STEVE INSKEEP, host:
Mind if I test your tech savvy? Do you know what an app is? Of course, if you've got an iPhone or something, you absolutely know that. Otherwise, you may not. They're applications - simply, programs that let various Web functions work on various kinds of mobile phones. And of course, the debut of Apple's iPad means software developers have one more mobile device to build games and other programs for.
Three years ago, apps barely existed. But since then, the industry has exploded, as NPR's Wendy Kaufman reports.
WENDY KAUFMAN: Let's begin with a number: $3 billion. That's roughly how many apps have been downloaded for Apple's iPhones, iPods and now iPads.
(Soundbite of air hockey game)
(Soundbite of laughter)
Mr. GREG ANDERSON (Senior Software Analyst, The Seattle Times; Independent App Developer): I got one.
KAUFMAN: Air hockey is one of Greg Anderson's favorite apps. The senior software analyst at the Seattle Times is both a consumer and a creator of apps for mobile devices.
Mr. ANDERSON: You know, when Apple recognizes you or when you get up in the morning and you see the number of downloads, I mean, it's like Christmas every day. You know, it's caffeine, because people appreciate what you've done, so you want to do more.
KAUFMAN: It's a good thing, Anderson believes, that creating apps is fun, because while he makes money building apps at his day job, he hasn't made a penny as an independent developer. His new app, which converts Celsius temperatures into Fahrenheit, can be downloaded for free.
Mr. ANDERSON: I think every developer will tell you, you'll get probably 10 to 15 times more downloads if it's free than if it costs money.
KAUFMAN: Indeed, roughly 80 percent of all apps are free. Many of the rest, including the hockey game, cost just 99 cents.
So how did a market which focuses on free and almost-free apps grow into an industry with annual revenues of $5 to $6 billion? Analyst Chetan Sharma offers a one-word explanation: Apple.
Mr. CHETAN SHARMA (Analyst, Chetan Sharma Consulting): Apple really changed the game in many ways. They made it very simple for developers to get their application to the app store, in front of the consumers.
KAUFMAN: And once it was easier, faster and more lucrative to develop apps and sell them, more developers began to create them. The promise of a digital Swiss Army knife became a reality.
But making money from apps is another story.
Charles Golvin, a senior analyst at Forrester Research, says developers who sell millions of their apps - even for a tiny price - can turn a profit.
Mr. CHARLES GOLVIN (Senior Analyst, Forrester Research): That could be someone as big as Electronic Arts, you know, the largest gaming publisher, and also it could be two guys in a garage.
KAUFMAN: And the guys in the garage who are giving their app away for free may be hoping to eventually sell you a premium version - or sell you something that goes with it.
Developers typically get 70 cents of every dollar spent to download an app. Golvin says the platform provider - like Apple - gets the rest.
Mr. GOLVIN: And then you also have a separate stream of revenue in the form of advertising.
(Soundbite of music)
(Soundbite of TV ad)
Unidentified Man: Horsepower.
KAUFMAN: Developers get most of the advertising dollars, but companies that that serve up ads - like this one, for Range Rover - make money as well. Seattle-based Zumobi does both.
Mr. JOHN SANGIOVANNI (Co-Founder, Zumobi): So this is our creative and design studio, where our new app ideation happens.
KAUFMAN: Zumobi's co-founder is John SanGiovanni.
Mr. SANGIOVANNI: We have several apps coming out focused on the female demographic, parents - that audience is obviously very attractive to advertisers.
KAUFMAN: As one of the leading mobile app publishing networks, Zumobi often partners with big content providers, like NBC and Motor Trend, to create their apps and place ads to go with them.
Company CEO Ken Willner suggests that in the app industry, being big has some advantages.
Mr. KEN WILLNER (CEO, Zumobi): As a publishing network, we can cross-promote, aggressively, all of our applications. For example, you've downloaded our Motor Trend App. We will also suggest our NASCAR app - very, very big advantage. And frankly, the two guys in the garage, that's something they can't take advantage of.
KAUFMAN: And as the number of apps has exploded, it's become more difficult for small guys to get noticed. Recent studies suggest the app economy is growing rapidly and could top $20 billion - the amount Americans spend on children's clothes - in just a couple of years.
Wendy Kaufman, NPR News, Seattle.
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