Developers have finally found their pot of gold in the iPhone

By Guillermo Escofet

It hasn’t been an easy ride for mobile content developers. In the value chain that feeds content to operator portals, developers are always right at the bottom, and revenue from the sale of the content they create tends to filter down several middle layers before the, often, smallest portion ends up in their hands.

The biggest share is kept by the operator, which sells the content to end users, and then there is often more than one intermediary, such as an aggregator and a publisher (depending on the type of content), that takes its share. What’s left for the developer can often be as little as 10%.

Yet the developer is often the one that foots the bill for the creation of the content, and in mobile such costs can be huge – especially for graphical, fully multimedia applications, such as games.

Making content for operators means making numerous versions to cater to as many of the hundreds of handsets that operators distribute – with their different operating systems, flavors of Java, browsers, media players, and screen sizes and resolutions.

Then there’s the challenge of finding placement for this content on the operators’ portals. A small games developer operating from his converted garage won’t stand a chance unless he can find a publisher to act as his distributor. And depending on how much clout that publisher has with the operators, he in turn might have to team up with a content aggregator with on-portal links.

And once the content has made it on-portal, the developer will more often than not be kept in the dark about whether it’s selling and what users think of it. Not only that, but his share of the money paid by users to download the content can often take well over a month to get to him. It is not unusual for developers to wait nine months before they see the first return from the money they’ve spent on creating a piece of content or an application.

It is no wonder, then, that so many developers have walked away from mobile over the years. For example, Denki, a UK-based games-design studio, was one of the first to take Java games to mobile phones, about six years ago, with its popular Denki Blocks title, but it ended up walking away in disgust when it realized that the odds were against developers’ making any money. Denki went on to build a successful business creating games for digital interactive TV and virtual consoles.

It is now planning a comeback on mobile – not to resume making games for operator portals, but to make them for the iPhone. And several other developers have also gone back to creating games and other applications on mobile, solely on the strength of Apple’s iconic phone and accompanying applications store.

Why? The iPhone is an exciting piece of equipment to create games for, with its innovative touch screen and motion-sensing capabilities. But that’s not the real reason. It’s because Apple has made it extremely easy for anyone with talent, the right know-how and little else to create applications, place them directly on its App Store and start earning money immediately.

Application providers get to keep 70 per cent of download revenue and have the freedom to set their own price and upgrade their applications whenever they want. And they know who is downloading their apps and what they think of them – through user reviews and feedback. What’s more, no middlemen need be involved.

Most intelligent operators realize that the way they work with content and application creators needs to change and that an application-store model, with open APIs, is the way to go.

One of their biggest challenges is creating a software-development kit that will enable developers to create an application once but deliver it to all the handsets in the operator’s portfolio. It’s been easy for Apple, since the App Store is essentially delivering content to only one device.

But operators are still reluctant to give up some of the other elements, such as pricing and communication with users, that they are used to tightly controlling. And they still insist on getting the biggest share of revenue.

With the number of downloads on the App Store now topping 500 million and the revenue generated for application providers estimated at around US$120 million – all in just seven months since launch – the operators better act soon before much of the mobile content market gets sucked up by stores such as the iPhone’s.