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News

Programmers Jockey for iPhone Users at Apple Site

8/5/2008 by Raymund Flandez, Wall Street Journal

Modality Inc.'s big break came calling via mobile phone.

Right after Apple Inc. announced in March that it would allow software developers to build applications for its new iPhone 3G, Modality, of Durham, N.C., got busy.

And on July 11, when Apple launched the phone and the Apple App Store to hawk those applications, Modality's product -- digital medical terminology flashcards -- was among the available downloads.

One taker was Jeff Midgley, a physician assistant at the Yale New Haven Hospital in New Haven, Conn. He says he wanted something in his pocket that he could show to patients when they ask him about a simple sprain or fracture. Rather than showing them an X-ray, he can just call up the cards on his iPhone and zoom in on the bone in the correct anatomical position.

"It's a little expensive," says Mr. Midgley, referring to the $39.99 he paid to download the application, called Netter's Anatomy. "But I'm going to give it a shot, instead of lugging 1,200 flash cards around."

What's Working So Far

Apple says about 25,000 software developers have tried their hands at creating applications that can be downloaded onto both the iPhone and iPod -- all trying to jump on the bandwagon of the tech gadget of the moment.

It's too soon to gauge whether any of these applications will prove successful. On the one hand, the Apple App Store, which can be accessed through iTunes, provides a captive consumer group -- many of whom already are inclined to purchase an Apple-approved application. But software developers don't have a say in where their applications are displayed in the App Store. So products can easily get lost in the myriad of other applications if they don't offer features and functions that catch consumers' attention.

So far, applications that are showing promise are those that provide mobile consumers with entertainment, useful searches and handy tools like a tip calculator. Among the top paid applications: a measurement conversion tool, a Texas Hold'em card game, and a sound recorder for memos, discussions and interviews. The top free ones include games like Sudoku. Apple says there have been 25 million downloads of applications from the App Store so far.

"It's "a powerful business model," says Allen Kupetz, executive in residence at the Crummer Graduate School of Business at Rollins College in Winter Park, Fla. "Very low cost of doing business, and very high margins. That's kind of the sweet spot for any business."

A software-development kit is available free from Apple's Web site. There also is a $99 version, which includes technical support from Apple.

Greg Joswiak, vice president of world-wide iPod and iPhone product marketing at Apple, says developers are responsible for quality assurance but Apple does review the application before putting it on the App Store. "We don't want any misbehaving applications," he says, such as ones containing viruses or pornography.

There are about 900 applications available on the App Store, according to Apple, with 20% of them free. Among the paid applications, about 90% go for less than $10. Software developers receive 70% of the cost of every paid download. Apple keeps the rest.

Wide Reach

Modality, a 12-employee company, has been turning print titles into digital reference guides since 2006, selling the programs on its own site, Raybook.com. Titles include CliffsNotes, Betty Crocker cookbooks, Brain Quest and Mr. Boston: Official Bartender's and Party Guide.

Modality declined to give sales figures for its digital guides. But the company is now betting it will get a big boost in sales from the Apple App Store.

"We were clearly interested in extending our business model to this device and were excited about the opportunities for further interactivity," says S. Mark Williams, Modality's chief executive. He says he has yet to receive any download and sales numbers from Apple.

The Netter's Anatomy reference cards are based on the Atlas of Human Anatomy, which is published by Elsevier, a publisher of science and health information, owned by Anglo-Dutch publisher Reed Elsevier PLC.

Sebastian Vos, vice president of e-Education Health Science for Elsevier, says mobile learning is a growing trend, especially for medical students and professionals who want a handy reference right on the spot. And he adds that Modality has the expertise to adjust the publisher's popular brands into one that technologically savvy students and professionals could embrace.

"I think we're reaching customers that we would never have had access to," he says.

When the iPhone opportunity popped up, Mr. Vos adds, he quickly saw the potential of such a device, which could offer a much more interactive functionality than the click-wheel versions of the iPod, where many of Elsevier's contents had previously resided.

Modality says its revenue-sharing agreements with publishers are developed specifically for each title the software firm creates for the iPhone, with the percentages based on the size and scope of the application.

Worth the Price

While the Apple App Store could expand Modality's reach, the software firm will have to work hard to differentiate itself from the multitude of applications vying for consumers' attention. The $39.99 price could also turn off some potential buyers.

But Mr. Williams isn't worried. The initial response has been strong, he says, adding that customers recognize the value of such premium educational and professional content.

"We're categorically different than games," he says.