Thursday, November 12, 2009

Apple's (AAPL) iPhone Applications Take Root as a Cottage Industry

Now this is a genuine green shoot.  The Apple (AAPL) iPhone app store is an incredibly popular place... at least that's what the kids out there tell me. I'm not sure the revenue potential for $1.99 apps are equivalent to the birth of $3500 personal computers but I suppose they are more profitable than many of the internet startups who never made a red cent a decade ago.  Plus you have some big hits as seen at the end of this story.  At least we have actual innovation happening in this space.

  • There is a hint of that old boomtown feeling again in the Bay Area -- this time in living rooms and garages and cubicles where a cottage industry is unfolding around the iPhone app.  Despite the recession, hundreds of start-ups have sprung up in the area since Apple Inc. launched the iPhone two years ago and opened up the device so third-party developers could create games and other software applications for it. 
  • Apple, which has sold more than 30 million iPhones and 20 million iPod touches, boasts more than 100,000 apps on its App Store, through which people can download games, entertainment and utility applications. 
  • Most are free -- and make money from ads -- or cost less than a dollar. Developers get 70% of any revenue they make from app sales, with the remaining 30% going to Apple. That is a better proposition than app development for other mobile phones has been in the past. Rivals now offer similar revenue-share models. 
  • As a result, many Silicon Valley techies have been lured to the iPhone app start-up scene. According to Mobclix Inc., which operates the iPhone's largest ad-exchange network -- a marketplace to connect advertisers and app developers -- 41% of its 4,000 app developers are in Northern California. The region with the second-largest number of app developers is New York-New Jersey, with 14%. (unfortunately, the boom seems quite concentrated)
  • "A large concentration of people who are doing [iPhone apps] are Internet entrepreneurs...and a lot of Internet entrepreneurs are in the Valley," said Matt Murphy, who oversees the $100 million iFund, a venture-capital fund run by Kleiner Perkins Caufield & Byers that backs iPhone app developers.
  • "This is our dot-com boom," said Samir Shah, 26 years old, a co-founder of Mountain View-based Snapture Labs LLC, which makes a $1.99 camera app that has been one of the top-ranked photography apps since September.  Mr. Shah and two other Snapture co-founders graduated from Carnegie Mellon University in Pittsburgh in 2007 and moved to Silicon Valley shortly after. They work on their iPhone business in their free time from one of their apartments, but said they hope to eventually turn it into a full-time business.
  • Silicon Valley's universities are also coaxing the iPhone app boom along. In September 2008, Stanford University began offering an iPhone app-building course taught by Apple's engineers. It also posts the course online free. Roughly 130 students have taken the course since last fall, and more than one million people have downloaded the lectures, said Julie Zelenski, a Stanford lecturer in computer science. (very cool)
  • The popularity of the iPhone App Store had led its competitors to provide similar offerings. Research In Motion Ltd., Google Inc. and Palm Inc. have opened similar stores and have been trying to woo app developers with promises of better support. Though the costs of developing applications for all the devices are prohibitive to many of the smaller developers, some companies, like Flixster, a San Francisco-based movie sharing social network, have created apps for all of them.

One example of the remaining beauty of America, guy strikes out on his own, has bright idea for company, gets funded, gets bought out, goes to start the next company - in under a year!
  • Some local techies are finding the iPhone app opportunity so attractive that they left jobs at more secure tech firms to jump into the scene. Sam Yam, 25, one of the founders of AdWhirl, a Palo Alto ad network company for iPhone apps, says he left a job at Mountain View service company Loopt Inc. in February to start the company, which helps manage ad placement in iPhone apps.
  • Five months after creating AdWhirl Inc., it got $1 million in venture funding. Mr. Yam says the four-person company was profitable "even after paying fairly generous salaries." 
  • In late August, San Mateo-based mobile-advertising company AdMob Inc. agreed to acquire AdWhirl for an undisclosed sum. On Monday, Google Inc. announced its plans to acquire AdMob for $750 million. Mr. Yam is planning his next venture, which he says will have an iPhone component. 

No position but glad to see it

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