian Lynch Smith, the founder of the software company Freeverse, and Lydia Heitman, the marketing director.

Skee-ball, Mr. Smith says, took about two months to develop and deploy and then raked in $181,000 for Freeverse in one month. The company’s latest bid for App Store fame? A game featuring a Jane Austen character in a lacy dress who karate-chops her way through hordes of advancing zombies.

“There’s never been anything like this experience for mobile software,” Mr. Smith says of the App Store boom. “This is the future of digital distribution for everything: software, games, entertainment, all kinds of content.”

As the App Store evolves from a kitschy catalog of novelty applications into what analysts and aficionados describe as a platform that is rapidly transforming mobile computing and telephony, it is changing the goals and testing the patience of developers, bolstering sales of the Apple motherships the applications ride upon — the iPhone and iPod Touch — and causing Apple’s competitors to overhaul their product lines and business models. It even threatens to open chinks in Apple’s own corporate armor.

Thanks in large part to the iPhone, introduced in 2007, and the App Store, which opened its doors last year, smartphones have become the Swiss Army knives of the digital age.

They provide a staggering arsenal of functions and tools at the swipe of a finger: e-mail and text messaging, video and photography, maps and turn-by-turn navigation, media and books, music and games, mobile shopping, and even wireless keys that remotely unlock cars.

“Apple changed the view of what you can do with that small phone in your back pocket,” says Katy Huberty, a Morgan Stanley analyst. “Applications make the smartphone trend a revolutionary trend — one we haven’t seen in consumer technology for many years.”

Ms. Huberty likens the advent of the App Store and the iPhone to AOL’s pioneering role in driving broad-based consumer adoption of the Internet in the 1990s. She also draws comparisons to ways in which laptops have upended industry assumptions about consumer preferences and desktop computing. But, she notes, something even more profound may now be afoot.

“The iPhone is something different. It’s changing our behavior,” she says. “The game that Apple is playing is to become the Microsoft of the smartphone market.”

The popularity of Apple’s app model has reached a fever pitch. Tens of thousands of independent developers are clamoring to write programs for it, and the App Store’s virtual shelves are stocked with more than 100,000 applications. Apple recently said that consumers had downloaded more than two billion applications from its store.

Major players like Research in Motion (maker of the BlackBerry), Palm (maker of the Pre), Google (maker of the Android mobile operating system) and Microsoft (maker of Windows Mobile) are taking note and scrambling to replicate the App Store frenzy.

App fever has even prompted cities like New York and San Francisco to open reservoirs of city data to the public to spur software developers to create hyperlocal applications for computers and phones.

One need not look further than the lobby of Apple’s headquarters in Cupertino, Calif., to see that the iPhone and applications that run on it are centerpieces of the company’s mobile strategy. Planted squarely in the lobby of the main office, at 1 Infinite Loop, is an impressive, 24-foot-wide array built out of 20 LED screens populated with 20,000 tiny, brightly colored icons.

As Philip W. Schiller, head of worldwide product marketing at Apple, describes how the wall works — each time an application is purchased, the corresponding icon on the electronic billboard jiggles, causing its neighbors to ripple in unison — he, too, becomes animated.

Normally reserved and on message, Mr. Schiller waves his hands back and forth and allows his voice to ascend into giddy registers as he speaks about the potential unleashed by the App Store.

“I absolutely think this is the future of great software development and distribution,” Mr. Schiller says. “The idea that anyone, all the way from an individual to a large company, can create software that is innovative and be carried around in a customer’s pocket is just exploding. It’s a breakthrough, and that is the future, and every software developer sees it.”

APPLE cloaks most of its inner workings in a shroud of secrecy — a tactic that has helped preserve the company’s mystique and generate intense interest in its product rollouts.

But the App Store relies on vast cadres of outside developers to populate its virtual shelves with products, leaving Apple in the unfamiliar and at times uncomfortable position of having to collaborate with folks who haven’t drunk the company’s corporate Kool-Aid.

This has led Apple to be deeply supportive of developers once shunned by big telecommunications companies, while also frustrating many of them more recently with what developers see as the company’s inscrutable and arbitrary process for accepting programs into the App Store.

Apple frames the issue differently.

“I think, by and large, we do a very good job there,” Mr. Schiller said. “Sometimes we make a judgment call both ways, that people give us feedback on, either rejecting something that perhaps on second consideration shouldn’t be, or accepting something that on second consideration shouldn’t be.”

Flick Bowling is one of Freeverse's most popular apps for the iPhone.

For Apple, the review process is a necessary evil. The company places high value on what it describes as “customer trust,” or the idea that users have faith that an application distributed on the iPhone won’t crash the platform, steal personal information or contain illegal content.

Mr. Schiller says the majority of applications sail through the review with no difficulty, and those that do require greater scrutiny are largely those that are slowed down by bugs or glitches in the coding.

“We care deeply about the feedback, both good and bad,” he says. “While there are some complaints, they are just a small fraction of what happens in the process.”

Apple says it receives more than 10,000 application submissions each week. Most become available in the App Store within two weeks (creating yet another problem: the difficulty consumers have in efficiently and effectively trolling through 100,000 apps to find hidden gems they hadn’t known about).

Still, the App Store is markedly better than the alternative, says Peter Farago, a marketing executive at Flurry, a mobile analytics company in San Francisco. Gone are the days when mobile developers had to negotiate with major telecommunications companies if they had any hopes of publishing their applications on a mobile phone.

“It took six to nine months to build a relationship with a carrier, maybe a quarter-million to get the infrastructure built, and the company took 50 percent or more from each dollar,” Mr. Farago says, a process that limited access to mobile platforms. “Apple has helped create a much healthier middle class of developers and expanded the pie for everyone.”

Apple pockets 30 percent of the revenue earned by any App Store program, with developers keeping the balance. Although barriers to entry for software developers have dropped considerably, Mr. Farago acknowledges that “friction points have changed.”

Developers now cite instances in which applications have been held in approval limbo, neither accepted nor rejected for months. And as bigger companies begin churning out programs, the smaller, garage-size outfits worry that they will be squeezed out.

FreedomVoice Systems, a company in San Diego, couldn’t wait to roll out a mobile version of its telephone software for the iPhone. The company submitted an application to the App Store last year and excitedly waited. And waited. And kept waiting.

“We’re facing 396 days with no contact from Apple,” says Eric Thomas, chief executive of FreedomVoice. “The app has been ‘pending’ in the App Store for a year.”

Mr. Thomas says he understands that it is Apple’s decision whether to accept his app. “But the idea they wouldn’t tell us it was a no — or even why — so we could try to do something about it,” he said, “is a very strange and unneighborly approach.”

Freeverse, which Mr. Smith founded in 1994, also creates games and desktop programs for computers. But like legions of other software developers, the company shifted its focus to the iPhone as the popularity of the device skyrocketed. But that doesn’t mean it’s been an easy road to riches.

“For our size and seriousness, we are still treated like a college freshman who is doing this as a side project,” Mr. Smith says. “The trade-off being that there is a much lower barrier to entry for developers. Anyone can have a shot.”

No one knows that better than Cerulean Studios, a software firm in Brookfield, Conn. After e-mail generated only automated responses from Apple for three months, Cerulean got a call in November from an Apple employee.

“He didn’t say much, just that our app would be going live in the App Store that afternoon,” recalls Scott Werndorfer, a co-founder of Cerulean. “We knew what we were getting into with Apple. They want everything to be pixel perfect, and you have to play ball by their rules.”

Some Apple developers are willing to go to greater lengths — underground — to avoid dealing with Apple’s policies and to get their software out quickly and on their own terms. To do that, they create programs for “jailbroken” iPhones and iPod Touches. Such devices are modified to allow anyone to upload a program onto them, which Apple says is illegal.

“Developers are just tired of the review process and navigating opaque hurdles,” says Mario Ciabarra, who operates Rock Your Phone, an online storefront containing a small catalog of applications for jailbroken iPhones. “They’ve been defecting to the jailbroken community or other platforms, such as Android. That demand has created the marketplace for our products and attracted developers.”

Mr. Ciabarra says about 1.5 million iPhones have visited his storefront, an impressive figure though still a small fraction of the 50 million iPhones and iPod Touches that Apple says it has sold.

As the App Store has matured, so has the need to come up with more sophisticated ways to profit from it. Simply having a great application is not enough. Bart Decrem, chief executive of Tapulous, a start-up company that publishes musical rhythm games, recalls the early days when it was enough to develop a shiny application that used the iPhone.

The company’s first game, Tap Tap Revenge, was available in the App Store when it opened in 2008. It quickly climbed the store’s charts, and Apple eventually ranked it as the most popular free iPhone game that year.

These days, Mr. Decrem says, that kind of instant and relatively easy success is much rarer because more companies are competing in the App Store. They include giant game publishers like Electronic Arts, which recently released a version of its popular video game Rock Band for the iPhone.

“It’s still the Wild West, but the stakes are higher,” Mr. Decrem says.

Tapulous has begun working with record labels and musicians to introduce paid special editions of Tap Tap Revenge featuring big-name artists. “Simply selling applications is ultimately not a scalable model,” he says.

IT’S unclear how concerned Apple is about some of the tensions swirling around the App Store. The company’s App Store policies have faced criticism — and even prompted a Federal Communications Commission investigation of Apple’s decision to reject an iPhone application developed by Google, which is still under way. Critics say they wonder whether the company can be trusted to maintain a fair marketplace, especially when developers release products that could compete with Apple’s current or future line of products.

Apple runs the App Store under the aegis of its iTunes unit (the operation that, wedded to the iPod, transformed music downloading in a way that analysts say the App Store, wedded to the iPhone, is now transforming mobile computing).

“A rocket ship is even too small of an analogy,” says Eddy Cue, Apple’s vice president for iTunes, of the App Store’s popularity. “We’ve been able to leverage a lot of our iTunes technology for the App Store. But it’s completely different. We’re reviewing all of those apps. We really don’t have to review each and every song.”

Apple executives are quick to point out the importance of ensuring that third-party applications run smoothly and provide a high-quality experience for users.

“Our goal is very simple: We want to have the best platform for applications that there has ever been on any product,” notes Mr. Schiller, the marketing executive. “We know we’re not perfect, but we know we’re better than anything else that has been and we want to keep improving it.”

Apple says it has increased the number of product reviewers working on the App Store and has tried to improve and streamline the way it communicates with developers.

The App Store’s success — as much a surprise to Apple as it has been to competitors — has given rise to a new digital ecosystem. Today, hundreds of software aspirants, from individuals tinkering in their bedrooms late at night to established companies looking for lucrative new revenue streams, are jumping into the App Store fray.

And smartphone manufacturers across the board are trying to make their platforms more attractive and lucrative to bring in the kind of creativity and enthusiasm that Apple has.

It’s easy to see why: Although Apple doesn’t release specific financial figures for the App Store, analysts estimate that it generates as much as a billion dollars a year in revenue for Apple and its developers.

At a recent conference in San Francisco organized by Research in Motion for BlackBerry developers, the company said it would make several changes to its mobile operating system to increase the kinds of applications developers can create for its devices, including allowing advertising and e-commerce within applications. Jim Balsillie, a co-chief executive of Research in Motion, says he isn’t focusing on the sheer number of apps available on a BlackBerry (3,000) but on their utility.

“Is it about 20,000 apps or 200,000 apps or is it about changing those 20,000 apps and their deep integration and how they interrelate to one another?” asks Mr. Balsillie. “We’re much more interested in changing the applications and changing the user experience and really unlocking the promise and the money and revenue opportunity for the ecosystem.”

Regardless, says Mr. Balsillie, apps and smartphones have created a new playing field.

“It’s inevitable that all cellphones will be smartphones,” he says. “There will be more services and new ways to monetize and more consumption. Growth is a given; it’s just a question of who is going to innovate in the right way to drive that value proposition to capture that growth.”

ALTHOUGH Palm is still rolling out the e-commerce portion of its own app store, called the App Catalog, the company hopes to draw developers to write for Palm devices like the Pre because Palm’s operating system, called webOS, is based largely on the same programming languages used to create Web sites — meaning developers are already familiar with the tools they will need to create mobile apps.

So far, however, Palm offers 500 applications, a relatively slim selection compared with the iPhone, and many analysts believe that this has made the device less attractive to consumers. Palm, like Research in Motion, says it doesn’t need an avalanche of applications to compete.

“Two years ago, the iPhone blew away expectations for what mobile devices are capable of. And mobile devices and applications are the future of the computing industry,” says Ben Galbraith, co-director of Palm’s developer relations team. “But the market is becoming saturated with a large volume of applications. When you’re number 50,000 out of 200,000, how do you survive?”

Palm says it is offering a breezier review process to developers — including allowing them the option of submitting their programs as candidates for Palm’s App Catalog or immediately publishing their applications in a third-party, online storefront — which may help it avoid some of the conflicts plaguing Apple’s relationship with developers.

Meanwhile, Microsoft, which analysts have criticized for its sluggish approach to the smartphone market, also says it is emphasizing quality for the application store it introduced in October, Windows Marketplace for Mobile.

“Our strategy is to look holistically at how we can provide the best all-around user experience,” says Victoria Grady, director of mobile strategy at Microsoft. The Marketplace now has more than 800 apps.

Many developers and analysts think Google’s mobile operating system, most recently placed in the Motorola Droid, may evolve into the fiercest competitor to the iPhone. Unlike Apple, Google has eschewed a review process, allowing any developer to publish an application to the Android Marketplace, its version of the App Store, instantly. About 14,000 applications are available for Android-powered smartphones.

We’re doing everything we can to open the device to both developers and consumers,” says Eric Chu, group manager of the Android platform at Google. “That is a critical part of what we think makes Android unique: applications are no longer limited to a single device.”

Mr. Chu said the growing number of Android-powered phones available on multiple wireless carriers increases the financial opportunity for developers. “Last year at this time, we only had one device,” he says. “The volume is going up at a tremendous pace, and the developer ecosystem is seeing that.”

Besides being a business opportunity for all of these companies, apps offerings may also be a matter of survival in a make-or-break market. Apple has another strong advantage: the iPhone offers developers a uniform, standard platform.

“When we create an application for the iPhone, you know it’s going to run exactly as you tested it on every single model,” says David Lieb, co-founder of Bump Technologies, which creates software that lets users share contact information by tapping two phones together. “The same isn’t true for the rest of the smartphones, which have varying screen sizes, processor speeds and form factors.”

HOWEVER the competitive landscape shapes up, the App Store phenomenon shows no signs of slowing. IDC, a technology research firm, predicts that the number of iPhone apps will triple next year, fueled by the growing popularity of smartphones and other mobile devices. Along the way, analysts say, the App Store will continue to upend the architecture of the smartphone business and threaten competitors that don’t have vibrant and extensive offerings.

The way the industry once operated, “Each handset company would come up with its latest iterations and maybe have the hottest device of the season or not,” says Ms. Huberty, the Morgan Stanley analyst. “Enter apps into the equation, and that changes. It goes from being a product cycle game to a platform game.”

“People will look back on the iPhone as a turning point in the industry,” says Craig Moffett, a telecom analyst with Sanford C. Bernstein. “The iPhone will be remembered as the first true handheld computer.”