There is little doubt that Apple’s App store started a phenomenon that has spawned an industry and changed the way we all use our mobile phones.
In the early days, stories of developers hitting the jackpot with a winning app seemed almost commonplace. Today, with increased competition, that crown is harder to win.
But at the same time as the App store continues to grow with over 4 billion downloads, so do other app stores. There is Nokia’s Ovi store, BlackBerry, Windows, Google’s Android and of course the independent app store operated by Getjar which recently hit a billion downloads.
With around 5 billion handsets in the world, and an estimated 20% of them smartphones, the market looks pretty robust for some time to come. Recent research gives two sides of the same story.
ABI showed that downloads of mobile applications from “app stores” will peak in 2012-13, then begin a slow decline in numbers.
But Juniper Research reported that the “combined revenues from apps funded by pay-per-download (PPD), value-added services (VAS, including freemium and subscription) and advertising is expected to rise from just under $10bn in 2009 to $32bn in 2015″.
Matt Murphy runs the iFund at Kleiner Perkins Caufield & Byers, one of the most respected venture capital firms in the country.
The iFund is aimed specifically at developers who create apps for Apple’s App store. It was recently increased from $100m to $200m ahead of the launch of the iPad.
“When we started the fund it felt like a greenfield site for every category and today there are over 250,000 apps. It’s gotten very very competitive and in some ways that is good and in some ways that is challenging.”
Mr Murphy said their focus is on a number of areas including location based services, social networking, mCommerce (including advertising and payments), communication, health care, education, and entertainment.
To date the iFund has put its money behind 14 ventures from the first iPhone-only gaming publisher ng:moco to social gaming giant Zynga and from music discovery service Shazam to Cooliris which offers a 3D interface for browsing vast amounts of rich media.
“I think the analogy of the gold rush where anybody could show up and make a ton of money – I don’t now that it’s over but it’s harder.”
He said the fact there are many more players will require a different mindset.
“I think it will create a discipline among entrepreneurs who will say I want to build a big company. I think there will still be a lot of successful one-off apps, where any mom and pop can create an app and monetise it well and do well but to a certain scale.
“They are not going to get rich on it, well they might depending on their definition of rich. But they are not going to build the next Google, Amazon, eBay or Netscape of the mobile internet. As a venture capitalist, we are looking for opportunities that have more of that potential to really break out and be one of the companies you talk about in ten years time.
“I would say everybody can show up and make a little to a good amount of money but it’s getting harder for people who say I want to be that really big company. But that’s how these platforms shake themselves out.”
From Mr Murphy’s point of view, those companies who are on the path to becoming big and have set the standard for others to attain include Zynga, ng:moco, Pinger, Shazam and GOGII.
“Take ng:moco. It’s really a pure play around iPhone gaming right now and they are the leader in that category,” said Mr Murphy.
“This all came from one guy who walked into our office two years ago and said I really want to be this greenfield category. Then people were thinking of gaming and apps as a one off and he said ‘let’s build a network’. That’s an example of what I am talking about.”
From Mr Murphy’s point of view the ingredients to success include simplicity, attention to detail and having fun.
“Start off really simple with something that every user can resonate with and then over time provide more in the app that makes it stickier – more functionality, more social things. That is what we are seeing with Shazam right now and GOGII which is moving from free texting into groups and communities.
“No one has really nailed chatting communities on the iPhone so that is a greenfield opportunity. But you have to nail them initially with that simple-use case. The people that try to do too much too soon are the ones we have seen struggle.”
The iPad has presented a whole new opportunity for developers and for the iFund which was boosted by $100m ahead of its launch.
But Mr Murphy said for those with an eye to developing apps for the iPad, the important thing to remember is that it offers a very different user experience compared to the iPhone.
“If the iPhone is all about the five to ten minute snack, the the iPad is all about heavy media consumption of an hour or an hour plus. Developers and companies that master that are going to do really well.”
