Getting Set for the iPhone App Store

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"We'll be building out [iPhone] applications for the next two years," he says. One free, ad-supported application for Tribune that's expected to be available when the App Store launches keeps track of an iPhone owner's commute, estimates the travel time, and suggests alternative routes.

Not Asking to Share in Revenue

One factor working in the iPhone developer community's favor is that Apple so far hasn't asked to share in the potential ad revenue. And for applications sold by subscription or with a one-time download fee, developers will keep 70% of the money, more than they usually get when wireless service providers feature their applications on other cell phones.

Based on Bailey's estimates, download fees alone will line developers' pockets with nearly $34 million this year and $280 million in 2009. That's impressive growth compared with other segments of the mobile application market. For example, U.S. sales of personal productivity applications such as health-monitoring tools, currency converters, and to-do lists are expected to increase just 19% this year, to $285 million, according to consultancy IDC.

Since Apple will be taking a smaller cut than distributors of applications for other mobile devices, many App Store downloads may be priced cheaper than comparable versions for rival platforms. Lingolook's iPhone application, for instance, will likely retail for $4.99, vs. $5.95 for the BlackBerry and $7.95 for the Windows Mobile versions. Yet rival mobile applications retailers don't see the App Store as a big competitive threat. "The issue we've had is building awareness to the end customer that you can use your phone to do all these things," says Bill Stone, CEO of Handango, a leading online vendor of mobile applications.

Applications Will Drive iPhone Sales

The likely publicity surrounding the App Store launch could solve that problem. And with Apple's penchant for simplicity, rivals may feel competitive pressure to make it easier for users to find their applications. Already, Microsoft (MSFT) plans to improve a site where owners of Windows Mobile smartphones can download a few dozen free ringtones and games. In the future, the site may direct users to Handango and other retailers, where they can find 18,000 applications now available for Windows Mobile devices. "We have no plans for our own stores," says Scott Rockfeld, group product manager for Microsoft's mobile communications business. "But you'll see us raising awareness on where you can get [applications]."

And what's in it for Apple? In addition to its share of the revenue from software sales, Apple may benefit from rising iPhone and iPod sales if the new applications make those devices more appealing. "The whole BlackBerry market is based on an application called e-mail," says Ray Lane, a managing partner at Kleiner. "There'll be certain applications that will be popular enough to drive phone sales."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.