Predictions 2009: After the App Store, what's ahead for developers in 2009?

Before I look ahead at 2009 I first have to look back at 2008, a year that changed virtually everything for mobile developers. First and foremost, 2008 was the year of Apple's App Store, the virtual storefront that in one broad stroke transformed the distribution and sale of mobile software. The App Store, which opened to iPhone 3G and iPod Touch owners on July 11, had already boasted more than 10,000 applications by early December, with consumers downloading more than 300 million apps during that time. Almost as noteworthy: The official introduction of Google's Android mobile OS and its accompanying Android Market storefront, not to mention Nokia's commitment to team with Sony Ericsson, Motorola and NTT DoCoMo to create an open Symbian platform. Mobile operators also made significant strides toward a more open network environment in 2008, spearheaded by Verizon Wireless' Open Development Initiative and T-Mobile USA's devPartner Community program. And throughout the year, a host of sophisticated yet user-friendly new devices hit the market, further expanding the scope of the mobile experience and creating a new world of opportunities for developers to explore.

Keeping in mind that sequels are rarely as exciting or as radical as the original, it stands to reason that 2009 will shape up as a very different kind of year than its predecessor. If 2008 was about revolution, then 2009 will be about evolution as the mobile industry builds upon the breakthroughs of the previous 12 months. Here's some of what you can expect in the year ahead.  -Jason

Prediction No. 1: Despite the downturn, venture capitalists will increase their investment in mobile.
While worldwide economic turmoil will no doubt impact how and where venture firms invest their capital, VCs remain bullish on mobile--in the fourth quarter of 2008 alone, a surprising number of firms closed significant financing rounds, among them mobile broadcast software provider Roundbox ($20 million in Series C), mobile advertising marketplace AdMob ($15.7 million in Series C) and mobile video services provider Transpera ($8.25 million in Series B). Expect even more investment in 2009, thanks to the fast-changing economics of the mobile marketplace: Where operators once called the shots by controlling all access to the subscriber, the introduction of Apple's App Store and other digital application storefronts has resulted in new direct-to-consumer distribution channels that circumvent carrier domination. For mobile developers with innovative products, strong management, competitive differentiation and a powerful value proposition, venture financing will be there for the asking.  

"You're no longer beating your head against a closed system," said Eric Ver Ploeg, managing director for VantagePoint Venture Partners, during a panel on the state of mobile investment held during the Orange Partner Camp development conference in mid-December. "We're seeing the emergence of new opportunities. The overhead is lower, so entrepreneurs are rushing in." In fact, grim economic conditions present the perfect opportunity for developers with a truly revolutionary concept to attract venture attention, according to Matt Golden, senior member with the BlackBerry Partners Fund. "There are fewer competitors in a tough economy," Golden explained, adding that BlackBerry Partners Fund is focusing its investments on firms that ratify four major themes: The smartphone is the next computer; the smartphone will replace the wallet; new services will require sophisticated software; and users will create, consume and discover content via mobile devices.

Perhaps most important of all, the emergence of the App Store, Android Market and rival storefronts have made it possible for developers to bring to market left-field ideas that prove commercial smashes in the face of all conventional wisdom. Case in point: Smule, a development startup that has enjoyed significant success with Ocarina, a musical iPhone application sensitive to user breath, touch and movement. "[Ocarina] brings back memories of ringtones, where it seemed like people were making money almost by mistake," said Martin Duval, CEO of bluenove. "This is what's happening now--you can make a lot of money even if you have no business vision or plan. Smule doesn't even know what it's doing next." The changing economics of mobile development have also afforded developers more latitude to make mistakes, Ver Ploeg added: "We've got a lot of people trying different stuff now," he said. "The truth is most things fail. But if it doesn't take a lot of money to develop, that's great. That's where the opportunity exists."

Prediction No. 2: A growing number of firms will look to acquire existing mobile applications instead of developing their own.
The runaway success of Apple's App Store has positioned mobile application development as a more lucrative and competitive business environment than ever before. But while cool, innovative applications are a necessary component for any technology firm, content provider or entrepreneur looking to establish a foothold on the mobile platform, there are simply not enough breakthrough concepts or talented developers to go around. For companies long on cash but short on time, ingenuity or technical know-how, the answer is simple: Acquire someone else's million-dollar idea instead.

Already a handful of iPhone applications have changed hands: In November, development firm Tapulous acquired Twitter-based iPhone app Tweetsville from independent coder Ed Voas before he went to work for Apple, and a month later, German developer FutureTap snapped up TapTapTap's GPS-based iPhone app WhereTo for $70,000. TapTapTap put WhereTo up for sale in October after announcing the company planned to split, adding the app generated about $200,000 in sales during its first three months in the App Store.

What's particularly interesting about the WhereTo deal is that FutureTap founder Ortwin Gentz, a longtime Mac developer, presumably boasts the chops to create his own iPhone application--instead, after crunching the numbers, he determined it made more financial sense to scoop up an existing app. In a blog entry posted on the FutureTap website, Gentz writes that he opted to purchase WhereTo because of the length of the developmental cycle as well as time-to-market considerations, especially around the holiday season--he also notes the WhereTo brand is already established in the iPhone consumer market. "There is not really any experience how to value an iPhone app," Gentz adds. "If you offer too much, you'll never get your return on investment. If you offer too little, someone else gets the deal."

Prediction No. 3: BlackBerry will make greater strides into the consumer market than iPhone makes into the enterprise sector.
Both Research In Motion and Apple made significant mobile inroads in 2008. Market research firm Gartner reports as of the third quarter, RIM's BlackBerry OS occupies second place in worldwide smartphone operating market share with 15.9 percent, with Apple's Mac OS X coming in third at 12.9 percent, edging past Microsoft's Windows Mobile (11.1 percent)--their gains are at Symbian's expense, as its worldwide market share fell to 49.8 percent, down from 63.1 percent just a year ago. Gartner says North America is now the fastest growing smartphone market, with a 68 percent increase during the third quarter--together, RIM and Apple account for more than 70 percent of that market, setting up a battle royale that will unfold across 2009 and into the decade to come.

While Apple still offers only one mobile handset, the iPhone 3G, RIM debuted several would-be "iPhone killers" in 2008, including its first touchscreen device, the BlackBerry Storm, as well as the BlackBerry Bold, a tri-band HSDPA smartphone that essentially recreates the iPhone concept for RIM's traditional enterprise demographic base, complete with integrated GPS and WiFi as well as an enhanced media player enabling full-screen movie playback and digital music collection management. RIM's commitment to capturing the consumer market was further ratified via co-CEO Jim Balsillie's keynote appearance at the annual CTIA Wireless IT and Entertainment event in mid-September. Balsillie's speech touched on a variety of subjects, including a series of significant new content and services partnerships with brands like MySpace and TiVo. What you didn't hear about was the enterprise market, however, begging the question of how big a role the corporate sector plays in RIM's roadmap.

Despite some much-discussed software bugs, initial sales for the BlackBerry Storm have proven impressive: Exclusive partner Verizon Wireless sold out at many stores on the device's Nov. 21 retail debut, which RIM reports was also the single biggest day for BlackBerry signups in company history. Moreover, it said 75 percent of Storm sales were to new customers. In addition, downloads of the MySpace for BlackBerry application exceeded 400,000 in the first week and 1 million in the first month, further underscoring RIM's growing profile within the consumer market.

With its thousands of games, multimedia applications and location services, the iPhone still remains the unquestioned leader among consumer devices, but Apple wants its slice of the enterprise sector as well. In 2008, the computing giant licensed and embedded Microsoft's Exchange ActiveSync program for the iPhone 2.0 software, delivering push email, calendar, and contacts, and promised secure access to corporate resources with Cisco IPSec VPN and wireless network services with WPA2 Enterprise and 802.1X authentication. But so far, Apple is facing far greater resistance in the enterprise than RIM is facing in the consumer market, and that isn't going to change in 2009. A recent study conducted by U.S. investment house Sanford Bernstein reports that among 105 chief information officers surveyed, only two planned to roll out the iPhone over the next 12 months. "Our CIO survey suggests that corporate iPhone use will be driven by employees purchasing their own iPhones, rather than company-wide deployments," writes Bernstein analyst Toni Sacconaghi. "If this persists, it may ultimately limit iPhone penetration into the corporate space." IT managers have also expressed their concerns over the iPhone's lack of native encryption--some even doubt whether Apple is up to the challenges posed by enterprise technical support. And, of course, one must factor in the economy: Market research firm IDC forecasts IT spending will increase just 2.6 percent this year over 2008 totals. Little if any of that will go toward purchasing iPhones.  

Prediction No. 4: Emerging markets will dominate mobile development trends.
The digital divide is finally receding, and the mobile web deserves the credit. Mobile devices and applications are radically reshaping communications in nations where traditional fixed-line services are poor or non-existent: Mobile browser development firm Opera Software reports its customer growth is strongest in areas such as  Indonesia, Egypt and Russia, while mobile advertising network AdMob reported in October that Asia is now its largest regional market, edging past North America. For mobile developers, these emerging markets represent more than just a largely untapped opportunity to generate substantial revenue growth--their applications promise to radically transform and improve the lives of consumers outside of the industrial world, opening up vast new opportunities for people to interact, learn and conduct business. Look for firms throughout the mobile value chain to channel their energies into this brave new world, not just in 2009 but for years to come, kicked off by a wave of new, bargain-priced handsets. (And forget altruism--device makers must target developing nations simply to rejuvenate their businesses. A recent Gartner report forecast a 17.9 percent increase in Asia-Pacific mobile phone sales during 2008, offsetting a 1.5 percent annual decline in Western Europe and a 5.3 percent annual drop in North America.)

In November, Nokia--long a vocal proponent of emerging market opportunities--announced plans to introduce a range of affordable mobile devices and new web services targeting consumers in developing nations, with an initial focus on email, agriculture and education. Mail on Ovi, enabled on Nokia Series 40 devices, will offer users email accounts directly on the mobile phone sans PC access, while Nokia Life Tools present a series of agriculture information and education applications created especially for rural and small town communities, complete with an icon-based, graphically rich user interface capable of displaying information simultaneously in two languages. Nokia says related SMS-based services will guarantee Life Tools services work anywhere within network range, without the complexities of additional settings or need for GPRS coverage.

Beyond the immediate future, a recent forecast issued by the Pew Internet & American Life Project contends that the combination of portability and relative affordability will position mobile handsets as the world's primary web gateway within a dozen years' time. "By 2020, we'll have standard network connections around the world," says Susan Crawford, founder of OneWebDay and an Internet Corporation for Assigned Names and Numbers board member, within the Pew report. "Billions of people will have joined the Internet who don't speak English. They won't think of these things as 'phones' either--these devices will be simply lenses on the online world." The Pew study even suggests mobile services may offer a superior alternative for expanding Internet access than efforts like the One Laptop Per Child initiative.

Prediction No. 5: Application success will hinge as much on marketing as software design.
Forecasting which applications will capture the collective imagination of the iPhone user population is a fool's errand--all you can reasonably expect is the unexpected. Consider Apple's recent countdown of 2008's most popular App Store downloads: While games dominate the list of premium applications, other best sellers include such oddball, self-explanatory apps as The Blimp Pilots' Koi Pond, Shinya Kasatani's PocketGuitar and Hottrix's iBeer. And with established brands like Google, Sega, Vivendi Games Mobile and Pandora dominating App Store categories such as games, travel and entertainment, most small startups may find it almost impossible to compete in the mass market. So expect a growing percentage of iPhone developers to focus their efforts on niche-oriented, demographic-specific and bargain-priced products in 2009. The challenge ahead: Marketing those applications to the consumers who will want them.

The current economics of the App Store virtually demand that developers emphasize simple, quick-hit applications rather than more complex, more expensive products. A much-discussed blog entry posted in early December by Craig Hockenberry, principal and engineer with The Iconfactory (the software firm behind top-selling App Store downloads Frenzic and Twitterific), argues the growing proliferation of cheap iPhone applications is inhibiting product development. "As an iPhone developer who's been in the App Store since its launch, I'm starting to see a trend that concerns me: developers are lowering prices to the lowest possible level in order to get favorable placement in iTunes," Hockenberry writes. "This proliferation of 99¢ ringtone apps is affecting our product development ... We have a lot of great ideas for iPhone applications. Unfortunately, we're not working on the cooler (and more complex) ideas. Market conditions make ringtone apps most appealing." Not long after Hockenberry's post erupted across the blogosphere, Apple quietly instituted a series of changes improving how iPhone and iPod touch applications are featured in the App Store, spotlighting the most popular applications on each category page as well as separating the most popular free applications (which previously dominated download rankings) from the most popular premium apps.

Even so, the current App Store setup still awards prominent placement to bestselling applications--once an app drops off the Top 50 list (assuming it ever gets there in the first place), its sales go into free fall, lost amidst the thousands of other iPhone apps vying for consumer attention. Given the challenges inherent in present App Store search and discovery methods, developers cannot simply cross their fingers and hope that a viral hit will emerge, vaulting their shop to fame and fortune in the process. Instead, coders must build their brands the old-fashioned way, via focused, sustained marketing efforts that generate real consumer awareness of their products. Developers cannot assume their technologically superior application will always win out--entire industries are built on inferior products that dominate the market thanks to strategic partnerships and attention-grabbing advertising campaigns. Just six months after opening, there are already more than 10,000 applications in the App Store, and it's only going to get more competitive from here on out. If you plan to make application development your business, then you need to start treating it like one.

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