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Mobile app downloads soaring, but not generating big profits

Gartner study says users will download $6.2 billion worth of mobile apps in 2010

Users of mobile devices will download some $6.2 billion worth of applications from online stores this year, nearly double what was spent in 2009, acording to projections by Gartner Inc.

However, Gartner noted, it remains unclear whether those sales results are bringing profits to the developers of mobile applications.

About 80% of mobile apps can be downloaded from online stores free-of-charge; Gartner is projecting its revenue totals for the remaining 20% of products. Some developers include advertising within free applications, which Gartner projects will generate an additional $600 million for mobile app developers.

Moble app developers are also boosting sales by offering users of free apps the opportunity to buy enhancements, upgrades or even physical goods for a fee, Gartner said.

For example, said Gartner analyst Carolina Milanesi, users of Touchnote Ltd.'s free Touchnote Postcard iPhone app can use the service to send postcards graced with personal photos for $1.49, which includes postage.

Gartner said it isn't clear whether increasing numbers of enterprise personal productivity mobile applications from large software makers are leading to increased profits at those companies. Gartner didn't analyze the profitability of mobile app sales, but plans to. In fact, most IT analyst firms are only beginning to probe into the profitability of mobile apps sales, and into what business models could be most successful financially.

"All I can say is that this is not certainly an easy business," Milanesi said.

It's clear, though, that some application developers are generating revenue with mobile apps. Some say those revenues are creating profitable businesses.

For example, London-based Flirtomatic, an online mobile flirting and dating service, has seen steady growth from its mobile social application since launching it in 2005. The company's PG-rated flirting service application has been distributed by various wireless carriers such as MetroPCS and Vodafone. The company this month brought the free application to Apple Inc.'s App Store .

The application generates advertising revenues under deals with Nokia and others, and also generates revenues from users who pay for so-called "FlirtPoints" that can be used to send other users special messages and virtual goods. The virtual gifts range from an animation of fireworks exploding to a bottle of champagne or a dozen roses.

Flirtomatic CEO Mark Curtis said via e-mail that the application's average revenue per user is $12 a month, based on an average transaction of 50 cents, or 75 FlirtPoints. He said the company's U.K. business has been profitable since June, 2009. He added that the company's U.S. business has "exceeded targets" by 35%, but wouldn't divulge further details.

Flirtomatic has raised $8.7 million in venture funding, he added.

Flirtomatic's service has been offered for use on older cell phones and desktop Web browsers for several years, and more recently on Android devices and, now, the iPhone. GetJar , a mobile application store for a variety of phones, lists 280,000 free downloads of Flirtomatic. Curtis said that said Flirtomatic is now the sixth most downloaded GetJar app in December.

In all, Flirtomatic has about 1.8 million user profiles; any user can create a profile for free.

Flirtomatic won't say how many users are paying for premium services, but offers them the ability to send a virtual gift, a kiss, a wink, or even a "supersnog" (an English name for a big kiss) for about 50 cents. There is even a feature called a "Flirtbomb," which allows users to send flirt messages to multiple people at one time in hopes of attracting multiple responses.

Curtis said Flirtomatic is successful because "flirting crosses international barriers quite naturally" and because the micropayments are easy to make, often through a cellular carrier. He added that the company benefits from making the service available on multiple platforms.

"The future of mobile commerce is very bright, as mobile users are happy to pay as long as the billing systems are easy and transparent, as evidenced by our ARPU of $12," Curtis said.

Gartner's forecast for mobile app spending through app stores supports his optimism. Mobile app store downloads in 2010 expected are to reach 4.5 million, valued at $6.2 million. That number will soar to 21.6 million downloads in 2013, valued at $29.4 billion, Gartner added.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld . Follow Matt on Twitter at @matthamblen , send e-mail to or subscribe to Matt's RSS feed .