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App Stores Make Billions, but Competition Is Growing

Everything changed in the mobile business in 2008, when Apple launched its iPhone App Store to distribute third-party applications that run on its operating system. Apps range from race-car games to GPS navigation tools, and in January, the 10 billionth one was downloaded from the store.

Apps have it: Consumers shop at an Apple store in Palo Alto, California.

Apple, which collects a 30 percent commission on paid apps, earned $1.8 billion from its app store in 2010, according to industry analyst IHS Screen Digest. More than 350,000 apps are available for iPhones and the iPod Touch, and another 65,000 for the iPad tablet.

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But competition is intensifying. Google’s open-source Android operating system—which runs on many devices that compete with the iPhone—has its own app store, the Android Market. Other app stores serve devices from Research in Motion (maker of the BlackBerry), Nokia, and Microsoft. IHS estimates that Apple commanded 83 percent of the global app market in 2010, but its dominance may not last. Android devices are now surpassing Apple devices in sales. If that trend continues, Android apps will outnumber those for Apple devices by mid-2012, according to Lookout, a software security company.

App stores selling downloads also face competition from apps that run remotely over the Web. The newest Web programming standard, HTML5, “can create experiences as compelling as an app and give developers complete freedom to implement whatever business model they want,” says Jamie Hall, cofounder and CTO of Boston-based mobile social network ­MocoSpace. For example, HTML5 can allow sites to access a device’s location and tap into its graphics chip to display 3-D animations. The growing capabilities of the Web led market analyst ABI Research to predict last year that app downloads would peak in 2013. A gradual decline was predicted thereafter, but the firm says it still expects the business to remain lucrative.

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