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Smartphone App Downloads to Triple by 2014

The new consumer phenomenon of smartphone app usage is expected to keep growing at a rapid clip, with downloads tripling over the next five years. But with that growth comes challenges for the mobile industry as competition heats up.

Downloads from all app stores will reach 6.67 billion applications by 2014, up from two billion this year, Vikrant Gandhi, analyst at market research firm Frost & Sullivan and author of "An Insight into the U.S. Smartphone Application Storefront Market," told InternetNews.com.

Right now, Apple's (NASDAQ: AAPL) App Store, which blazed the trail for the cottage industry of smartphone apps, claims more than one billion downloads with 65,000 programs available.

It was followed by Google's (NASDAQ: GOOG) Android Market, Research in Motion's (NASDAQ: RIMM) BlackBerry App World, Palm's Pre Catalog (NASDAQ: PALM) and Microsoft's (NASDAQ: MSFT) store, which is due later this year for Windows Mobile.

Verizon Wireless (NYSE: VZ), the nation's largest wireless carrier, is opening the VCast Store later this year, however it will differ from existing carrier stores by opening its network to developers through APIs.

Gandhi said the following factors are fueling the download app growth: free content subsidized by mobile advertising and mobile commerce; high-quality user experiences driven by next-generation devices and advanced networks; strong support from key industry players; the vast inventory of apps appealing to a broad and diversified segment of users; and operator acceptance.

Smartphone revenue is expected to grow by 25 percent in 2010 and by 19 percent in 2011, according to a recent report by Goldman Sachs, so it's no surprise the app market shows no signs of slowing down. However, mobile app vendors, with the exception of Apple, generally don't issue download numbers, so it's difficult to ascertain what the current baseline number is for individual app storefronts.

Still, it's safe to say that there's a huge gap between Apple's one billion downloads and the rest of the pack. "Apple has a two-to-one advantage versus RIM in application usage with significantly higher average application downloads," according to the Goldman Sachs Smartphone Survey report.

Most smartphone users (62 percent) download one to five applications per month, and the share of iPhone users in the same category is even higher, at 82 percent, according to Goldman Sachs.

The Goldman Sachs survey goes on to say that smartphone apps may not net handset makers and carriers a huge amount of money, but they are becoming an integral piece of the brand loyalty puzzle.

"While not a significant revenue driver, Apple's much-admired App Store is likely increasing brand loyalty as downloading applications becomes ingrained in users' behavioral patterns. The race is on for companies such as RIM, Palm, Nokia, and Verizon to build competing application marketplaces in order to increase the 'stickiness' of their devices," says the Goldman Sachs report.

Applications providing access to news, weather and investing are by far the most popular types, with 63 percent of respondents citing them as their favorite, while a large percentage of iPhone users also download games, entertainment and social networking applications, according to the Goldman Sachs data.

Also, 21 percent of BlackBerry users do not download any applications, likely a reflection of its enterprise focus, as well as the fact that RIM's app store only became available four months ago and still has a lot fewer applications than Apple's app store.

Meanwhile, the Frost & Sullivan report suggests that because of the challenges and complexity involved in launching and running a successful app store that some handset makers might ultimately want to outsource the task to a third party.

"For instance, outsourcing or white-labeling of the app store business might become a good idea in the long run since a device vendor or an operating system provider may not want to commit large resources to manage the smartphone app store business," Gandhi said.