mocoNews - Interview: FunMobility's Adam Lavine Explains The Economics Of Selling Apps In These iPhone Times

Tricia Duryee
Tuesday, April 21, 2009; 6:59 PM

Last week, Adam Lavine the CEO of FunMobility offered me a glimpse of his world. For the past 10 years, the Pleasanton, Calif.-based company was used to doing business the carrier's way. That has meant creating mobile content to meet their specifications, accepting their revenue splits, and then porting each wallpaper or mobile application to every handset in their portfolio. And then, "rinse, later, repeat."

But now he says the industry has been turned on its head. Carriers have started questioning how much money they can demand from content providers and how many handsets is reasonable to ask developers to support?all because of the iPhone. Lavine: "A good analogy is that you have this mobile content pond with a bunch of creatures swimming in it and then Apple (NSDQ: AAPL) walked up to the pond and threw a rock into it. So now the water is turbulent and cloudy. Everyone is still in the pond, but the landscape has changed."

Because of this, Lavine's looking to increase their market share by picking up the company's pace of development and considering acquisitions. To date, some of FunMobility's most popular applications have been Wallpaper Universe, Ringtones Universe, TrueTones Universe and America's Best Mobile Pix, but going forward he sees a new opportunity evolving in using mobile content to communicate. As a company that has been successful at selling both content and apps through the carrier and the iPhone, Lavine breaks down the economics of both?any guesses on which one makes more?

Excerpts from the interview after the jump?

Here's excerpts from our conversation:

Q: So, is Apple's iPhone good or bad if your business has been based on the carrier model?

Lavine: "Apple's revenue share for one thing has set a precedent in the mind of developers that it should be 70/30, and why should it be something else?...We spend a lot of time looking at the fixed costs per SKU and revenue per SKU, which makes the economics on certain carriers not even worth it?I think the carrier used to have more leverage there. If you wanted to have an app up, you have to support 60 devices. Now that's changing. There's fewer developers and the ones that are left are steely-eyed business people, and they are saying 'I'm not going to go there and do something that will loose the money'. I think the iPhone has put fear, uncertainty and doubt into the mind of carrier. There's a different dynamic out there. Carriers know that they need applications because they drive data revenues and ARPU and retention, so they are re-examining the rules for which they drive the applications."

Q: Have you gotten any carriers to rethink their revenue splits?

Lavine: "In certain cases, we've managed a more reasonable revenue rate, because the iPhone is a precedent in the U.S. Ultimately, the carriers realize that they need a few strong players left, and if they are too aggressive with rates, and if your partner can't make money, you aren't going to be around?especially since venture capital isn't coming into the industry anymore. They have to figure out how to make money doing this."

Q: Do you like what the iPhone has done?

Lavine: "I do. I think it's a great device, from a technology and business perspective, it's brilliant. They came in and redefined what a phone is, and what an OEM is in our ecosystem. I wish they were a little more selective about the apps they put in to the app store?they are the biggest cattle call in the industry. Although, already, there's a lot fewer iPhone developers and the ones that are left are higher quality. It was the same pattern with Facebook apps. The only ones left are the ones who figured out a way to make money."

Q: Wait, it sounds like there's something you don't like about the iPhone?

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