An App for Everything

The growth of apps is inseparable from Apple, in spite of other entries to the market. Most apps are created initially for Apple devices, and the Apple online store is the leading distributor by far, offering approximately 150,000 apps and having facilitated more than 4 billion downloads. According to a report by technology research firm Gartner, the total number of downloaded apps will rise to 21.6 billion by 2013. The report also predicts consumers will spend $6.2 billion in 2010 in mobile application stores, rising to $29.5 billion by 2013.

Apps

The emergence of apps with such a force has come as a number of factors converge. Most importantly, Apple facilitates a business model that works for the trade. Apple takes 30 percent from every transaction (including in-game or add-on purchases) after taxes, leaving the developer with 70 percent. For years, mobile phone networks and mobile game designers grappled with who gets what, leaving many developers frustrated. Here, at last, is a viable solution that provides enough money for the developer. Importantly, there is also enough in the pie for it to work as a licensed product.

Apple also provides a well-established distribution model through its App Store, and consumers have proven they are comfortable making small online transactions to purchase apps. The second factor is that casual gaming via phones, computers and social networking sites such as Facebook has reached significant levels. And, finally, a critical mass of mobile devices such as the iPhone and iPod touch has reached the market. Morgan Stanley technology analyst Kathryn Huberty told the

Financial Times

earlier this year that the growth rate for the iPhone and iPod touch in their first eight or nine quarters is more than five times the growth rate for the Internet. These devices and fast wireless networks now reach a fifth of the global population, and she estimates development will accelerate.

The importance of Apple's simple and transparent business model can't be underestimated, and its "open-to-all" attitude has unleashed the collective creativity of thousands of small-scale developers. Most apps are still made by small teams, and there have been one or two tales of rags to riches. However, a pattern is emerging of acquisitive, larger companies becoming dominant. Electronic Arts' 2005 acquisition of Jamdat, and subsequently of U.K. company Playfish, bears this out, and the gaming giant produced four out of last year's top five selling apps.

Licensing's role in the app business is building momentum, but many licensors are still on the outside looking in. At the moment, sales of an app tend to really take off when Apple highlights the app on its site as a "featured" product (currently an informal process helped by having a good relationship with the developer) or when viral marketing kicks in and the app attracts comments on blogs and social networking sites. However, as the market gets increasingly crowded, developers will turn to brands to better stand out. As Paul Comben, chief executive of AT New Media, says, "It's becoming harder and harder to be seen in the app store and brands have got to play their part. Grabbing attention is what they are good at."

For licensors steeped in traditional consumer product licensing, there are hurdles to overcome when making new media products, particularly relating to entertainment. Comben says, "There can be rights clearance issues, for example. Screen-ready assets aren't always there to be used immediately. And you can't really create an app from a standard style guide." He also cautions that companies can be tempted to do things internally, and this often takes too long. Apps can evolve from idea to market in just a few weeks and Apple is congratulated for its speed in "approving" new products. In spite of the many thousands it has to review daily, Apple gives the go-ahead for a listing in its store within two weeks.

A good example of a developer and brand finding each other is in Cartoon Network's successful Ben 10 MouthOff. It was developed by a company called ustwo in the U.K. whose MouthOff technology allows consumers to put the phone to their mouth and transform their voice and mouth into that of one of the Ben 10 monsters. Alan Fenwick, vice president of Turner CN Enterprises, says, "iPhone apps are already a significant income for us and will be an important revenue generator in the future."

In another example, AT New Media secured a deal between Haynes car manuals and Gourmet Pixel, a small development team, which was looking for a license to work with its app technology. The resulting Haynes app costs £2.99 ($4.31) and takes consumers through basic maintenance checks and procedures for their car and gives diary reminders for services. In time, add-ons with more advanced information and help from Haynes will be available. This adding-on and updating is a particular feature of the app market; a developer can respond quickly to feedback or technical issues and release an update or add-on to the market, thereby adding another increment of revenue.

Issues of geography are easily navigated when developing an app. Where there may be regional issues, such as with giving directions, these products can be restricted for sale in any one of Apple's regional online stores.

Apple's dominance in the market shows no sign of waning just yet. The market may well be big enough to support other distributors, but most developers have put their energy into perfecting a product compatible with Apple devices before considering applications for other distributors. Google, Nokia, BlackBerry, Samsung and Palm have launched app stores with tens of thousands of apps, but there's a long way to go to catch up.

The world of the iPhone application is a nimble one, and licensors have to think and act like new media players if they are going to make the most of it. This also means producing apps as part of a bigger picture, inextricably linked to casual gaming, social networking and new technology, such as augmented reality. With their simple business model, speed to market and opportunity to communicate so precisely to audiences, apps offer a significant area of growth for licensing.