Getting Set for the iPhone App Store

Hundreds of developers are ready to introduce new software to sell through Apple's new iTunes section

by Olga Kharif

Programmers at Iconfactory spent 1,000 hours creating Twitterific, an application that's ready to let iPhone owners view and post updates on Twitter's popular social network. Another software firm named 360mind has already built some 20 applications for the iPhone. In fact, hundreds of developers are set to stock the virtual aisles of the Apple's new App Store.

Too bad the store hasn't opened yet.

Apple (AAPL) CEO Steve Jobs is expected to disclose more details about the store, a new section of iTunes geared toward software for the iPhone and iPod Touch, on June 9 when he takes the stage at Apple's Worldwide Developers Conference. But anxious third-party developers will likely need to wait another few weeks to start selling their wares. "There's a gold rush mentality at the moment," says Nick Dalton, CEO of 360mind in Evergreen, Colo. Software firms "want to put a lot of things into the App Store and see what happens."

The hope, naturally, is that the App Store will absorb vast pent-up demand among iPhone lovers for new capabilities ranging from productivity tools and video games to specialized applications like Lingolook, which offers travelers helpful phrases in Japanese, Chinese, and French. Users will be able to download iTunes applications to an iPhone or iPod wirelessly using Wi-Fi or through a computer. Goldman Sachs (GS) analyst David Bailey expects iPhone and iPod users to download 20 million applications from the App Store by the end of this year, about 110 million more in 2009, and 210 million in 2010. Broken down, that means the average iPhone user will download five applications in 2009.

Click and Buy

With their credit- and debit-card information already stored to their iTunes accounts, iPhone users will likely be able to browse and buy applications with one click. "It's going to encourage impulsive buying," says Dalton. More accurately, perhaps, the store will encourage impulsive downloading, as most applications offered there will likely be free, but display revenue-producing ads. "I think the vast majority of applications will be ad-subsidized," says Matt Murphy, a partner at venture capital firm Kleiner Perkins Caufield & Byers, which recently established a $100 million "iFund" to finance development of new iPhone and iPod applications and gear. That's the way to go "if you want to monetize on the mass market," he says.

Raising advertisers' hopes is that the new iPhone, expected to be unveiled on June 9, may enable applications to take advantage of the built-in GPS receiver, which can pick up satellite signals from the Global Positioning System to determine the device's location. Knowing an iPhone user's coordinates could be a boon for new capabilities and related advertising. That's exactly what Pelago, one of the firms funded by Kleiner, is counting on with its first application, named Whrrl. Whrrl is designed to tracks bars, restaurants, and other places recommended by friends or the wider Whrrl community. And as you search these suggestions for a local sushi joint, it may beam you a coupon for one.

Josh Koppel, who runs New York-based ScrollMotion, says he's seen so much interest in ad-supported iPhone applications that he's brought on extra developers via Elance, an online hiring marketplace. ScrollMotion has already built three iPhone applications for the media conglomerate Tribune, and has 25 more iPhone projects for other clients in the works.