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Big money to earn in smartphone app business

A gold rush for developers who build applications for the iPhone and other smartphones is in the works, with U.S. revenues from smartphone apps expected to increase by a factor of more than 10 through 2013, to $4.2 billion.

That estimate, from Yankee Group Research Inc. in Boston, was calculated using the following factors: growth in smartphone unit sales, which Yankee Group expects to quadruple between now and 2013; an expected increase in the number of smartphone applications, and a projected jump in the average price of a single app from $1.95 today to $2.37. Yankee Group expects the number of smartphones sold to grow from 40 million in 2009 to 160 million in 2013.

If developers want to cash in on the potential gold mine, Yankee Group recommends that they write applications that are different from the ones that most of their fellow developers are building.

That means, for example, that developers of iPhone apps should focus not on games but on business tools — because there aren't many of those for iPhones. However, developers who really want to create new games should consider writing apps for the BlackBerry, because there are already plenty of office and business tools for that platform.

“BlackBerry already has so much software for business, so there's a real opportunity for consumer apps,” said Carl Howe, an analyst at Yankee Group, in an interview.

In contrast, Apple Inc. lists 75,000 applications in its App Store, and most are consumer-focused, Howe noted. “If you are trying to hit the top 25 paid apps on App Store with the next cool game, there are probably 1,000 developers out there that want to also. So I'd say to go where everybody else isn't.”

Yankee Group based its analysis of purchased applications on a survey of 1,200 consumers who own smartphones. Howe said he was most surprised by the finding that the average user has downloaded 20 applications. Games overwhelmingly led the list of downloaded apps, representing 73% of the total. Apps for search came in second, and social networking apps were third. After that, users said they picked applications to help with specific interests, such as bird watching, followed by banking apps, which were fifth.

“I'm surprised by the sheer number of apps now being downloaded,” Howe said.

Only 18% of the applications from all of the various app store sites were paid for, but Howe said there is still a healthy revenue stream from that group. In all of 2009, Yankee estimates there will be $343 million in U.S. revenue from applications for smartphones sold through online application stores. And that number is expected to exceed $1 billion in 2011 and reach more than $4.2 billion in 2013.

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