There's Gold in Them Thar Ringtones!

Business 2.0 has an insightful article about the growing business of ringtone sales for cell phones. The article notes that customers spent $3.5 billion last year on ringtones, most of which cost under a dollar each. Perhaps having learned their lesson from Napster, the major music labels are rushing to partner with phone manufactuers to license songs for ringtones.

What's generating all the spending? A representative for Sprint interviewed for the article suggested that cell phones are becoming an increasingly large part of people's identities, and they use ringtones to advertise their personalities just as they would a logo on a sweatshirt. Or maybe they just want to annoy everybody around them...

It was only a matter of time before a digital-rights fly would land in the ointment. A company called Xingtone has developed software allowing cell phone owners to sample portions of their favorite songs (or any sound file, for that matter) to create customized ringtones free of charge. Exactly how the music and ringtone industries will respond to this is unclear, but odds are they won't be happy, even though Xingtone claims its software is legal.

The growth in the ringtones business comes at a time when cell phones are morphing into "smart phones," and emerging as the new killer app. Samsung's newest model comes complete with a respectably large 1.5 GB hard drive, allowing users to store MP3 and other files. Advanced calendaring and address book features, combined with the ability to synch with PC-based tools such as MS Outlook, are letting cell phones give PDAs a run for their money. The Samsung i500 even runs the Palm OS. Combine this capability with camera capability, the growth in wireless hot spots, and the fact that the average cell phone customer upgrades every 18 months, and the stage is set for a smart phone revolution.