Introduction

You don’t have to have a merchant account, deal with any billing whatsoever, support requirements are very limited, providing high service availability is not a necessity, and there is an extremely spendy built-in customer base that is easily marketed to. The guy who developed the relatively simple Labyrinth (Carl Loodberg) game is estimated to have sold over $100,000 in the first two weeks of AppStore’s open.

Steve Jobs, for all of his vision, missed the boat with the initial release of the iPhone. It was a great product and sold brilliantly, but in making the “perfect” phone he neglected to consider the abilities of the device he had created. The truth is, it is not a smart-phone–rather it is a very impressive handheld computer with a constant–albeit limited–net connection, that happens to have a decent telephone application.

As a career

This is as close and low-risk as TrendGrinder businesses get to being perfect. There is no hassle, it can easily be done solo and scaled easily, only minimal customer interaction is needed, you can do it from anywhere, you can do it on your own time, and it can easily pay $100,000 per year.

Other than the steep learning curve for Windows developers and lock-in with Apple, we just can’t seem to come up with any real and specific downsides to this business. Lets do the numbers.
UPDATE: See this at WebProNews for a series of iPhone developer interviews.

Costs:

Computer Equipment - $0 - you already have it
Books (Windows/unix developers) - $100
Learning Curve (Windows/unix developers) - at least 100 hours
Development of Biz Category application - 120 hours
Updates of Application - 4 hours per month
Support (email only) - 3 hours per week per active application
Server, etc. - $0 - assuming standalone. Highly recommended.
Marketing - $0 - Free in AppStore. Basic case consideration.

Revenue

100 downloads at $14.99 = $1500 - 30% Apple commission = $1000
(not bad monthly, excellent weekly)

Estimated lifetime of an application including updates - 2 years

Bottom line: Developing 2 applications per year can easily bring in $100k for a total time investment of 450 hours (40 hours/month).

Market

It is massive. No really. It’s not just a few geeks out there that spent too much on a gadget. There are those and also millions of others–14 Million by the end of 2008 in fact . In iPhone 3G’s first quarter, at least one analyst puts sales at 4.7M units . At this moment there are probably about 7 million folks officially walking around with these computers that you can easily sell just about any application to. This number attempts to exclude unlocked phones, and upgraded phones that are sitting in a droor for publicly available units sold numbers.

Lets look at the available data that is coming out just one month after launch. First of all, Jobs told WSJ he sold $30M in apps . That could end up at nearly $400M after year one. Wow. Apple helped promote a few applications which may skew their sales a bit, but it is still astounding to see that Super Monkey Ball brought in $3M during the month–especially since it fell during that time to a second-class application.

One-month Numbers (end of July, 2008)

Now that Apple does not publish download numbers anymore, we have attempted to find any metric we can to get an order of magnitude estimate of sales. Regression on available numbers of reviews showed 125 x (#of reviews) to be conservative of total downloads–though obviously this is extremely rough. As I mentioned, we need any early indicator we can get at this point. Using that, we have guessed relative scale:

  • Crash Bandicoot ~ 1,000 reviews x 125 = 125,000 downloads x $10 = at least $1.25M
  • Texas Holem ~ 1,000 rev @ $5 ~ $700k+
  • Labyrinth ~ 250 rev @ $7 ~ $200k+
  • Koi Pond ~ 400 rev @ $1 ~ $50k+
  • DataCase (file access) ~ 126 rev @ $7 ~ $110k+
  • Dynolicious ~ 100 rev @ $13 ~ $160k+
  • Teleport (VNC client) ~ 150 rev @ $25 ~ $450k+

Also, TapTapTap officially published their numbers, showing over $50,000 in revenue from WhereTo, a very simple application which finds nearby merchants.

Product and Pricing

There is a dramatic difference in how much revenue you can pull out of different categories. Though the Top 50 apps section of the AppStore is dominated by games, I highly recommend you stay away. Competition is fierce here, and price point is fairly limited to under $10.

Unless you can make extremely high quality games, and do so efficiently, making original games profitably will be more difficult than other categories. The best categories considering competition, potential price point, and development cost are:

  • Business Applications (tech focused best)
  • Personal Productivity
  • Healthcare
  • Navigation


Don’t be misled by all the low priced apps!

The highest ROI is going to be on relatively high-priced applications. Though there are several million active buyers, selling to everyone should not be your expectation. You can see that Koi Pond, a 99c app that is currently the top seller in Paid games, has probably only sold about $50k! Normal small business advice applies to iPhone too–shoot for a small, easily sold niche with good pricing potential. Address a real hurt. One of the best examples here is Teleport, which targets business users who will pay (relatively) anything to have anywhere access to their critical servers. In fact, many of them paid the $25 price–a fortune in iPhone terms–for this product.

People will pay fair prices for good products. Therefore, we recommend you look at pricing of at minimum $5 and up. After $0.99, there is not much psycological difference in prices up to $10. At these prices, every dollar represents high percentage increases. What’s the difference form $2.99 to $3.99? Not much from a buyer’s perspective, but 33% increase in your sales. What does a business user care about a one time $25 fee if that means she doesn’t have to carry a laptop and hunt for a connection when she gets a call at dinner about down servers? Have a look at this early data from Pinch media showing the (early!) distribution of prices. We strongly believe this will steadily skew to the right over time, but regardless, notice that sales at $4.99 alone blow away 99c revenues ($5×60 = $300 vs. $1×80 = $80):



The Freebie Angle

Several developers have launched two products–a pay version and a somewhat limited free version. This is an attempt to sidestep AppStore’s lack of support for a trial period. Though this seems logical it is far from a foregone conclusion. These are the wild-west days of the AppStore and you need to be as creative as possible on this. Measure everything. Market outside of AppStore and determine the best route–giving away a free version may not be as smart an idea as it seems if it cannabilises a large percentage of sales.

How It’s Made

At this point in time, this business is best approached by an experienced software developer. If you are not able to code yourself, or do not want to get mired in implementation, you will need to find iPhone developer talent. This is exceedingly difficult at this point, which is what caused us to present the startup idea: iPhone Software Consulting Firm. If you still wish to attempt this route, the traditional freelancer sources like Craigslist, eLance, etc, will most likely be ineffective. Smaller outsourcing firms almost uniformly have little or no experience in not just iPhone software but Mac in general. If you feel you can recruit and train developers in some way, we strongly suggest you establish a Software Firm in this niche rather than develop individual appliations.

If you are a developer, but have not written for iPhone, you’ve got some work to do. The iPhone dev center at apple has lots of documentation and videos to orient you. If you have written Cocoa apps for Mac OS X before, you don’t need to read any more here. If you’re coming from Windows, you’re going to be horrified by having to learn objective-c. Also, you’ll have some difficulty buying Cocoa books at the moment as they’ve been gobbled up by the hundreds of thousands of other prospective developers. Here is what we recommend to learn the basics of Cocoa:


All of the major publishers will very soon be releasing their lines of specific iPhone development books. Looking at pre-release copies, we can reccomend the following:

When mocking up applications (potential proof-of-concept, etc) check out this PSD made by teehan+lax to design with paper-doll UI.

Conclusion

Developers wishing to leverage their skills to earn cash directly from software sales have a unique and fleeting opportunity here. Though there are thousands of creative and skilled individuals working at top speed to create product, compared to other markets iPhone software is wide open. Early entrants will be able to anchor their positions and build long-standing companies. At the very least, generating a healthy yearly salary without georgraphic restrictions or ongoing time committment is almost simple. Non-developers stand to quickly gain huge amounts of business by figuring out how to recruit and or train new iPhone developers for new software consulting firms.