iPhone Apps are the Real Money-Maker, Analyst Says

According to a new study, some smartphone owners spent as much on applications for their cell phones last year as they did on the devices themselves.

Call it the Apple App Store effect, says the ABI Research study on mobile storefronts. Despite having one of the smallest catalogs of all the development platforms -- now around 15,000 app titles compared to 85,000 each for Palm and RIM -- Apple's iPhone App Store has generated significant sales across the board.

"Apple did a lot for the market [last year] with its massive marketing effort telling the public how great mobile content is," said senior analyst Jeff Orr in a news release. "That created a 'halo' effect for the rest of the industry: other device manufacturers and content developers working on non-Apple platforms all saw a bump in sales and downloads because there's more awareness of the smartphone category."

As a result, this year more mobile application storefronts will be launched from Nokia, Palm, RIM and Samsung, said Orr.

The study, conducted in November, asked 235 U.S. smartphone users who installed applications on their devices in 2008 how much they had spent in the last 12 months. ABI found that almost 17 percent doled out between US$100 and $499 for mobile apps. The majority spent between zero cents and $100.

Considering how cheap most mobile apps are, starting for as little as a buck at Apple's App Store, that translates into a lot of downloads. There has also been a lot of excitement about mobile apps thanks to Apple heavily marketing its App Store for the iPhone and iPod Touch.

Of course, notes Orr, the downside is that Apple has created the expectation that all mobile apps should be as cheap as the ones it offers. On Dec. 31, 96 percent of the 12,000-plus titles in the App Store cost less than $10. That's cheap compared to the rest of the industry, which charges between $7 and $25 a pop.

But smartphone users shouldn't expect to see Handango or other favorite mobile storefront slash prices just to compete with Apple, Orr told The Standard. "The average selling price of content will return to the industry average over time, and the open market where developers set the price will prevail," he said. "At the end of the day, Apple's 99-cent iTunes model does not build a market for apps."

Not everything in the App Store is truly a bargain, though. While some simple utilities go for less than $1, there are a number of professional apps that go for far more, like a stage lighting app called iRa Pro which costs $900.

ABI projects mobile app sales to rise from "hundreds of millions of dollars" this year to over a billion dollars in 2010.