Why Apple's iPad Has Entrepreneurs Salivating

 The cottage industry serving Apple's iPods and iPhones generates an estimated $6 billion to $7 billion in sales annually, when lumping in headphones, speakers, docking stations, chargers, cases and the likeiPod, iPhone, iPad -- iRich.

That pretty much sums up the desire of entrepreneurs, developers and businesses looking to cash in on Apple's (AAPL) iPad release and Steve Jobs's Midas touch by bringing new iPad accessories and software to market.

With its April 3 release, the iPad marks the latest device to glom onto the multibillion-dollar cottage industry that has sprung up around Apple's iPod and iPhone. As wanna-be entrepreneurs sit on the sidelines debating whether to jump in, analysts say consider this: Accessories are high-profit-margin items.

That cottage industry serving Apple's iPods and iPhones generates an estimated $6 billion to $7 billion in sales annually, when lumping in headphones, speakers, docking stations, chargers, cases and the like, says NPD Group analyst Steve Baker.

The market for iPad accessories, however, isn't expected to be as lucky.

"It won't even get remotely close to $6 billion or $7 billion in a couple of years," Baker says. "If you sold a few million iPads, that would translate into a few hundred million in accessory sales."

Low-Ticket Accessories

Like the iPhone, the iPad is expected to suffer from a case of spurring low-ticket accessories like silicone cases and inexpensive stands that sell for under $100. For example, an iPhone case can usually be had for under $50 and Bluetooth headphones for about $80, whereas iPod accessories tend to cost much more, with docking stations running upwards of $400.

Since the birth of the iPod in 2001, a slew of "i" companies have formed, from theiStore.com, with its iPod-iPhone accessories, to iLounge.com, which offers iPod, iPhone and iPad news to its readers. And, of course, there are more established corporate players from Belkin to Logitech fishing for a new revenue stream by adding "i" accessories to their product lines.

One of the early entrants to adopt the "i" theme was theiStore.com, which launched its Web site in 2003.

"I bought an iPod and couldn't find a silicone case for it. I was trying to bridge that gap when I found a silicone maker in China who had them available in 40 colors," says Michael Lipner, president of theiStore.com. His company quickly set out to be a distributor of these cases.

Opening Splash

Within the first two years of opening, theiStore.com's sales peaked at more than $2 million, Lipner says.

But the demands of being a small distributor were taxing, and Lipner sold off that part of his business to focus on developing unique iPod and iPhone accessories. But by the time he restructured his business, a number of new competitors had entered the market.

The iStore now generates sales under $2 million annually and is taking a cautious look at the iPad, Lipner says. He notes that for people who are considering jumping into the iPod, iPhone and iPad market, it may be too late. "Lots of people have done just that," Lipner says. "Pretty much any URL that starts with iPod, iPhone and iPad has already entered the field."

Renowned venture capital firm Kleiner Perkins Caufield & Byers is looking to stoke the entrepreneurial fire, announcing Wednesday it planned to double its "iFund" to $200 million. That money is earmarked for investments in new applications for the iPhone, iPod Touch and iPad, an area that has attracted an avalanche of attention from software developers.

Developers focusing on entertainment, communication, social networking, commerce, health care and education for the iPad may attract Kleiner Perkins's attention, creating yet another player in this burgeoning cottage industry.

An Allentown's Worth of Developers

With the kind of money that Kleiner Perkins is dangling for developer entrepreneurs, this industry may burst at the seams. According to a Credit Suisse report, Apple has attracted roughly 100,000 developers to create applications for its iPhone operating system -- enough folks to fill Allentown, Penn.

"We expect all ventures to have an iPad strategy," said Kleiner partner John Doerr in a statement. "A new, truly revolutionary platform is rare, and a prize for entrepreneurs."

Already, more than 1,350 iPad apps have hit Apple's iTunes App Store, according to AppAdvice.com, which covers news and reviews on Apple apps. Among those with wares are some of the most established players, such as the successful mobile game developer ngmoco, which has developed seven games for the iPad, including three made exclusively for the new tablet.

"We're finding it to be a Pandora's box of opportunity," says Clive Downie, ngmoco's vice president of marketing. "It has a wonderfully large screen, great touch sensitivity, more touch points than the iPhone. It's an order of magnitude better."

Whether the iPad proves a successful platform for the game developer will depend on Apple's success in selling the device to consumers, he adds. "It's our belief it will be successful and give Apple a foothold in the home environment, in the same way the iPhone and iPod Touch gave them a claim on consumers' time on the go," Downie says. "The iPad is going to give them that in the home."

Good for Independent Developers

Agile Web Solutions, a small independent software developer, says it has had a tremendous number of requests for an iPad version of 1Password and is "treating it like a critical new component" of its 1Password product, a password manager and automatic form-filler first released for Macintosh desktops and laptops.

"We've even heard from plenty of customers who plan on completely replacing either their notebooks or some family members' notebooks with an iPad, so our iPad version has to be the best 1Password client we can make for that device," says David Chartier, Agile's chief media producer.

"I think tablets are going to be an incredible new platform that offers a ton of growth for everyone, but especially independent developers," Chartier says. He expects such developers to push the boundaries of the new device in ways that bigger software developers might not.

"I think we'll see a tremendous amount of useful innovation from Apple with iPhone OS and Google (GOOG) with Chrome OS and Android," he says. "It's all going to translate to a tremendous amount of opportunity for third parties to make these platforms reach their true potential."

With reporting from DailyFinance's Dawn Kawamoto
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