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INNOVATION ECONOMY

Growing app market sparks fierce competition

Burst’s Tracey Deforge and Bryant McBride and their team have developed an app that allows photos and video to be shared with selected group of friends or family.

Rose Lincoln for the Boston Globe

Burst’s Tracey Deforge and Bryant McBride and their team have developed an app that allows photos and video to be shared with selected group of friends or family.

Few parcels of real estate are as valuable right now as those little half-inch square plots occupied by apps on the screen of your smartphone.

“It’s where the action is,” says Dustin Dolginow, of the Cambridge venture capital firm Atlas Venture. “When you hear about 5 million ­iPhone 5s being sold in a weekend, well, that’s just bonkers. People see mobile as the place to start a business today.”

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Smartphones are being snapped up faster than any consumer technology in history, according to Flurry, a mobile analytics company in San Francisco. And that’s causing a frenzy among start-ups.

But the home-screen land grab may remind you of an earlier frenzy. Mobile apps are rushing to build an audience the way websites did in 1999 and 2000, without first figuring out how to make the cash register ring. While raising $2.3 million for Spindle, his Boston start-up, chief executive Pat Kinsel says, “We were never asked how we were going to make money.” Spindle’s free app launched last month; it displays social media messages posted by businesses nearby and isn’t yet generating revenue.

Some Boston-bred mobile apps have won over scads of users, like Trip­Advisor’s travel planning app or LoseIt, designed to help people drop weight. But many app developers are finding that with 700,000 apps available in Apple’s iTunes Store, they need to hire public relations firms, enlist friends to write glowing reviews, and work every Apple contact they can to get featured as a “new and noteworthy” app. Some are buying ads in other mobile apps to try to spur downloads.

Fiksu, a Boston company that helps apps market themselves, says that in August, the average company that bought advertising in other apps to try to build a user base spent $1.34 to acquire a “loyal user,” which Fiksu defines as someone who opens an app at least three times. Hilmi Ozguc, founder of the Swirl Networks, which built a shopping app, says it isn’t unusual to pay $4 or $5 to acquire a user who fits a specific profile. Many app developers are trying to buy their way onto the “most popular” lists of the Apple and Android app stores, explains Fiksu CEO Micah Adler, at which point they hope that the flywheel they’ve paid to start will keep spinning.

On the local scene, there’s some pretty creative stuff being developed. Saverr, a start-up from Israel participating in the TechStars development program in Cambridge, scans your grocery receipt and lets you know whether you might have saved money shopping elsewhere. Directr, which raised $1.1 million over the summer, wants to help turn the video you shoot with your phone into slickly edited 30- to 90-second masterpieces. BrightDriver is creating audio-based games, like trivia, that you can play in the car by speaking to your phone. Timbre shows you the bands playing concerts near you, lets you hear snippets of their music, and enables you to buy tickets.

Burst has raised $3.4 million for an app that allows photos and video to be shared with a selected group of friends or family. One neat feature, called Bubbles, lets you view all of the material shot by many people attending an event like a wedding or youth baseball game. The company is spending money on “a mix of traditional and digital marketing,” Burst founder and CEO Bryant McBride says, including advertising in other apps and old-school publicity events featuring Olympic athletes. The app is free, but McBride eventually hopes to offer “premium level” versions with extra features or more space for storing files. Developing apps for consumers “is a crowded space for a reason,” says McBride, a former business development executive with the National Hockey League. “There’s gold there. It’s about screen time. This third screen is different from television and the PC. It has an intimacy and an engagement level that is tantalizing.”

Facebook’s purchase of Instagram, back in April, “looms large for everyone, and not just in a monetary way,” says Eli Schleifer, chief technologist at Directr. Facebook paid $1 billion for Instagram, which had been founded less than two years earlier and had no revenue. “Instagram was a really successful product that changed the way people use their phones to take and share photographs,” Schleifer says. “Our goal is to change the way people make movies.” The ­iPhone app will be released soon. Schleifer says entrepreneurs starting app companies right now are pursuing one of two business strategies: “Either you are free to users and you have such explosive growth that someone will acquire you for that, or you figure out how to monetize some of your users and you have a real business model.”

The two apps that may be the best candidates for that explosive growth category are LevelUp and RunKeeper. Level­Up’s CEO, Seth Priebatsch, says the Boston start-up has about 300,000 people use it regularly to make payments with their phone and earn loyalty discounts at establishments they frequent. RunKeeper CEO Jason Jacobs says that his company, founded in 2008, now has about 12 million users. But LevelUp and RunKeeper have together raised more than $50 million in funding — so investors’ expectations for an eventual payday are high.

Bob Davis, a partner at Highland Capital Partners in Cambridge, says that his firm enjoyed a tidy payday earlier this month when a telecommunications company in Singapore paid $26.5 million for Pixable, a photo-sharing app created by a trio of MIT alumni that Highland had backed. But he also acknowledges that “a myriad of apps are hoping to get adopted by millions of people, and thinking that maybe someday they’ll be able to sell advertising or facilitate e-commerce.”

But not every app developer will live to see that someday.

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.
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