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A Billion-Dollar Turning Point for Mobile Apps

The path for Internet start-ups used to be quite clear: establish a presence on the Web first, then come up with a version of your service for mobile devices.

Smartphones
Paul J. Richards | Getty Images
Smartphones

Now, at a time when the mobile start-up Instagram can command $1 billion in a sale to Facebook, some start-ups are asking: Who needs the Web?

Smartphones are everywhere now, allowing apps like Foursquare and Path to be self-contained social worlds, existing almost entirely on mobile devices. It is a major change from just a few years ago, underscoring how the momentum in the tech world is shifting to mobile from computers.

In that context, the Instagram deal looks like something of a turning point, as even the Web giant Facebooktries to get a better grasp on a market that requires a rethinking of old rules.

“For decades, the center of computing has been the desktop, and software was modeled after the experience of using a typewriter,” said Georg Petschnigg, a former Microsoft employee who is one of the creators of Paper, a new sketchbook app for the iPad. “But technology is now more intimate and pervasive than that. We have it with us all the time, and we have to reimagine innovative new interfaces and experiences around that.”

Venture capitalists are eager to get in on the mobile trend. According to the research firm CB Insights, mobile apps and companies attracted 10 percent of the total investment dollars from American venture capital firms in last year’s fourth quarter, and 12 percent of deals were mobile-related, up from 7 or 8 percent in previous quarters.

Ben Lerer, manager of the venture capital firm Lerer Ventures, said he preferred to back companies that were building services for mobile first and the Web second, because “businesses that are thinking that way are planning for the future.”

Mr. Lerer was one of the early investors in OMGPop, a New York company that was close to shutting down until it had an overnight hit in Draw Something, a twist on Pictionary for the iPhone. Last month, OMGPop was snapped up for $200 million by the game company Zynga , which has been trying to reduce its dependence on Facebook-based games like FarmVille.

Another hit game, Angry Birds from the Finnish company Rovio, started out on the iPhone before migrating to computers and video game consoles — an unusual trajectory in the game world.

Cellphones are also prompting a shift in how people want to share things online, creating a market for apps that make instant sharing easy, said S. Shyam Sundar, a director of the Media Effects Research Lab at Pennsylvania State University.

In other words, many people want to post a photograph of themselves right from a sun-drenched beach in Bali, rather than waiting until they are back home to upload all 50 pictures onto Facebook.

“People are living in the moment and they want to share in the moment,” Professor Sundar said. “Mobile gives you that immediacy and convenience.”

Instagram, a social network focusing on just that kind of instant photo sharing, does have a Web site — but it is essentially there just to encourage people to download the company’s apps. It is one of several social networks that have established themselves entirely on mobile. Another is Foursquare, which lets users share their location with a select few friends and has attracted nearly 15 million members.

“Mobile-first is the direction that many social networks are headed,” said Holger Luedorf, the company’s head of business development. If done right, he said, such services start to feel “baked into” the phone itself.

Dave Morin, who was at Facebook early on and left to create Path, a social network for mobile phones, said he realized that the world was headed for a mobile-centric future in 2009, when the influential analyst Mary Meeker published a report saying that more people would soon connect to the Internet on mobile devices than on personal computers.

Path does not release user numbers, but its app appears to have traction, particularly among people who have become disenchanted with Facebook. “Because you take your smartphone with you everywhere, you can quickly and easily take a photo or video, map your location or jot down a note or a thought,” Mr. Morin said.

Companies that start with a Web site then try to shrink it into an app face a tough challenge. Screen space on mobile devices is at a premium. And to avoid turning off users, designers and developers have to cut back on clutter and streamline their services, avoiding slow load times and stuttering interruptions.

Start-ups that put their resources into mobile from the beginning can skip some of the hassles. “You’re freed from worrying about so many of the things that you have to think about when it comes to Web development,” said Oliver Cameron, one of the founders of Everyme, an app introduced Tuesday that analyzes a user’s contacts and generates miniature social networks around people it thinks belong together.

Then there is the relative ease in finding an audience. Web sites and software packages have trouble standing out in the crowd. But apps have a simple distribution mechanism in app stores, which can immediately bring an app to a customer’s attention. “In February we had close to 900,000 downloads,” said Andreas Schobel, chief executive of Catch, a start-up in San Francisco that makes a note-taking app. “How would we do that on the Web?”

Mobile apps tailored to work for specific devices like the iPhone also run faster than Web sites, Mr. Schobel noted. “When you’re on the phone you need the experience to be instantaneous,” he said. “You just can’t do that yet on the Web.”

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