After the iPhone app rush: the future of mobile applications

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Apple Inc.’s iPhone App Store celebrates its first anniversary on July 8, and what a year it’s been — over 53,000 practical, fun and just plain strange bits of code available for free or cheap, and over 1 billion downloads so far. Meanwhile, Apple’s competitors scramble to woo independent software vendors in a desperate effort to catch up. With every platform vendor vying for their attention, the future of ISVs must be very bright indeed.

But is it? Maybe not. People and marketplaces, you see, don’t change quickly or easily, and when they do, the change is usually superficial — a fact that some in high tech try to ignore. Invest only in disruptive technologies, we are told. Come up with that game-changing killer app and people won’t be able to stay away.

But if apps are selling, you say, what’s my point? The problem is that the tale of mobile apps will likely follow the script of the first age of ISV applications. Back in the early 1980s, you’ll recall, there were too many hardware vendors and too little software until Lotus 1-2-3 took off. Then ISVs sprang up like mushrooms, creating both sophisticated programs and small “utilities” that could be acquired as “shareware” or bought on floppy disks. After Egghead Software was founded in 1984, you could browse for cool programs in shopping centers everywhere.

Of course, you know the rest. Microsoft attracted the most ISVs to its platform and then bought or knocked off the best of the features that those ISVs had created. Consolidation among ISVs took care of most of the rest.

But hasn’t the advent of the Internet changed everything? Probably not. After a wonderful period of innovation and excitement, the mobile app marketplace is likely to go the same way as the first age of software. There are three main reasons:

Too much product. How can an application stand out in the market when Apple will host anything that meets its minimal qualifications? Normally, when new product categories emerge, channels evolve to suit them, as do the skills of those that exploit them. When that happens, the most able ISVs will rise to the top.

Too little value. At current prices, an ISV has to sell huge numbers of copies to be successful. Unless an ISV keeps knocking the ball out of the park, it’s doomed. So if channels don’t evolve, developing mobile apps will be like playing the lottery — and you can’t base a business on that.

Apps do too little. Most mobile apps are unpatented features, not products (not that watching a goldfish isn’t soothing). The most useful ones will be bought or knocked off. And the wider public will never buy apps as avidly as the early adopters.

Wrap this all up, and what you have is a typical gold rush, boom-bust scenario. Traditional market forces will drive bundling of features and a few leading ISVs will rise to the top. The only question is how quickly and how thoroughly.

Here’s where some changes will have an impact. The fact that some hot platforms are open source will enable more ISVs to enjoy a level playing field. Also key will be whether platform providers remain willing to share the wealth this time around. Finally, I expect that some interesting open-source projects will be founded that will offer their own bundles of software and services.

All that may help. But if you’re tempted to start a mobile app company, I’d remember that emerging software markets, like gold rushes, always end in the same way — so sell your claim quick.

Andrew Updegrove is a partner at Boston law firm Gesmer Updegrove LLP and has been representing startups since 1979. He can be reached at andrew.updegrove@gesmer.com.

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