It’s not all that surprising to read that some folks are making a killing from building apps for the iPhone. As of January ’09, over 500 million apps have been downloaded, and seeing that Apple takes a 30% cut on all apps (same as their fee for sales of music on iTunes), developers are taking in 70% of the revenue of these 500 million downloads. What IS interesting to me is the marketing behind these apps, and in particular, the way that some developers are using the concept of free to generate interest in their product.

The New York Times ran an article last week on Ethan Nicholas, the guy who built iShoot, an app that has generated $800,000 in sales in five months. Take a look at how his sales progressed:

After the project was finished, Mr. Nicholas sent it to Apple for approval, quickly granted, and iShoot was released into the online Apple store on Oct. 19.

When he checked his account with Apple to see how many copies the game had sold, Mr. Nicholas’s jaw dropped: On its first day, iShoot sold enough copies at $4.99 each to net him $1,000. He and Nicole were practically “dancing in the street,” he said.

The second day, his portion of the day’s sales was about $2,000.

On the third day, the figure slid down to $50, where it hovered for the next several weeks. “That’s nothing to sneeze at, but I wondered if we could do better,” Mr. Nicholas said.

In January, he released a free version of the game with fewer features, hoping to spark sales of the paid version. It worked: iShoot Lite has been downloaded more than 2 million times, and many people have upgraded to the paid version, which now costs $2.99. On its peak day — Jan. 11 — iShoot sold nearly 17,000 copies, which meant a $35,000 day’s take for Mr. Nicholas.”

Obviously, this is an extreme example of what can happen financially for app developers, but I do think that some comparisons can be made to musicians looking to generate interest in their music online. My friend John Snyder, who runs Artists House Music, once told me “the curse of the developing artist is anonymity, not piracy.” I do believe that some form of “free” makes sense for most artists; be it a download card distributed at live shows, select music available for free on your site (perhaps in exchange for an email address), live shows for download, etc.

Traditional one-size-fits-all physical retailers are failing – Virgin, Transworld, and Borders have all either closed up shop in the US, drastically cut back on music floor space, or are taking massive financial hits. I think a large part of the future of sales in the music business is online direct to fan relationships (with supporting offline components), where artists cultivate more extensive relationships with their fans, and in the process more effectively monetize traditional and non-traditional sales options. I think some part of “free” works to engage your existing fanbase, as well as turn casual fans into hard-core supporters.

Andrew Dubber has some good thoughts on the topic of free as well. Take a look at his post on “Why Give Away Music For Free.”

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    Hi Michael,

    Good piece. Definitely agree that improving the direct artist-fan relationship is key to the future growth of the music industry. And this can be achieved not only online, but also through mobile.

    Our goal here at Kyte is to provide brands (music, tv, publishing, etc.) with an online and mobile video platform that allows them to connect with their audiences in more meaningful ways and monetize. Artists like John Legend, Franz Ferdinand, and Lady Gaga are using their Kyte channels to show their fans what happens behind the scenes — when they’re on tour, in the studio, hanging out with friends, etc. And they are creating this content at a frequency (often several Kyte shows a week) that keeps fans coming back for more. The fans are staying on these artists’ destinations for longer durations by watching these videos and using our platform’s real-time chat feature to communicate with one another — and in some cases, the artists themselves.

    We released an iPhone Applications Framework back in February and launched 5 artist apps with Interscope Geffen A&M (see: The apps include the same video content and functionality as the artists’ online Kyte channel, so when a fan downloads the Lady Gaga iPhone app, for example, they are able to check out her latest Kyte videos, chat in real-time, and receive updates via RSS regarding her upcoming shows, promotional appearances and other news. The apps can be monetized by charging for the apps, running ads, or by utilizing the apps’ downloads module to make tracks available for purchase.

    This level of engagement is exactly what the fans want, allows the artist to build community across online and mobile, and provides additional monetization opportunities for the artist and label.

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