Apple, Google vs. Big Wireless

Olga Kharif
30 Oct 2007

Mac software developer Craig Hockenberry has never been very interested in creating applications for cell phones. 'It's a lot of politics, and less money' to be made compared with creating software for computers, he says, explaining that programmers have always been forced to bow to a litany of requirements set by wireless carriers, handset makers, and other software companies.

With billions of people carrying cell phones, software makers large and small have long eyed the wireless market hungrily as the next big growth opportunity. Instead, they've found that the bountiful profit margins they've enjoyed creating software for computers and the Web don't exist in the mobile realm. While they rarely need to pay a computer maker or an Internet service provider when their wares are used on those machines and networks, software firms find palms extended at every turn in the wireless industry.

A developer who creates a mobile ringtone from a song may only receive 5% of the revenue from the sale of that application, with cellular providers grabbing a healthy cut of the proceeds on top of those that go to musicians and studios. If it's not the carrier, then it's the handset maker or the creator of a phone's software operating system. Or sometimes several of them extract an extra fee from application developers. 'The ecosystem is not healthy,' says Daren Tsui, CEO of mSpot, a mobile software firm that has chosen to partner with carriers to get its mobile music and video applications on cell phones. Those deals with six North American carriers have produced 2 million monthly subscribers. Yet despite his firm's success, Tsui says, 'You've got the developing community basically starving.'

The appeal of Apple's opening up

Now Apple (AAPL) and Google (GOOG) are trying to throw them a bone. In February, Apple will release a software developer's kit (BusinessWeek, 10/16/07), allowing independent programmers to create applications for the iPhone. Because the iPhone costs an extra $200 or more compared with an average phone, those who buy it are seen as more likely to spend more for premium services every month. Developers hope both Apple and its exclusive carrier partners will be eager to meet that demand with new third-party services and applications. And with a bigger pie to share, they hope Apple and the carrier will cut them a better deal.

Apple's decision to open the iPhone, which followed months of lobbying by programmers, also offers more appeal for developers: As the iPhone is built on the same operating platform as Macintosh computers, those programmers familiar with Mac development tools should enjoy an easy transition.

When the developer's kit becomes available, Hockenberry, for one, hopes to create an iPhone version of Twitterific, a Mac computer application that allows users of the social networking site to view and publish posts. 'Come February, we could see an iPhone [software] tsunami,' says Richard Doherty, director at consultancy The Envisioneering Group.

Google's kindred effort

Google, meanwhile, is expected to come out with a new operating system for mobile devices called gPhone to extend its hugely profitable search-and-ads business to the wireless market. As part of this effort, Google is expected to release a software kit to spur development of innovative third-party services and applications that would help lure consumers to gPhone-based handsets (BusinessWeek, 9/6/07).

One expected feature of the gPhone platform, dubbed gPay, would simplify commerce for third-party providers by enabling users to pay for their services via short text messages.

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