Is there a market in jailbreaking apps?

Within a week of its beta-release to developers, Apple's (NASDAQ:AAPL) iOS 5 was jailbroken by two separate teams of hackers, the iPhone Dev Team and ih8sn0w. The news serves to highlight the continued interest among a small group of developers in having unfettered--and uncontrolled--access to Apple's mobile phone operating system.

This interest raises a number of questions: What is driving the jailbroken market? Is designing apps for jailbroken iPhones a profitable endeavor for developers, or should they stick to making apps for the Apple App Store? And will the market for jailbreaking continue into the future, given Apple's continued iOS innovation and the risks involved with jailbreaking, such as voided warranties?

Because of the grey area these issues present, finding developers and programmers who work in the jailbreaking community to openly talk about their experiences is difficult. Many of the people involved in these groups use codenames or work anonymously as part of larger groups. For example, the Dev Team member responsible for successfully jailbreaking iOS 5 is known simply as MuscleNerd. Others, like Jay Freeman, the founder of Cydia (the main software application for finding and downloading apps and themes for jailbroken devices), are open about their identities.

First, though, it's important to understand what exactly it means to "jailbreak" an iPhone.

Jailbreaking vs. Unlocking
People commonly interchange the terms "jailbreaking" and "unlocking" when referring to lifting restricting on devices running iOS, but an iPhone can be unlocked without being jailbroken. Unlocking or SIM unlocking refers to engineering a device to be used on GSM carriers that Apple does not have an agreement with. Jailbreaking, meanwhile, gives a user access to all parts of an iPhone--thus allowing them to run codes and programs that Apple otherwise does not allow.

Someone with an unlocked phone, thus, could replace their SIM card with one from a different provider--an AT&T Mobility (NYSE:T) iPhone customer could use service from T-Mobile USA, another GSM carrier in the U.S. Travelers, similiarly, could replace a SIM card with a prepaid card from a local carrier while abroad. (On June 15, Apple began selling unlocked 16 GB and 32 GB iPhone4s for $649 and $749, respectively.)

Jailbroken iPhones, however, can run applications and services not approved by Apple. Apple offers around 500,000 apps through its iPhone App Store, but iPhone users cannot officially obtain apps through any other source. Google's has used this distinction as a main selling point for its Android operating system, which allows users to install apps from any source, including Google's Android Market.

However, iPhone users who jailbreak their iPhones can load apps from other locations besides Apple's App Store.

Jailbroken iPhones give users access to a range of services that are not approved by Apple, such as FaceTime calling over 3G networks. Here is a brief selection of some of the apps available only to jailbroken iPhones:

App	Description	Image
MyWiFi	Turns iPhone into virtual hot spot. However, Apple introduced hotspot functions to the iPhone with the release of the Verizon iPhone earlier this year.
Winterboard	Changes the main background and can add themed icons
Frash	Runs Flash on iOS. Apple has famously rejected support for Adobe's Flash technology.
My3G	Runs Facetime using 3G. Apple's FaceTime on iPhones is currently restricted to Wi-Fi, though the company reportedly will offer 3G FaceTime on iOS 5.
3G Unrestricter	Tricks iPhone into thinking it is on Wi-Fi
iRealQuickSMS	Allows iPhone users to reply to a text message without exiting an app
Backgrounder	Allows users to run multiple apps at once. Apple introduced limited multitasking with the introduction of its iOS version 4.

Jailbreaking in the past has provided iPhone users with a range of services otherwise unavailable. However, Apple continues to introduce new features to its iOS platform that provide services once restricted only to jailbroken iPhones. Nonetheless, there remain a range of features not supported by Apple that are only possible through jailbreaking.

A history of jailbreaking, and a look at revenues from jailbreaking
The jailbreaking market has come a long way since the Dev Team jailbroke iPhone OS 2.0 in July 2008--the first time a free application enabled users to download and jailbreak their own devices. Previous hackers, like the IRC channel #iPhone who first jailbroke an iPhone in July 2007, a month after the first iPhone was released, manually jailbroke their own devices. But the Dev Team was the first to help others jailbreak their devices.

And while the projects run by the Dev Team or Chronic Dev Team, another well-known jailbreaking group, are usually free, some users are profiting from their jailbreaking endeavors. Wired reported in 2009 that Kim Streich, who developed the app 3G Unrestrictor, earned $19,000 in sales in two weeks through the Cydia store. Apple charges developers a one-time $99 fee to create a developer account, and also keeps 30 percent of app revenues. (Cydia also keeps 30 percent of app revenues, but doesn't charge developers to set up an account.)

Cydia pulled in $10 million in revenue last year, and Freeman made $250,000 after taxes, according to a report from the Washington Post. Still, can other developers or even companies turn a profit making apps for the jailbroken market? Roger Entner, founder of Recon Analytics LLC, doesn't seem to think so.

"A lot of the stuff that comes out through the alternate channels is open source and [made by] hobby developers. I would say that there are no companies developing for jailbroken systems because you are automatically working on something that works through the violation of the DMCA [Digital Millennium Copyright Act]. No company will risk it," he explained. 

And while simply jailbreaking your own device is not in violation of DMCA, this does not mean that Apple is prohibited from suing you for activities related to the jailbreaking. The DMCA only protects "computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset." So, using a jailbroken device with pirated apps can still get you into trouble.

Legal issues around jailbreaking
The legality of the jailbreaking community is murky. Apple has long been opposed to users jailbreaking and unlocking devices, and originally claimed it was illegal and a violation of its copyright. The company also stressed that jailbreaking an iPhone made it vulnerable to cyberattacks.

And while the Register of Copyrights (which is part of the Library of Congress) ruled in 2010 that jailbreaking a phone does not violate the DMCA, some of the activities that piggyback on jailbroken devices--such as downloading torrents, illegal tethering and sharing paid apps--are illegal.

(Apple still maintains that jailbreaking voids its iPhone warranty--though customers may be able to remove the jailbreak and restore Apple's settings.)

Interestingly, though, Apple seems to occassionally take cues from the market it often fights against. Take developer Greg Hughes, for instance. His app, Wi-Fi Sync, wirelessly syncs a device to iTunes without a USB cord. Hughes submitted his app to the App Store last year, and Apple rejected it due to "security issues." He then submitted his app to the Cydia store and sold more than 500,000 copies for $9.99 each, according to a report in The Register. Then, earlier this month, Apple introduced iOS 5, which features Wi-Fi syncing with an icon very similar to Hughes' version.

"Obviously I was fairly shocked," said Hughes in an interview with The Register. "I'd been selling my app with that name and icon for at least a year. Apple knew that, as I'd submitted it to them, so it was surprising to see that."

Indeed, Apple recently hired Peter Hajas, a developer behind MobileNotifier, an app for jailbroken phones that bears a striking resemblance to Apple's new notification system for iOS 5.

Josh Martin, an analyst with Strategy Analytics, noted that Apple has to be careful about its hiring decisions so it doesn't look like it is "approving" jailbroken apps.

How many iPhones are jailbroken?
So what is the value of the jailbroken market? Apple has no way of officially tracking jailbroken devices, but, in 2009, The New York Times reported an estimated 2.3 million iPhones are jailbroken, or 7 percent of all iPhone users.

Entner estimates that there are currently about 3 million jailbroken devices in use. In terms of unlocked iPhones, Entner added "the only indication point that I have is the number of iPhones that are on T-Mobile, and that's about 1.5 million now."

Freeman, in an interview with the Washington Post, said that Cydia alone attracts 4.5 million active users per week.

But who are these users?

Freeman speculated that the breakdown of jailbroken device users has changed significantly since the Dev Team's initial hack in 2008. He said initial jailbreakers were "techie, geeky sort of guys," but that the base has grown into more mainstream users due to the relative ease of jailbreaking programs.

The jailbreaking community is, by many accounts, also relatively young. George Hotz, the first person to unlock the iPhone to be used with other wireless carriers, was only 17 years old when he first unlocked his iPhone to use on T-Mobile. Steven, or Ih8sn0w, who jailbroke iOS 5 independent from the Dev Team, is only 16. Comex, who is behind the site JailbreakMe.com and is a member of the Dev Team, is just 19.

But if there is money to be made in jailbreaking, surely older developers and hackers would be drawn to this market, too?

Strategy Analytics' Martin sees jailbreaking's popularity among young people as an effect of another variable: time. Adults with degrees in computer science and related fields have jobs. "Kids have a lot of time and don't necessarily [need to] make money from it," he surmised.