Investing in mobile applications, with trepidation

[1]More than $100 million has been invested across almost two dozen iPhone application developers, according to a detailed research post [2] from startup and investor information resource ChubbyBrain. The news serves to highlight the dramatic and continuing interest in all things Apple and App Store, following Apple's announcement earlier this year of more than 1 billion apps downloaded [3] (no word though on how much has been spent on apps).

Interestingly, ChubbyBrain wonders in its post if the $100 million figure "isn't surprising given conversation that the iPhone may be bigger than the PC ... Or perhaps for some of you, this number is a lot less than you expected?"

It's a good question. Of course $100 million is an enormous sum for keyboard jockeys such as me, but it's just a drop in the bucket compared with the amounts of money spent by industry heavyweights like Verizon Wireless or Nokia. Indeed, mobile Web firm Quattro Wireless raised a whopping [4] $10.1 million in VC funding during the first quarter, evidence that there's interest in all things mobile rather than just the iPhone.

"In the grand scheme of things, when you compare it to all the subscribers out there, (iPhone market share) is really very small," said Salvatore Tirabassi, a partner at M/C Venture Partners.

But Tirabassi goes a little further, and offers caution on the entire app development space. Despite the enormous buzz generated by app stores from the likes of Microsoft, RIM and Palm, Tirabassi notes that "it's a very complex investment ecosystem out there for applications." He said M/C Venture Partners has so far remained an observer only, and does not have plans to invest in the seemingly white-hot app development space.

To be fair, Tirabassi's firm focuses on later-stage companies, and has a penchant for funding operators like MetroPCS [5], Revol Wireless [6] and Mobi PCS [7]. Nonetheless, Tirabassi warns that a company is not a sound investment unless it has scale, and the fractured nature of the smartphone and application development space--which spans from Windows Mobile to Java to webOS--couldn't be more splintered.

And even if a developer could cover all of the bases on the handset side, carriers must still be factored into the equation. Tirabassi said operators will make sure to stamp out any application they deem worrisome (see AT&T Mobility's tangles with Sling Media [8]), which further clouds calculations for possible investment.

So does this mean venture capitalists will shy away from the smartphone market? Probably not. But it does mean that trepidation is warranted, and that success is not guaranteed. After all, it was just a few years ago that the market was buzzing with the cash-making potential of mobile virtual network operators (you can launch your own wireless service!) and that fad didn't really pan out. Did it Mickey [9]? --Mike [10]

P.S. FierceMobileContent will not publish Friday, July 3 in observance of the Independence Day weekend. Publication will resume Monday, July 6.