Palm's Pre Is Winning Rave Reviews. But Apple Is About To Extend Its Most Important Advantage: Apps

Posted by: Peter Burrows on June 04

Palm is winning mostly brilliant accolades for its Palm Pre, which is set to be released on June 6 (though not from our own Steve Wildstrom). Indeed, the only universal complaint is an appalling lack of third party applications. I find this shocking, given that developer enthusiasm was running so high in recent months that I wrote a story about it. Maybe it’s unwise developer relations, as long-time developer Whurley suggests in this opinion piece he wrote for us. Or maybe it’s a technical problem of some sort.

Either way, it’s a huge problem if it isn’t fixed soon—because Palm (and other smart phone players such as RIM, Nokia and Microsoft) are likely to fall even farther behind in the app war in the months ahead. For starters, there’s little evidence that any of the new App Store openings from these companies has slowed the meteoric growth of Apple’s App Store in recent weeks. Who knows what numbers Apple will announce at its Worldwide Developers Conference next week? Last time it released new data a few months ago, the company said that 35,000 programs had been downloaded more than one billion times. Anyone want to take a guess at the new numbers, come Monday? How about 50,000 and 1.2 billion?

More important, I think this up-and-to-the-right trend line is going to get even steeper in the months ahead. That’s because the software upgrade of the iPhone, dubbed iPhone 3.0, that is due out later this summer will include new ways for developers to make money. Currently, developers are flocking to iPhone because that’s where the customers are. But all too often, these developers have to give away their apps for $.99 or for free. That’s not enough revenue per customer to build a sizeable software business. But with iPhone 3.0, developers will be able to crank up their ARPU, by building recurring revenue streams via subscriptions and what’s known as in-app commerce.

This is a very big deal. Tapulous, one of the early success stories to come out of the iPhone ecosystem, has re-written its business plan. Currently, it sells two $5 apps—so $10 per customer is the max it’s likely to get. But CEO Bart Decrem told me earlier this week that after iPhone 3 hits the market, Tapulous will cut the price of its paid apps (probably to $.99) and instead make money by selling games tied to particular music. If you want to play Tap Tap Revenge to a particular song that comes into your mind, it’d cost $.50. Or if you wanted to buy more of a band’s greatest hits, you’d be able to buy “album packs” for $2, $4 or $6, he says. He also says the company is likely to introduce a subscription service of some kind in the second half of the year—say, rights to a certain number of new games per month for a monthly fee.

These commerce features will attract new players to the iPhone platform, as well. One is Intermap Technologies, which is about to unveil a mapping app that will let hikers, fisherman and other outdoorsmen easily get highly-detailed maps to plan and record their adventures. As you start your hike, for example, the app would use GPS to note your location, and would drop virtual breadcrumbs so you could find your way back to the trail if you got lost. Plus, photos taken enroute would be geotagged and noted on the map as well. Once back in civilization, you could recap your trip for friends by simply pushing a “replay this hike” button that would show the itinerary plus the photos of highlights in context. (This particular fly-fisherman plans to use the app to help me locate—and more importantly re-locate—great trout-fishing holes, so I’d know them the next time I was in the neighborhood).

But Intermap is less interested in selling consumers a single mapping app, than in selling them a bunch of maps over the course of their lives. Marketing chief Kevin Thomas says the company plans to sell maps that cover an entire state for $9.99, or $.99 for maps that cover a smaller area of say, ten or twenty square miles. Thomas doesn’t profess to know what kind of revenues this approach will generate for the 13-year-old company. Given how young the apps market is and how untested these new commerce models are, he says “It’s a crapshoot.”

Evidently, it’s a risk worth taking—for Intermap and I’m sure thousands of other developers.

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