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Customers look over the Apple iPhone 3GS at the company's retail store in San Francisco, California.

Robert Galbraith/Reuters

As a young programmer just out of grad school in France, Fabien Sanglard dreamed of building a computer graphic that could produce a realistic illusion of a liquid-filled screen. But the hardware required wasn't yet readily available, and he set the task aside. Sanglard eventually settled in Toronto and took a gig writing code for Rogers Communications. But in 2008, after Apple unleashed the iPhone and the accompanying development software that allows programmers to create applications for the device, he quickly realized the solution to his problem was at hand.

It only took a few weeks for Sanglard to create Fluid, a program that allows a user to make the iPhone screen ripple and glisten with the stroke of a finger. After passing muster with Apple's vetting teams, Fluid debuted in Apple's App Store on May 9, 2009. Thirty thousand people downloaded it on day one; within two weeks, the tally had reached one million, making it the No. 1 app worldwide that month.

Sanglard had hit a mobile gusher. Though Fluid is free, he promptly released an updated version that sells for 99 cents. Under Apple's profit-sharing model, the company gives developers 70% of an app's revenues. A few months later, with 6,000 downloads a month, Sanglard, 31, realized he was earning more from Fluid than he did as a full-time programmer at Rogers.

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Welcome to the Wild West world of the app-those stamp-sized software applications that iPhone owners download at a voracious pace. With 150,000 apps now available through iTunes (up from only 10,000 a year ago), Apple has deftly ignited an entirely new market. It's easy and inexpensive for entrepreneurial developers to create apps that run the gamut from the utterly inane and gimmicky to the relentlessly practical. Some of them go further, providing novel ways for companies to connect with increasingly transient consumers.

There's no question that Apple dominates this space. But in the past year, Nokia, Samsung and Research In Motion have all rushed into the app business because, as Mark Beccue, a consumer mobility analyst for ABI Research, says, most consumers "now know they can do much more than just phone and text. Everyone with a smartphone is thinking, 'I can do something else.'" Google, for its part, has further upped the ante, introducing its own smartphone platform, Android, which leverages the search giant's fast-growing inventory of apps as well as its proficiency with online advertising. And in March, Sony announced it would launch a smartphone that will allow users access to the company's vast inventory of games.

According to the tech industry research firm Gartner Inc., smartphone owners will download 4.5 billion apps in 2010, up from a trickle two years ago. This virtual market is worth almost $7 billion (all currency in U.S. dollars), and will balloon to nearly $30 billion by 2013.

With that kind of traffic, product marketers can no longer ignore the mobile consumer, any more than they can avoid the conventional Web. Indeed, as established corporate brands begin to make forays into this frenzied environment, a key question looms: Will the app universe continue to be dominated by digital ephemera, or will it become an important new commercial frontier? Given the worldwide proliferation of creative energy spawned by the iPhone, it seems it is only a matter of time until the next Jeff Bezos happens upon a disruptive, game-changing app that will do for the frenzied world of mobile computing what eBay, Amazon and Google did for the Internet in the last decade-that is, change everything.

For anyone who owns an iPhone-or its phone-free sister, the iPod Touch-procuring an app is an absolutely fuss-free transaction, steeped in the intuitive simplicity for which Apple is renowned. You can log on to the App Store from the iPhone using a 3G data connection or WiFi, or download the app to your desktop computer, which will automatically transfer it to your handset the next time you connect.

The inventory is heavy on novelties and games, as well as media sites, navigation tools, price aggregators, personal finance trackers, religious offerings ("iTalk to God" is enormously popular) and even adult-rated apps (although Apple banned the more explicit ones in February, a move that aroused some controversy). Prices range from 99 cents to $8.99 or more, but there are a growing number of freebies every day, created by companies looking to extend their brands into this new universe (Tim Burton's latest film, Alice in Wonderland, has its own app). Apple's clever slogan-"There's an app for that"-is essentially an open invitation for consumers to shop constantly in what has become a digital dollar superstore, teeming with impulse buys.

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Development costs are also cheap. The programming language is available from Apple, and developers pay Apple $99 a year to use it-an affordable alternative to the licensing fees and costs associated with other platforms.

Last year, during what came to be known as the "gold rush," tens of thousands of software developers rushed to build apps, spurred on by beguiling-and sometimes apocryphal-tales of entrepreneurs who had made fortunes on wildly popular offerings like iBeer, iFart and Shazam (which identifies song titles if you hold the phone up to a music source), as well as addictive games like Doodle Jump and Paper Toss. "Everyone seemed to know someone who knew someone who'd made an app that took off," says Leanne Friedberg, a Toronto game designer and former teacher who also joined the frenetic race with a cryptic maze game called SwipeHead.

One of the early Canadian entrants was Vancouver's Iugo Mobile Entertainment, which, in seven years, has grown from a two-person start-up to 20 employees, and seems to have figured out how to make money in this boiling market. With 15 apps to its name, Iugo has seen some of its games bob up to coveted spots at the top of Apple's hit lists. But Iugo is tiny in comparison to established game developers like Electronic Arts and Gameloft, both of which are creating mini-versions of their most popular console games to run on the iPhone. Still, Iugo has managed to build a certain measure of brand awareness among iPhone owners. "We're lucky we got in early," says founder Hong-Yee Wong.

When he took the plunge in the summer of 2008, Wong knew all about the multibillion-dollar, hit-obsessed computer gaming industry. But he soon found that the app business is a world unto itself. "Consumer behaviour on the [Apple]App Store is completely different than anywhere else in the game industry," he says, adding that buyers "will be distracted by thousands more 99-cent games coming out the next day."

As such, the Apple App Store is arguably the world's most chaotic market. Developers might spend months and tens of thousands of dollars designing an app that could have a shelf life of as little as two weeks. Gaining a critical mass of consumer buy-in is another challenge. Yes, Apple updates its own picks every Tuesday, and features popular apps in its print and television advertising, but the vast majority don't get that kind of attention. Even though the Internet is teeming with review sites and hit lists, there are fewer runaway successes than a year ago. "The gold rush is over," admits Garry Seto, co-founder of Toronto-based Endloop Inc.

Strike that: While one gold rush may be ending, another, more corporate version is just taking off. Stephen King, CEO of Mob4Hire-a small Calgary firm that operates a global network of smartphone app testers-boldly predicts the number of apps available will exceed five million by mid-decade. "I don't think we've scratched the surface," he says.

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As mobile devices become more sophisticated, firms have begun seeking apps that can mimic what people are already doing on their laptops. This winter, CIBC became the first chartered bank in Canada (and one of only a handful worldwide) to launch an app that lets users manage their accounts, transfer funds and pay bills from their iPhones (it complements CIBC's existing mobile website, which is accessible from any smartphone with a browser and Internet access). The move is part of the bank's strategy to provide customers with more choice and flexibility, says CIBC executive vice-president for retail markets Christina Kramer. "Investing in a leadership position in the market is important to us."

Thousands of CIBC customers promptly downloaded the app, Kramer says, adding that the bank is already working on enhancements. "As our competitors also come in and introduce applications," she insists, "we'll still be investing in this space."

Content firms, such as large gaming companies and media giants, have been among the first to delve seriously into this world, with apps that offer iPhone versions of popular computer games (Rock Band) or news feeds (Bloomberg). There are lots of tourism apps, such as one from the restaurant recommender Zagat. And consumer-goods powerhouses, like Nike, have put out freebies that offer branded games, location tools or other ephemera (shoemaker Adidas, for instance, offers a guide to urban art in Berlin and Hamburg).

But, in many sectors, such as banking or retailing, big gaps remain. PricewaterhouseCoopers has an app (an extension of its website), but rival KPMG doesn't. Target, the U.S. retailer, offers an app that lists weekly bargains, which seems useful. The Walgreens app provides store locations and promotions, but also allows customers to submit prescription refill orders. Zellers, the discount arm of the Hudson's Bay Co., has an app that does nothing but promote one of its designer labels-a.k.a. "brochure-ware"-while trying to entice customers to submit personal information. Many others-Canadian Tire, Chapters Indigo, Royal LePage, Shoppers Drug Mart-have no presence at all, at least not yet.

"We've been looking at it for some time," says Paul Goddard, vice-president of enterprise development at Pizza Pizza Ltd. Large U.S. chains such as Pizza Hut already have apps that allow iPhone users to place online orders. Goddard says Pizza Pizza has "formulated a mobile app strategy," but will only say that a launch date is somewhere in the "short-to-medium term" future. "It depends on how extensively we go out the gate."

One of the issues companies face is that there's a surfeit of generic "finder" apps designed to locate all sorts of things-the nearest Tim Hortons or McDonald's, for example-that combine easily accessed Internet databases and the location-finding feature embedded in iPhones (and most other smartphones). What's more, Apple doesn't police intellectual property, so it's possible for upstart developers to design apps that piggyback on prominent brands without running afoul of trademarks.

Perhaps in response, corporate clients and advertising agencies are hiring independent firms to build "enterprise" apps, which many observers consider to be the next wave. "We're just seeing it become more and more prominent," says Endloop's Garry Seto. "Companies are finally seeing the need to get their brand out there."

The goal is to devise an integrated "mobile strategy" that includes a mobile website and a suite of apps designed to operate on various smartphones, says Ameet Shah, vice-president of sales and business development for Five Mobile. His 30-person Toronto firm helps clients build mobile applications for a range of smartphones, including BlackBerry and Android. Score Media hired Five Mobile to design a sports statistics app for BlackBerry. It has become one of the most popular downloads on RIM's App World.

What Shah and many others believe is the most bankable development in the maturing app universe is advertising, especially highly targeted ads that exploit the user's current location and other personal data. Last November, Google ponied up $750 million to acquire mobile advertising distributor AdMob-Google's third-largest purchase to date-a sign that the company regards its new Android phones as a lucrative way to connect advertisers with mobile consumers. Less than two months later, Apple acknowledged the importance of this market by investing $275 million on its own mobile ad acquisition: four-year-old Massachusetts firm Quattro Wireless.

This market is still evolving. Early on, many developers realized they could make more money selling banner advertising on free apps rather than charge users for a download. Online ad agencies have stepped in to orchestrate larger campaigns. In a recent case, the car magazine Autoweek hired AdMob to drive downloads of its new app by disseminating mobile ads through AdMob's network of 3,000 apps. For some companies, in-app ads-from full-screen pop-ups to so-called pre-roll video snippets-have become the latest extensions of integrated marketing strategies that include print, broadcast and the Internet.

Another approach exploits the combination of features found on most smartphones. The popular U.S. review site Yelp has an "augmented reality" app that allows users to point their phone camera at a street scene and quickly see listings and reviews for the stores and restaurants in the area (it's available for a range of smartphones, not just the iPhone). Whether it will prove to be useful for marketers is unclear, Shah says. For now, "it's more about the cool and wow factor than the overall utility."

In the end, mobile advertising may only be a warm-up for the big game: mobile commerce. After all, when you click on that ad, the advertiser knows precisely where you are-and what you're looking for-and has the opportunity to "push" promotional text messages to your phone. Imagine pointing your phone at a street corner and receiving a 2-for-1 coupon for the Keg or notification of a sale at Best Buy. M-commerce, as it's known, has been hyped for years, with little in the way of results, but the surge in smartphone ownership over the past two years, plus exploding consumer fascination with apps, suggests its moment has arrived.

Case in point: ShopSavvy, an m-commerce app developed by a team of Dallas-based entrepreneurs, is already messing with the retail sector. ShopSavvy allows smartphone users to take a picture of the bar code on a product and instantly bring up the prices of the same item at competing retailers. As if that trick weren't enough, the app has a payment feature that allows consumers to instantly purchase the item by simply tapping in a PIN code-all while standing in a store, subversively scanning someone else's goods.

The process is far simpler than having to browse the myriad price-comparison websites with your mobile phone. "Consumers seem to have embraced the idea that we have solved a problem they didn't know they had," says ShopSavvy co-founder Alexander Muse, noting that half the product purchases on ShopSavvy are for high-value goods like electronics. Currently, its users collectively scan about 1.5 million items a day, and nine in 10 do so while standing in a retail store with, as Muse puts it, "an intent to shop."

ABI's Mark Beccue points to such examples as evidence that the m-commerce market is indeed taking off. Between 2008 and 2009, revenues from U.S. mobile phone transactions tripled, from $396 million to $1.2 billion. ABI predicts the global total will reach $119 billion by 2016. (In China, half of the country's 338 million Internet users currently access the Web exclusively from their phones.)

Muse likens the process to "creating a wallet inside the app." And he has a warning for those who aren't paying attention to the start of the m-commerce revolution: "You can either get run over by the bus of price transparency or you can learn to use it to your advantage."

So, where is this tsunami of activity heading? It's apparent that Apple is creating something of a parallel universe to the Internet, one that is expanding prodigiously inside its app store, with iTunes functioning a bit like Netscape did back in the mid-1990s. But as other major app stores race to catch up, a new problem is emerging: Smartphone users all have their own app universes, and mobile-savvy companies have little choice but to adapt their apps to meet the requirements of each platform.

Some developers are already looking for solutions to this problem of fragmentation. ABI's Mark Beccue expects that apps will eventually become Web-based-"untethered" in the industry parlance. "Apps will survive," he predicts, "but app stores will start to decline because you can put these things on the Internet." As apps proliferate, Apple's control over that space-the company determines which apps go up, and which ones are banned or blocked-will become ever more contentious, and could even be the basis of some future antitrust case.

One thing seems certain: The relentless search for digital riches has shifted to the mobile world. What's more, that race will define this decade, just as e-commerce defined the last one. For all its frustrations, those who've sampled what mobile computing has to offer seem drawn to its allure. Living off the revenues from Fluid, Fabien Sanglard is working on a new app, a 3-D game he expects to release later this year. He's got high hopes, but as he readily admits, "It's very hard to see what's going to be successful."

Besides the iPhone, that is.


Extreme Venture Partners (Toronto) Early-stage funding for smartphone developers Amar Varma looks at the success of companies like YouTube and sees a new kind of start-up. "They came out of nowhere and became very big, very valuable, very quickly-and with very little invested capital," he says. With the right kind of investors, small software companies can take flight without breaking the bank. Varma founded Extreme Venture Partners in 2007 with partner Sundeep Madra, and is now nurturing a 12-company portfolio (including BumpTop and Xtreme Labs). He sees four big growth areas for mobile software: local advertising, health-care applications, tools that alleviate network congestion, and mobile commerce-cellphone-based money transfers that are already common in the developing world. "Mobile commerce is something that doesn't exist yet," he says. "When Third World countries are adopting stuff ahead of us, something's wrong."

BumpTop (Toronto) Interface software for tablet computers It started off as a master's thesis and went viral. As a student at the University of Toronto in 2006, Anand Agarawala created a YouTube demonstration showing a virtual desktop that would allow users to intuitively interact with their icons as if they were blocks in 3-D space. He founded BumpTop the following year-just in time for the arrival of touch-based computing. Today, the hype surrounding Apple's iPad means others will be looking for ways to rival Apple's interface magic. While Steve Jobs may be a tough competitor, BumpTop has already managed one major coup: Its desktop interface ships with Hewlett-Packard's new line of touch-screen tablets. "For the biggest computer retailer in the world to bet on a small company in Toronto speaks volumes," Agarawala says.

Marketcircle (Toronto) Billing and account apps Although it also develops software for Apple Mac desktops, Marketcircle has found a sweet niche among the countless developers designing apps for Apple's wildly popular mobile devices. While most developers focus on seemingly lucrative games and casual apps, Marketcircle is all business. The company designs intuitive billing and invoicing programs, as well as business collaboration and scheduling software. Marketcircle's execs have yet to reveal what plans they have for the Apple iPad, but many expect the firm to take advantage of the device's increased processing power and larger screen.

Multiplied Media (Calgary) Location-based smartphone apps Multiplied specializes in location-based services at a time when more and more people expect their handsets to help them find, say, the best nearby restaurant option. The company works with a number of big-name partners, such as MSN and Yellow Pages, but made its biggest splash late last year with a BlackBerry app called Poynt-essentially a hand-held business directory that uses GPS to rank results based on proximity to the user. Poynt won the best location-based service award at last year's Canadian New Media Awards, giving Multiplied a surge of publicity-and a nice boost in sales.

Polar Mobile (Toronto) Media and content apps for smartphones When big-name content producers such as the Food Network, Sports Illustrated and Time magazine need a mobile app to extend their brand, they turn to this Toronto shop. The heart of the company is a platform that gives buyers a one-size-fits-all template to combine, host and publish editorial and advertising content, as well as capture analytics-information about who's looking at that content. The company is proving especially popular with content providers that deal with large amounts of constantly changing data. Think stock prices and sports statistics. -O.E.A.

Magmic Games (Ottawa) More than 70 titles for BlackBerry, iPhone and other handsets If you own a BlackBerry, you may already be familiar with Magmic's work. The company designed the Texas Hold 'Em, Sudoku and Solitaire games that ship with every handset. Its New York Times crossword game was the first iPhone app to include subscriber content: Users pay to have the daily puzzle pushed to their phones; Magmic, the Times and Apple split the revenues. Now the firm is turning its eye to the burgeoning billion-dollar marketplace for virtual goods, and pushing into multiplayer social gaming-imagine Texas Hold 'Em players competing online for virtual prizes that can be traded for real dollars.

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About the Author
Technology Culture Columnist

Ivor Tossell has been writing columns about online culture for The Globe and Mail since 2005. A reformed web programmer, his writing on urban affairs, technology and culture has appeared in Canadian publications ranging from very glossy to downright inky. He lives in Toronto. More

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