The Apple (AAPL) App Store, with over 1.5 billion application downloads, has become a tremendous market where software developers can sell their products.  Individuals or corporations must register with Apple and pay a small fee to become official developers in order to be able to sell applications at the Apple App Store.   Apple has to approve each application prior to release.   More than 10,000 developers have registered with the Apple App Store and have produced over 65,000 applications.

Apple benefits from maintaining an App Store in two ways.  First, it dramatically increases the versatility and desirability of iPhones and iTouches.  People can effectively customize their iTouches and iPhones by downloading the applications that complement their lifestyle.  Apple also profits directly from the sale of paid applications.  Apple takes a third of the price every time a user downloads an application that they have to pay for and the developer gets the rest.

Applications at the App Store fall into two categories: paid and free. The winning formula for paid apps is not complicated from a developer’s standpoint:  create a great product and price it right. The creation of a successful application is still no easy feat.  The Apple App Store maintains a list of the top 100 most downloaded applications. This is often the first place users go to shop for apps.  The apps on the top 100 have incredible momentum so it is often very difficult for new developers to muscle their way onto the list.

The model is less straight forward for free applications. There are number of ways that developers seek to profit from offering free applications at the App Store.  24/7 Wall St. has chosen four software developers that have released products that have been among the top 100 most downloaded free applications at the App Store.  Each of them seeks to profit by offering free applications in a different way.

1. The Little Guy:  Over the past few months Trippert Labs has released multiple applications that have been on the App Store’s top 100 free application downloads.  All of its applications are free, but run ads and Apple does not get a cut of ad revenue. It is obvious when the release dates of Trippert Lab’s applications are reviewed that many are issued on the same day or are closely clustered together.  It is clear that their applications, designed in a formulaic quiz style, with names like “What Designer Brand Are You?” and “How Intelligent Are You?” share a significant amount of source code with one another.   Trippert can create dozens of applications with very little effort with this approach.  This is one example of how a small developer can become profitable.  Small operations, like Trippert, who do not have the funding for a large development team, can rely on code recycling to expand their foot print at the App Store.

2.  The Big Brand: Google has released two applications that have maintained a position on the top 100 free applications list: Google Earth and Google Mobile.  Google Earth provides mobile access to Google maps.  Google Mobile allows users to search using Google in their iPhone.  Neither of these applications generates profits for Google directly, however, they are both powerful tools for enhancing the Google franchise.  Both of these apps, with millions of users, maintain Google as a part of life even when one walks away from the computer.  Other well-known brands that have been successful in pushing free apps to the top 100 include Bloomberg, ESPN, and CNN.

3. The Piggy-Backer:  The Barnes & Noble eReader is a great product for expanding this book retailer’s reach even if the Kindle never existed.  This program gives the user access to over 500,000 electronic books that can be read on the iPhone or iTouch, which has the potential to generate significant revenue for Barnes & Noble.  The eReader allows Barnes & Noble to compete with Amazon.com’s Kindle, the Amazon portable electronic book reader.  Barnes & Nobles’ eReader is a distinctly better choice for consumers interested reading books in electronic format.  Instead of having to buy an over $200 device that only allows the user to read books, a consumer can spend less than $100 dollars on an iPhone or iTouch and get the same service.  Companies like Barnes & Noble can have access to the approximately 40 million iPhone and iTouch users instead of spending money unnecessarily for development of hardware.

4. The Natural, Founded in 1979, this developer is about as old as the video game industry itself.   Capcom has released two applications that are currently ranked amongst the top 100 free iPhone applications, Resident Evil Lite and Mega Man II Lite.  Both of these bring classic names from the gaming realm to a new medium.  Having already developed these games, Capcom’s mobile programmers need only put them in a form that can be run on an iPhone.  Additionally, each of these games has a corresponding paid application.  If users like their gaming experience with the lite version, they have the option to be Capcom’s paid versions of the games, which run at around $6.99.

These models for developing successful free applications for the Apple App Store indicate that the area of marketing and sales in this new world of mobile software has multiple approaches that can result in success.  The commonality that runs through them all is that they harness the unrivaled popularity of the iPhone and iTouch to reach their customers in ways that were previously impossible.

Garrett W. McIntyre

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