After an hour long wait to pay his bill at a restaurant, Rick Orr was convinced there had to be a better way to close a tab.
The solution Orr and business partner David Lemley came up with: a mobile application that lets bar and restaurant patrons pay their bills using their smartphones. That idea led to the creation of a new Austin company, Tabbedout. “We left our jobs and set our savings ablaze to see what we could do,” Orr said. Doing that launched Orr and Lemley into new careers – and into a thriving new segment of Austin’s software economy.
Mobile app companies have taken off like a rocket since the advent of Apple’s iPhone in 2007. In that time, entrepreneurs have generated a wave of startups that are helping establish Austin as a hub for mobile Internet, a technology that’s changing how people access the Web and communicate with friends, bank and make purchases.
No one has an exact tally, but local trade groups and developers count more than 50 software and app services companies in the Austin area. That’s in addition to the dozens of game-makers that have added apps to their mix. The biggest hot spots for mobile development are Silicon Valley, San Francisco and New York. But industry veterans say Central Texas can be a breakout region.
They point to Austin’s entrepreneurial culture, its mix of hardware and software expertise, its deep gaming roots and a steady influx of University of Texas students. In addition, the cost of living and availability of affordable housing – relative to the East and West coasts – make it easier for companies to recruit skilled workers.
“Austin’s secret weapon is its talent base of extremely vibrant, hungry and passionate people who want to grow aggressively and do big things,” said Alan Knitowski, CEO of Austin-based Phunware, which developed an app for the Discovery Channel show “Mythbusters” and counts CBS, NBC, ESPN and the National Football League among its customers. “What makes Austin great – the desire to innovate and the technical skill to do it – will make it stand out globally in mobile.”
Diverse Industry Mix
Austin’s mobile app community is diverse, ranging from one- or two-person shops developing consumer smartphone apps to full-service mobile software companies such as Mutual Mobile, which was started three years ago by UT student John Arrow and a handful of friends.
Arrow, 24, dropped out of UT his senior year as the company took off. Today, it has 260 employees in Austin and India, and it develops apps and provides consulting for 52 large corporate clients, including Google, Audi and Dell.
“Our goal is to be a billion-dollar (revenue) company in the next three to five years,” Arrow said. “We are very much on that path.”
The company has bootstrapped its growth without a venture capital investment and is profitable, Arrow said.
He sees strong growth ahead.
“I think we had a mobile bubble when the Apple App Store exploded, and people were trying to win big in the App Store,” he said. “That bubble wasn’t sustainable, and it burst. What we see today is the opposite: Companies are being conservative with the investments that they’re making, and they are demanding a return on investment on every project they do.”
An example is the work Mutual Mobile did with Xerox ACS to modernize the fire inspection process by local fire departments by developing real-time fire inspection software for the iPad. Currently, 1,000 fire departments across the country are using it.
At this stage, Mutual Mobile’s size is the exception, and the vast majority of Austin players are in their infancy. They include eight-person CanWe Studios, whose founder, Brooke Braswell, raised $1.5 million from private investors and moved from Indianapolis to Austin this year to create a smartphone app for business networking.
“We were drawn here by the talent base, but we’ve been blown away by the support,” she said.
Braswell said she has been welcomed by the tech community, with introductions to tech executives and investors and with invitations to join panels and participate in networking groups.
“Austin is like an approachable Silicon Valley. People are open to having coffee and talking about their own business and helping you connect,” Braswell said. “Even though everyone is fighting for the same talent and in some cases the same customers, there’s a genuine desire for you to succeed.”
Tonight, as part of South by Southwest Interactive, Austin’s mobile scene will be on display at a sold-out party hosted by MobileMonday Austin, which sponsors regular meetups of local developers.
More than 750 people are expected to attend the gathering at Fogo de Chao, where eight Austin companies will demonstrate their products.
“We want to expose all the cool startups that are doing great work in Austin,” said Carlo Longino, a MobileMonday Austin co-founder. “We want to show that Austin is more than the city that South by Southwest happens to be in. It’s where some really groundbreaking work is happening.”
Economist Michael Mandel , who has studied the new “app economy,” estimates that 466,000 app-related jobs have been created in the U.S. since 2007 when Apple introduced the iPhone.
“It is still growing,” Mandel said. “Assuming that this is a genuine boom, my guess is that it still has years to run.”
Technical and support jobs are being added at big online companies and small startups.
As more apps are created or converted to mobile devices, more jobs will be added. Just maintaining the software to keep up with rapid changes in smartphones, tablets and software operating systems will take plenty of workers, he said.
“Places like Austin that have a skilled labor base in this area are likely to benefit enormously from the app economy,” said Mandel, president of South Mountain Economics.
According to Indeed.com, an Austin-based company that runs the largest search engine for job listings, nationwide job postings related to mobile development were up 96 percent in January compared with the same month a year ago. The site listed 7,893 mobile-related job openings, compared with 4,016 in January 2011.
In Austin, the number of mobile development-related job postings grew 173 percent last year to 578, up from 212 in 2010, Indeed said.
Mobile is still a sliver of Austin’s software industry. Austin economist Angelos Angelou estimates that software accounts for about 20 percent of Austin’s tech industry and is its fastest-growing sector. Central Texas has about 1,860 software companies employing roughly 20,000 people, he said.
In addition to rapid job growth, mobile apps are generating fast-growing business revenue.
ABI Research predicts that the total revenue generated from four categories of mobile revenue – pay per download, in-app purchases, subscriptions and advertising – will expand from an estimated $8.5 billion in revenue in 2011 to $46 billion in 2016. It estimates that the market for managing all those mobile app services will grow to $11 billion by 2016.
ABI senior analyst Mark Beccue said there are about 2 million publicly available mobile apps, and there is no sign that the growth rate is peaking, especially because the smartphone penetration is just getting started in some major markets, including China.
Hottest Thing Going On
Experts predict that mobile will move in the same direction as the Internet. It’s hard to remember now, but companies used to debate whether they needed a website.
“Just like the Internet, mobile will evolve from being a shiny object to being integrated into everything that companies are doing,” said Dave Sikora, founder and CEO of Digby, which develops mobile e-commerce apps for customers, including Costco, Home Depot and Bed, Bath & Beyond. “That creates all kinds of opportunities for entrepreneurs beyond creating apps.”
Unwired Nation is an example of different approaches Austin startups are taking.
The 15-employee company converts standard Web pages into mobile apps that run on smartphones. It has received a $6.5 million first round of venture investment and won over some early customers, including Q2ebanking, which makes electronic banking tools for community banks.
“There is tons of growth,” said Eric Smith , who heads Unwired Nation. “Mobile is the hottest thing going on.”
Smith and others break the local mobile development community into about five segments: pure apps companies, many of which are quite small; companies, including Mutual Mobile and Chaotic Moon Studios, that develop customized mobile apps for business clients; application tools providers, including GameSalad , which make tools that ease the process of making online and mobile games; large companies, including IBM, that are building supporting software for corporate clients; and platform companies, including Unwired Nation and Appconomy.
Unwired Nation, which has developed a partly automated process for converting Web-based software applications into “native mobile” apps, is talking with companies about converting thousands of existing software programs into a mobile-ready format.
“In three to five years, we are talking about having hundreds of thousands or even millions of apps in management,” Smith said. “We think this is a billion-dollar idea.”
Appconomy also is thinking big. The company, which has headquarters in Austin and Shanghai, is focusing on developing an application development platform for the mobile market in China.
The company has 22 workers in Austin and a few dozen more in China. It is working with Neusoft Corp. , one of the biggest software players in China, and China Mobile, one of that country’s largest cellular carriers.
The market potential of China is enticing. China Mobile has 600 million cellular customers but just 30 million smartphone users. It expects to add 30 million smartphone users this year.
“The numbers are astronomical, and the growth rate is enormous,” said Scott Brittain , Appconomy vice president of products.
Brittain said the company expects to expand its staff in China and the rest of Asia this year.
By July, Appconomy expects to have its app development tools and platform ready for use by small software development companies in China. When that happens, Brittain said, “sales will go crazy” because of the thirst of Chinese consumers for more mobile apps.
Even though the company’s team in China has some English-speaking capability, Brittain said members of the Austin team are picking up some Chinese to ease communication between the two teams and speed the rate of development.
It’s Up to Us
The ease at which first-time entrepreneurs can take apps to market also works in Austin’s favor.
“You don’t have to be in Silicon Valley, and you don’t have to have a relationship with a smartphone vendor,” said Longino, of MobileMonday Austin. “You can just upload it to the app store and the Android market, and people from anywhere can find it. That really plays into Austin’s strengths. It’s a place where people love to live and want to be, and mobile lets them.”
Tabbedout is an example of how it can work. The 3-year-old company’s service is used in 450 bars and restaurants in 34 states; it has raised $6.5 million in venture capital and is expanding its 25-person workforce as it breaks into new markets.
The best scenario for Austin, said Tabbedout co-founder Orr, is for more startups – especially those focused on the consumer market – to jump in the game.
“What we need is to create some big wins that will attract more top engineers and top product people,” he said. “This is our chance to really establish Austin as a mobile technology hub; it’s up to us to make it happen.”