I’ve been doing some research into this lately, especially in anticipation of contrasting it to similar opportunities that may be offered by the upcoming Windows Marketplace for Mobile (http://www.microsoft.com/presspass/press/2009/feb09/02-16MWCPR.mspx).

Regarding the iPhone, it’s certainly got buzz in its favor. And as of Q1 CY09, Apple had sold 21 million iPhones.

On the other hand, Microsoft announced that 20 million Windows Mobile devices sold in 2008 alone. However, unfortunately for the independent software makers, what’s missing in the Microsoft case is a sales channel like the iPhone store.

If you’re an aspiring iPhone application developer, there have been some inspiring big-money success stories. For example, Tap Tap Revenge is on an estimated 6.5 million devices. But there’s a huge amount of competition now. A recent estimate is that there are 35,000 applications on the iPhone store (many of which are free).

Is developing iPhone applications a good business model? It’s always fun to play an overly-simplistic numbers game:

Start by assuming that you’re an experienced developer who makes $100 per hour. That’s a lofty rate, to be sure, but I mean someone who’s truly senior and has the credentials and reputation to deliver a sophisticated iPhone application, on budget, with high reliability. If you’re not one of those, you should not be playing this game (and good luck finding one).

Assume you spend the equivalent of one month, or 160 hours, on developing an iPhone application. That’s $16K of development cost. Now suppose you sell the application at the typical 99 cents per download, and that you can average 50 downloads per day. Minus Apple’s cut, you’ve got 69 cents of revenue per unit. To make back the development cost is going to require selling almost 24,000 units, which will take 464 days, or around 15 months.

Too conservative? Maybe in some ways. For one thing, moving 50/day may be typical across the board, but top category apps do 2500/day. Also, in a software start-up endeavor, the average developer cost had better be less than $100/hr (although there’s big time competition for those brains right now). And in that case, you won’t be developing just one application, but rather several of them, in which case you might be able to average less than 160 hours per. The goal is to have a few solid app releases, established a brand, and break into the top per-category lists. If you can get to that point, then, again, you’ll be doing way better download numbers.

On the other hand, the winning strategy right now seems to be to build one or more successful apps as free downloads in order to garner a user base. Then try to monetize later (hey, .com all over again!), perhaps by introducing premium versions. There will be non-trivial marketing and design expenses along the way, probably dwarfing the above development-cost-only numbers.

So – surprise – it’s not the get-rich-quick opportunity that many people seem to think it is. There is significant competition in this space, including from folks who decide to provide similar apps for free, either because it’s just a side project or because they’re doing it as a brand-building strategy.

Other background links:

http://www.macresearch.org/business-models-iphone-applications

http://bits.blogs.nytimes.com/2009/04/05/will-the-iphone-30-fuel-a-second-gold-rush/?hp

http://moconews.net/article/419-whats-it-cost-to-be-a-top-iphone-app-1875-a-day

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