Revenue is predicted to sky-rocket in the apps sector, which a few years ago did not even exist, writes Karlin Lillington

THIS YEAR looks like it is going to be the year of the application store. Application stores are online markets run primarily by mobile handset companies, where consumers can download small applications, or apps, that add useful and fun functions to their device. Often the apps are free, but some carry a small charge and, increasingly, they may also have embedded advertisements.

Games are downloaded most, with mobile shopping, social networking, utilities and productivity tools the other leading categories, according to analyst Gartner.

It is a market single-handedly created and overwhelmingly dominated by Apple for its iPhone. The fact that the company has just marked the three-billionth download from its App Store signals its pre-eminence.

Plenty of competitors though are piling in with their own offerings, including heavy- hitters Nokia, Blackberry, Samsung, Google and Microsoft.

Apps are not just for mobile handsets any more. Intel launched an app store for netbook computers earlier this month, and Apple’s touchscreen iPad announced last week is able to use “almost all” of the 140,000 iPhone and iPod apps.

With all these app store openings, Gartner predicts revenue is ready to sky-rocket in the sector, which did not even exist a few years ago.

A recent report estimates consumers will spend $6.2 billion (€4.4 billion) worldwide in 2010 on handset apps, with advertising revenue generating another $600 million – even though eight out of 10 apps will be free.

Gartner predicts downloads in 2010 will rise to 4.5 billion from 2.5 billion last year and, by 2013, will hit 21.6 billion.

The apps ecosystem has developed because Apple made a decision early on to encourage small developers to create applications for the iPhone. This has arguably been the key to its success, alongside developer and consumer excitement about the device itself.

“I wrote my first iPhone application because I liked the iPhone,” says Irish developer Dermot Daly of Tapadoo.com.

“There’s something about the desirability of the platform that has attracted developers.”

The iPhone’s runaway sales indicated the direction other handset makers would need to follow. Along with quickly releasing their own range of smartphones and touchscreen phones that can use apps, they have also begun to set up their own app stores.

Nokia launched its Ovi Store last May. At an event for developers in Dublin recently, the company acknowledged it faced challenges in bringing handset users, who are at best only interested in music or ringtone downloads, on board for this new way of using their device.

Nokia has taken the approach of offering apps for many handset models. Benjamin Roszczewski of Forum Nokia, the company’s online forum for developers, says the Ovi Store supports 100 models and approves 500 new “content items” a week.

With far more handsets in the market than Apple, the company hopes developers will be attracted to creating apps for its phones and is actively soliciting their participation.

There have been glitches, though, with app developers complaining about Nokia’s policy of requiring them to have business and VAT registration and to pay a €50 fee. By contrast, Apple charges a €79 lifetime fee to developers and does not require business registration.

Stung by the reaction of developers, Nokia has acknowledged the issue and says it is working to change its system. “We get a lot of comments on the VAT and business registration, so we’re trying to fix it,” Roszczewski says.

“Nokia is really trying here,” says Daly, who attended Nokia’s event and says he is impressed by its developer support. However he says the prospect for developers of creating multiple versions of an app to work on multiple handset brands for multiple app stores is daunting and creates extra costs.

He also notes that Google’s operating system, Android, which is open-source based, has already split into two versions, creating hassle for developers.

Tipperary-based app developer Alex Schregardus of start-up Xyndi.com is taking a different approach, choosing to design web-based apps that work on any handset with a browser and, therefore, can bypass the app stores. “I don’t want to get locked into a platform,” he says.

He is working to develop a web-based platform that will enable companies to create their own personalised applications, a system he has running in test format. He says web-based apps have about 80 per cent of the functionality of app-store offerings that can only run on a specific handset.

“They can do everything except access the hardware, such as the camera, in the phone.”

Schregardus notes that many existing apps within the app stores are already browser-based, and adds that many companies only need simple web-based functionality for the kind of personalised apps they want.

The app stores, however, make it easy for developers to develop, market and get paid for their apps and have opened up revenue prospects for thousands of individual developers and small start-ups.

Gartner expects the revenue model to settle, probably moving towards more embedded advertising.

“Application stores will be a core focus throughout 2010 for the mobile industry and applications themselves will help determine the winner among mobile device platforms,” says Carolina Milanesi, research director at Gartner.

“Consumers will have a wide choice of stores and will seek the ones that make it easy for them to discover applications they are interested in and make it easy to pay for them when they have to.

“Developers will have to consider carefully not only which platform to support but also which store to promote their applications in.”

Number of mobile applications downloaded:

2009: $2.5 billion

2010: $4.5 billion

2013: $21.6 billion

Revenue generated (consumer spend and advertisements):

2009: $4.23 billion

2010: $6.7 billion

2013: $29.4 billion

Downloads in 2010 that will be free: 82 per cent

Source: Gartner