New rivals to iPhone App Store

Apple faces a growing threat to its iPhone business, as renegade stores spring up online to sell unauthorized software for the device.

The developer behind some popular iPhone software plans to open a service called Cydia Store that could potentially sell hundreds of iPhone applications that are not available through Apple's official store. Users must download special software that alters their iPhones before they can run these programs. Another small company plans a store called Rock Your Phone for iPhone users who have not yet modified their devices to make it easier to download and buy unauthorized applications. A third start-up is building an online store that specializes in selling adult games for the iPhone.

The new stores take aim at one of the underpinnings of the iPhone's success, Apple's App Store. It sells thousands of independently developed applications ranging from from games to news and entertainment features. People download them to their iPhones, often for free or as little as 99 cents.

When Apple opened the App Store, it provided building blocks so programmers could create software that worked on its phone. But the company tests submissions to maintain quality control and to protect the user experience. Apple collects a 30% commission from sellers on its store. 2008 sales were estimated to be about $150 million and are projected to reach $800 million this year.

The upstart sites can carry software programs that Apple won't, such as free app called Cycorder, which turns the iPhone into a camcorder. A $29 program dubbed PdaNET lets people use their iPhones as laptop modems to connect to the Internet.

Jay Freeman, who created Cycorder and is behind the Cydia Store, says he decided to open the store so developers like himself have a way to make money from their efforts. A big hurdle the Cydia Store and others face is that the applications they offer typically only work on iPhones that have been modified, or "jailbroken," to allow users to download unauthorized programs.

People have downloaded more than 500 million applications from the App Store, but the App Store rejects some submissions for technical and content reasons. It is also so sprawling that it can be difficult for a new developer to get programs noticed.

Apple appears to be preparing for a fight. While the company hasn't taken legal action against anyone for modifying iPhones or building applications for them, it filed a statement with the US Copyright Office. Apple maintains that use of software to modify iPhones is illegal, according to the Digital Millennium Copyright Act.

Cydia Store's Freeman says he has lined up a lawyer in case Apple takes legal action. "The overworking goal is to provide choice," he says. "It's understandable that [Apple] wants to control things, but it has been very limiting for developers and users." (info from TheWall Street Journal)