Application developers seek right formula to cash in on iPhone
Last month, Apple said consumers had downloaded more than 1 billion iPhone applications from its online App Store, and that software developers had filled the store's virtual aisles with more than 35,000 programs.
Clearly, iPhone users love to deck out their phones with new games, friend-finders, restaurant guides, and business applications, which can range in price from free to $899. Most sell for 99 cents to $3.99. But for Boston-based companies developing software for the iPhone - even some that have found early success - it's not yet certain that the increasingly crowded aisles of the App Store offer the opportunity to build a sustainable business.
Local companies sell (and give away) applications to help users lose weight, navigate the world of wine, remotely access a far-off desktop computer, or flirt with someone. Some ventures are creating tools to make it easier to develop iPhone apps, or offering custom app development services.
Apple pockets one-third of all app revenue, as it does with the music, movies, and TV shows it sells. The dynamics of the marketplace could change this summer, however, when Apple enables software developers to generate reve nue from their apps in new ways.
The free version of RunKeeper is on Apple's list of the top 10 apps in the health and fitness category, but the $9.99 version is only in the top 30. Jacobs has been working full time on the company for a year, sans salary, and the rest of his team includes six freelancers working for equity and a small development shop that he pays on a project basis.
More than 325,000 people have downloaded the app, which lets runners and bikers do things like use the iPhone's internal GPS system to map out routes and share their stats with friends via Facebook. Of people who get the free version, Jacobs says about 6 percent upgrade to the $9.99 product.
"We're all kind of fumbling in the dark, but I definitely think there's a big business to be built here," Jacobs says. "Though you can question whether it will be done by the pioneers or the fast followers who come along after the pioneers run out of money."
There hasn't yet been a paid version of the app, though recently Charles Teague, a frequent Allaire collaborator, left the Cambridge venture capital firm General Catalyst to work full time on future versions of Lose It - and possibly, other apps. Neither is saying much about the company's plans now.
Rosen says he has sold about 20,000 copies. Charging customers a one-time download fee and constantly striving to be on Apple's lists of the most popular apps in a given category "makes it very hard to be a sustainable business," says Rosen, who created the app with six freelance collaborators who share in the profits.
"It's hard in the current model to see my way to $1 million in revenue," he says, adding that the company is profitable. Rosen also says that his hope that Drync could make money by selling small ads hasn't panned out: "There's no real money in advertising."
"You have to try to talk to Apple and get them excited," he says. "In many ways, it's the luck of the draw."
The company is poised to benefit even more: This summer, Apple is expected to roll out a new operating system for the iPhone, and new business options for app developers. They'll be allowed to charge subscription fees for continued access to apps, or give an app away but later charge for particular features or premium content directly from inside the app - without requiring the user to return to Apple's online iTunes Store.
"We think those new capabilities are going to be really interesting," says Kevin Farrell, a vice president at LogMeIn. "We can create a purely free app, or a $1 app that has some add-on options that would cost extra. Those are options we're definitely looking at."
The Holy Grail for anyone creating apps is to be able to write their software once, and have it run not just on the iPhone, but also on Google's Android operating system, the BlackBerry, Nokias, and new phones that haven't yet been released. That ability to "write once and run everywhere" is still a ways off.
"You can make a few shekels selling a 99 cent iPhone app, if you really hit a vein," says venture capitalist Woody Benson of Prism VentureWorks in Needham. "But it gets progressively more interesting if you can efficiently get your app onto the iPhone, Android, and the new phone that Microsoft may be working on - that's a more compelling prospect."
Scott Kirsner can be reached at kirsner@pobox.com. 
