1. We re just getting started.

Smartphones aren't new the Research In Motion BlackBerry has been around for more than a decade. And there have been games and work-related programs designed for these multitasking phones for many years. But apps the common lingo for mobile applications didn t really take off until 2008, when Apple launched its App Store. Since then there have been 5 billion downloads of iPhone apps. Apple changed the landscape, says Tuong H. Nguyen, an analyst with research firm Gartner.

But the app industry is still learning how to turn goofy ideas like using your phone as a mirror into legit businesses. Competition is fierce: There are more than 225,000 apps in the App Store alone and plenty of other smartphones with their own markets. Google s operating system for mobile phones, Android, has more than 80,000 apps, and apps are available for the BlackBerry as well as for phones using the Palm and Microsoft operating systems. All told, it adds up to a $7 billion market, Gartner estimates for 2010, up from $4.2 billion in 2009. And that s only the beginning: We re in the discovery phase, says Andrew Ianni, founder of AppNation, which puts on app conferences.

2. We track everything you do

App developers know all about you and how you use their apps. If, for example, an application you use involves banking, a malicious developer may be privy to your account details, according to John Hering, CEO of Lookout, a mobile-security company. Google, Apple and other vendors also know which apps you bought, which you use and which you have erased from your phone. Developers and the analytics companies they employ access much more detailed data about how you use the app. They can see, for example, how often and for how long you played a game and everything you did in it, says Peter Farago, VP of marketing at analytics firm Flurry.

All this data is invaluable to developers, who use it to improve their apps. They can also use it to build audience profiles in order to help attract ad dollars. Advertisers may be looking for gaming fans, for example, and want to target ads to people who spend lots of time using particular titles information app developers then share with the middlemen who sell ads. On the mobile platform, you know exactly who you are targeting ads to so you can target more specifically, says Rob Terrell, founder of the app developer TouchCentric.

3. and we do what we want with your information.

All that data about you tied to your smartphone gets circulated through an ecosystem of companies. Problem is, there are no rules about what they can do with it, other than some regulations about when it can be turned over to the government, says Jared Kaprove, former domestic-surveillance counsel with the Electronic Privacy Information Center.

More troubling, many of these companies particularly the small ones lack clear policies for using and storing your data. It can easily be stolen or misplaced, which can happen even at large corporations with good data-security practices. People simply aren t aware of how their data gets used and how valuable it is, says Kaprove, and companies prefer that you just don t think about it. Fearing consumer perception of privacy issues what Farago calls the Big Brother creep factor the industry is trying to be open about its use of data and allows users to opt out of having theirs collected. But that can be a challenge, says Frank Dickson, VP of research at market-research firm In-Stat. Any time you re interacting in the public domain, you are going to leave bread crumbs, he says.

4. The more you use our app, the more money we make.

Jamie Green, a software salesman and self-proclaimed gadget freak from Rye Beach, N.H., says he s spent $400 on apps in the past two years, including traffic maps, games for his kids, and productivity apps for work and home. He even uses one to track such spending (yes, there s an app that tracks how much you spend on apps). But Green says he downloads lots of free ones, too. These come with ads that earn developers money anytime a user sees or clicks on an ad. The more ads you see, the more money the developer makes, so it s in their interest to get people to spend more time using their products. Whatever you can do to increase engagement is key, says Krishna Subramanian, cofounder of Mobclix, an exchange for mobile ads.

One way: adding a social component to apps, allowing users to find or message with friends or input things like reviews and tips. Foursquare, a popular app that allows you to check in at various locales (so your friends can find you and vice versa), offers a complex system of rewards to encourage use. You want some kind of addictive quality to involve consumers so that you get a regular income stream, says Nguyen.

5. We re nothing without you.

Some Developers don t bother creating any useful content; instead, they let their users do it for them. It s called crowdsourcing. Yelp, for example, offers free restaurant reviews generated entirely by its users. The interactivity can be a real draw, meaning profitability for the developers. Keeping users engaged is a priority, says Foursquare spokesperson Erin Gleason. If no one is using the app, there is no way to monetize it.

Users of the traffic-mapping application Waze, for example, contribute information by simply using the app. Waze tracks where users go and how they get from point A to point B at different times of day. People can also type in updates, such as reporting an accident when stopped at a light. In exchange for sharing driving information, people get a very good, free navigation application, says Di-Ann Eisnor, Waze s community geographer. But companies need to be careful about how they treat their users, says Jeff Howe, author of Crowdsourcing. Since any value the apps have is provided free by the community, you have to treat your community with respect, or it will disappear, he says.

6. We re creating a big security headache for you.

People dump all kinds of apps onto their smartphones. The average iPhone user, for example, downloads nine a month. People use them to do banking or to store calendars and other files full of data about them. But most folks don t think twice about security. They should. Anytime you download something onto your phone, you re taking a risk it might include malware or spyware software designed to do you harm. For example, one game hijacked Windows Mobile phones and used them to place calls to Somalia, running up hundreds of dollars in bills. (A spokesperson for Microsoft says the program wasn t a Microsoft product, and consumers should take appropriate measures to secure their phones.)

Hering, the CEO of Lookout, says the problem is only getting worse. His December 2009 surveys found there were four pieces of malware for every 100 smartphones; by May 2010 it had jumped to nine. People need to do their homework, says Dickson. They should read reviews and see who created an application before downloading random files.

And phones should be password-protected, says Hering.

7. Apple runs a tight ship.

If a development firm hopes to earn a living today, it must get its offerings into Apple s App Store from which an estimated two-thirds of all app downloads for smartphones are made. It s easy to use, and consumers feel safe because all apps have been reviewed and checked for malware or spyware. Apple also curates the store, based on content; until recently, it refused obscene, pornographic, offensive or defamatory content or materials of any kind whatever it deemed objectionable. The policy led to a lot of grumbling. Last year Apple rejected an app by Pulitzer Prize winning cartoonist Mark Fiore on the grounds it ridiculed public figures. After complaints, Apple reversed its stance.

This fall Apple laid out more detailed guidelines for developers and clarified its stance on objectionable material: Humorists and satirists are now exempt from the ban. Terrell, who credits Apple with creating a lucrative market for his software, is hopeful the new guidelines and standardized review will make it easier to develop apps that get approved. He s even resubmitting one that was rejected earlier this year. It s like someone handed us a map to the minefield, says Terrell. (Apple declined to comment.)

8. You don t need a lot of apps.

They may be hot right now, but many apps aren t so necessary. In fact, they re often window dressing for Web pages, making them easier to use on a mobile device. There are a lot of things done by apps that could be done on the Web, says Andrew Frank, an analyst with research firm Gartner. Apps from Facebook, The New York Times or YouTube, for example, aren t much different from the Web versions. Often you can simply use a browser.

Sure, Web browsers like Firefox, Safari and Internet Explorer can be slow on a smartphone. But that will likely change. According to Frank, as people begin using the Internet on even more devices from TVs to tablets and phones Web pages will begin to be coded to work better on such devices, making apps less crucial. This may well be the showdown of the future for mobile services, he says.

9. We re civic-minded visionaries.

Though local governments may be firing cops and teachers, some are helping developers create iPhone apps providing public service. In San Francisco, for example, residents can use apps that tell them when the next bus is expected or where the closest recycling center is. And in Washington, D.C., an app lets people send location-tagged photos of potholes and graffiti to city agencies. The best part is, these apps were created for free the agencies made the data available to programmers, who then built the apps for fun so the hit to already maxed-out municipal budgets was minimal. Developers are excited about using technology to make their cities a better place, says Peter Corbett, cocreator of the Apps for Democracy contest.

In fact, cities are realizing they have lots of useful data that developers could adapt for all kinds of apps, says Jay Nath, San Francisco s innovation manager. Developers built 47 apps in 30 days for D.C., says Corbett an estimated $2.6 million value at virtually no cost to the city. Most of these developers are just having fun, but some have turned civic apps into businesses. Scott Kinzie, senior VP of marketing at Public Engines, says his firm is using data from 1,600 law-enforcement agencies to create a service that lists crime rates in dozens of cities. It also uses the info to allow community-watch groups to communicate with each other and with local police departments. Officers can send out an alert about a missing child, and community-watch members will soon be able to upload video and photos of an incident directly from their phone. We were hoping for a lot of creativity, says Nath. It has surpassed our expectations.

10. Good luck using this at work.

Last year workers at insurance company Nationwide began pestering the IT department to let them use their phones for work. Many had iPhones and Androids, which they wanted to use for e-mail, calendars and Web surfing. But IT told them it wasn t so simple. Unlike the BlackBerry, these popular smartphones aren t designed to work with business IT systems. IT departments want communications encrypted, something these consumer phones don t do on their own; they want to be able to manipulate phones remotely and erase data if they re lost or stolen. Companies are also wary of personal phones loaded with apps from who knows where, says Willie Jow, VP of mobility products at security-software firm Sybase.

A year later Nationwide is giving smartphones a try. As part of a pilot project, about 30 employees are using their own phones for work. It s under tight reins, says Bob Burkhart, director of new technology innovation. So many people want to take advantage of something like this, you have to make sure you control it, he says. e