Striking It Rich: Is There An App For That?

Steve Demeter seems like the perfect poster boy for Apple. Two years ago, the 30-year-old computer programmer became one of the first people to sell his product—a puzzle game called Trism—through Apple's App Store, a virtual marketplace where third-party software developers connect with customers wanting downloads for their iPhones. He pulled in $250,000 in just two months and quit his job writing code for ATMs. Demeter's success caught the eye of Apple's public-relations team, which profiled him in an inspirational video at Apple.com and gave him a shout out at its June 2009 World Wide Developers' Conference (WWDC). Media hailed the San Francisco resident an "App Store Millionaire" who would never have to work again—a happy financial reality that Demeter confirms. "Nine-to-five is no longer a concept for me," he tells NEWSWEEK. (Story continued below...)

Only that's not because of Apple.

Demeter's new-found wealth—he won't specify the exact amount in case people bombard him for loans—comes from investing his earnings in Apple's archrival Palm. "I bought Palm's stock for $1.76 and sold it for $12," he says. "It's kind of ironic."

Ironic, but not altogether unusual. The App Store, which launched in the summer of 2008, is thought to be a portal to big bucks for code geeks looking to make a mark. They sell their wares online, setting their own price and keeping 70 percent of the proceeds. But how many programmers really strike it rich? Apple doesn't release individual sales figures for its App Store, and it declined NEWSWEEK's request for comment. But 18 months after it launched and online prospecting began, the App Store isn't developing many new millionaires. Not only have most sellers failed to turn a profit—a fact that is perhaps not surprising given the difficulty of making money in any retail environment these days—even developers with high-ranking games and applications have made far less than commonly thought. Many come nowhere near recouping their investment at all.

In almost a dozen interviews conducted by NEWSWEEK, Apple consultants and programmers jettison the idea that the App Store is a world of easy opportunity, or a fast track to quitting the rat race. Instead they describe an anxiety-wracked marketplace full of bewildering rules, long odds, and little sense of control over one's success or failure. "It's kind of a crapshoot," says Demeter, who spent the last two weekends partying in Las Vegas and New York. "I think we've reached a point where people are thinking I shouldn't quit my day job for this."

More than 125,000 programmers have flocked to write for the App Store, lured by its generous revenue-sharing deal, as well as Apple's feel-good promotional videos buttressed with motivational slogans ("Make This Your Year," "Come Code with the Pros"), blow-out conferences (Norah Jones performed at one this year), big-deal design awards that are covered throughout the tech world, and a download counter that calls to mind McDonald's boast of "100 BILLION served." Last month, Apple claimed to surpass the 2 billion mark. The App Store, as Greg Joswiak, Apple vice president of iPod and iPhone product marketing, said in a keynote address last spring, "levels the playing field and it makes it so the small guys can succeed as well."

But while the chance for success may indeed exist, the odds of triumphing are still pretty long, as David Barnard found out the hard way. Raised in a family of entrepreneurs, the 30-year-old Texan thought the App Store was an opportunity too big to miss. So in 2008 he borrowed $24,000 from his parents, set up a company, and built Trip Cubby, which logs driving miles and expenses for harried business people. The application garnered top-shelf reviews, a spot on Apple's "What's Hot" list, and earned Barnard more than $45,000 in revenue in less than three months. Then came the expenses: $29,000 for programmers, $15,000 living costs, $14,000 to Apple, $7,000 for marketing, $5,000 for legal and administrative services, $4,000 for logo and Web-site art, and $1,800 in loan repayment. By the time he was done, Barnard says, he was several thousand dollars in the red. "My wife and I ended up selling our car to get by," he says. Today, Barnard's follow-up app, Gas Cubby, which tracks fuel economy, is one of the most popular utility programs in the store, helping him earn more than $200,000 to date. "But we spent a hell of a lot of money to get there," he says. *(Editor's Note: $200,000 reflects Barnard's gross revenue, not including expenses that totaled "way more than 50 percent" of that figure and reduced his average hourly wage to around $10, he says.)