iPhone apps: Bad for Facebook, OpenSocial?

With the debut of the iPhone App Store, social-network developer platforms are no longer the darlings of the software world. That's partially because you can charge for an iPhone app.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
6 min read

What does the iPhone 3G have to do with the future of social platforms like Facebook and OpenSocial? A lot, actually.

It's because of the iPhone App Store, the add-on to the iTunes Store that opened its doors on Thursday in anticipation of the new device and its iPhone 2.0 software.

With more than 550 third-party applications available at launch, Apple's new mini marketplace means that for the first time since the social-application craze started more than a year ago, the hottest new trend has nothing to do with Web-based networks.

The iPhone App Store, the add-on to the iTunes Store, made its debut Thursday in anticipation of the iPhone 3G's release Friday. Apple

"(The iPhone is) a device that's made for 'social,'" said Bart Decrem, a veteran of browsers Firefox and Flock who went on to found Tapulous, a start-up firm that has released three iPhone games in the App Store and plans to roll out more. "This is a device that's always connected, that's always on you. It knows where you are, you can take pictures with it, and you can send messages with it."

The new iPhone: it's pretty, it's shiny, it's versatile, and owners rarely leave it out of their sight. The implication for Facebook, as well as open-source social network platform OpenSocial, is that if developers see more compelling reasons to build software for the iPhone instead, they could jump ship.

And there's a big reason: money.

It's true that there is not an obvious path to jump from one to the other. Traditionally, the Web development space has been distinctly separate from the tight-knit community of Mac developers, said developer Jesse Farmer, who writes about both on the 20bits blog. "There's cultural differences and technical differences. People who develop software for social platforms tend to come from the Web world. They tend to travel in their own social circles," he explained.

When it comes to the App Store, Farmer said the first ones to the table "are the people who are really into that stuff. The Mac developers are going to be the first ones there, mostly because developing for the iPhone is going to be a lot like developing for the Mac."

The money factor
There might be an apples-and-oranges vibe when it comes to comparing social-platform developers with iPhone developers, but the money factor could easily make some of them willing to bridge the gap.

For small-time developers, it's become increasingly tough to make a buck or two from applications on Facebook's platform, where the easiest route to cash is ad impressions. The space has become dominated by half-billion-dollar firms like Slide and RockYou, something that Farmer has pointed out in his analyses of developer discontent.

"If you've already succeeded on Facebook, OpenSocial, or whatever, there's really no reason to (switch)," Farmer said of iPhone development. Thing is, there are thousands upon thousands of developers who haven't succeeded, or who enjoyed only flash-in-the-pan success. "People who are sort of disillusioned with social networks and haven't found a way to succeed...I can see them moving over and trying it out."

"Buying and installing an iPhone app feels very similar to buying a song through iTunes, and that familiarity is undoubtedly going to work to the advantage of all developers on the platform."
-- Eric Litman, CEO, Medialets

The iPhone App Store is structured completely differently, and that might be appealing. True, there are barriers to entry: a fee to join the developer program, and selectivity when it comes to apps that wind up in the store. But that could get a thumbs-up from developers who grew tired of the saturation of Zombie Bite-type games on Facebook's platform.

"It's disruptive in the way that going from DOS to Windows was disruptive," Tapulous' Decrem said. "That means that there are tremendous new opportunities, and entire new classes of applications and companies will come into existence." He said that with the iPhone 1.0 software, which required a "jailbreaking" hack to be able to install third-party applications, the games released by Tapulous had already seen a million installs. In other words, people want this stuff.

And here's the real kicker: the creators of iPhone applications can charge a fee for downloads, thus creating a way to make money that's unheard of on free-for-all social-network platforms. Of the 552 applications in the App Store at launch, 417 of them are paid downloads, one of them costing a whopping $69.99. (That'd be ForeFlight, which provides runway and airport data for airline pilots.)

"Apple has built payments directly into the app distribution model in a way that is already comfortable and familiar to over 100 million iPod users," said Eric Litman, whose new start-up Medialets also hopes to cash in on the iPhone developer gold rush. "Buying and installing an iPhone app feels very similar to buying a song through iTunes, and that familiarity is undoubtedly going to work to the advantage of all developers on the platform."

Investment bank Piper Jaffray estimated last month that the iPhone App Store could be a billion-dollar business by 2009, and that nearly 90 million people worldwide could own compatible iPhone and iPod Touch devices by the end of that year. That's a bigger audience than Facebook has now--though it should be noted that the number is probably optimistic. And the lower price point for the new iPhone 3G, just $199 for the lower-end model, means that its reputation as a geek fetish toy will probably go away soon. Charging five bucks for an application could bring in some real dollars.

Advertising industry ready to jump in
But even if a developer is committed to distributing his or her iPhone applications for free, the ad industry is already chomping at the bit. That's in stark contrast to the debut of the Facebook platform, where many developers simply used Google's AdSense at the start, and it wasn't until months later that Facebook application ad networks started to pop up. (Now they're everywhere.)

"There is a lot of ad agency excitement right now about the iPhone, the iPhone 3G, and advertising possibilities on the iPhone," said Greg Yardley, founder of iPhone ad start-up Pinch Media. "I know that inventory just on regular Web pages optimized for the iPhone is selling fast."

There's still no concrete reason to believe that advertising on the iPhone will work much better than advertising on a social network, just a lot of statistics and guesswork.

"Mobile has been the redheaded stepchild of advertising for a long time, simply because the tracking has been really bad, and traditionally, the targeting has been really bad," Yardley said. "Now that the iPhone is going out there, there are more interesting ad opportunities. I think we're going to see an increase in spend, but it's not going to be a flip of a switch. You're always going to get a few agencies that are going to get out there and do interesting things, but those agencies were going to do interesting things, anyway."

Even if the money's not as solid as it purports to be, the promise is there, and that's going to be enough to make some developers shift the focus from their Facebook or OpenSocial applications to Apple's shiny device. It's guaranteed to shake things up, at the very least. "Not only will app developers move to the iPhone, I think we'll see the social platforms themselves move there," Litman said. "The iPhone is an inherently social device, in many ways even more so than social-networking platforms."

There's a lot of big dreaming, but right now, the biggest priority is getting used to the new landscape. When asked what he planned to do first after the iPhone 3G launched, Yardley said, "We have to make sure our servers stay up."

Click here for CNET News' complete iPhone 3G coverage.