Last week, Adam Lavine the CEO of FunMobility offered me a glimpse of his world. For the past 10 years, the Pleasanton, Calif.-based company was used to doing business the carrier’s way. That has meant creating mobile content to meet their specifications, accepting their revenue splits, and then porting each wallpaper or mobile application to every handset in their portfolio. And then, “rinse, later, repeat.”

But now he says the industry has been turned on its head. Carriers have started questioning how much money they can demand from content providers and how many handsets is reasonable to ask developers to support—all because of the iPhone. Lavine: “A good analogy is that you have this mobile content pond with a bunch of creatures swimming in it and then Apple (NSDQ: AAPL) walked up to the pond and threw a rock into it. So now the water is turbulent and cloudy. Everyone is still in the pond, but the landscape has changed.”

Because of this, Lavine’s looking to increase their market share by picking up the company’s pace of development and considering acquisitions. To date, some of FunMobility’s most popular applications have been Wallpaper Universe, Ringtones Universe, TrueTones Universe and America’s Best Mobile Pix, but going forward he sees a new opportunity evolving in using mobile content to communicate. As a company that has been successful at selling both content and apps through the carrier and the iPhone, Lavine breaks down the economics of both…any guesses on which one makes more? 

Excerpts from the interview after the jump…

Here’s excerpts from our conversation:

Q: So, is Apple’s iPhone good or bad if your business has been based on the carrier model?

Lavine: “Apple’s revenue share for one thing has set a precedent in the mind of developers that it should be 70/30, and why should it be something else?...We spend a lot of time looking at the fixed costs per SKU and revenue per SKU, which makes the economics on certain carriers not even worth it…I think the carrier used to have more leverage there. If you wanted to have an app up, you have to support 60 devices. Now that’s changing. There’s fewer developers and the ones that are left are steely-eyed business people, and they are saying ‘I’m not going to go there and do something that will loose the money’. I think the iPhone has put fear, uncertainty and doubt into the mind of carrier. There’s a different dynamic out there. Carriers know that they need applications because they drive data revenues and ARPU and retention, so they are re-examining the rules for which they drive the applications.”

Q: Have you gotten any carriers to rethink their revenue splits?

Lavine: “In certain cases, we’ve managed a more reasonable revenue rate, because the iPhone is a precedent in the U.S. Ultimately, the carriers realize that they need a few strong players left, and if they are too aggressive with rates, and if your partner can’t make money, you aren’t going to be around—especially since venture capital isn’t coming into the industry anymore. They have to figure out how to make money doing this.”

Q: Do you like what the iPhone has done?

Lavine: “I do. I think it’s a great device, from a technology and business perspective, it’s brilliant. They came in and redefined what a phone is, and what an OEM is in our ecosystem. I wish they were a little more selective about the apps they put in to the app store—they are the biggest cattle call in the industry. Although, already, there’s a lot fewer iPhone developers and the ones that are left are higher quality. It was the same pattern with Facebook apps. The only ones left are the ones who figured out a way to make money.”

Q: Wait, it sounds like there’s something you don’t like about the iPhone?

Lavine: “We go through a lot of effort to license content, from Hello Kitty to United Media, and then you go on the iPhone, and they upload pictures and they’ll give them away. It was called “Endless Walls.” They just gave away premium content. How do you expect to create an ecosystem when you don’t’ have any rules for it? I think they were taken down, but the fact of the matter is, it’s tough to sell something if there’s no ground rules.”

Q: So, the iPhone is a threat?

Lavine: “It’s an opportunity. We have a profitable iPhone business…We are making money with the iPhone, so we like it. We make the bulk of our revenue from on-deck relationships, but we don’t want to be 100 percent reliant on the carrier to make our money.”

Q: Does that mean your on-deck applications make more money than your iPhone apps?

Lavine: “It really depends on which carrier and what category. The thing about iPhone stuff, a more oddball app is more likely to get monetized, but on the carrier decks, you have tones and graphics and then everything else. If you get dumped in the ‘everything else bucket,’ you are fighting with a couple hundred other apps. More likely if you put an everything else app up on iPhone, you’ll see a better return.”

Q: So, where do you stand on a good iPhone app vs. a good on-deck app?

Lavine: I think the application revenue ARPU is higher on the iPhone. For us, a good on-deck app blows away a good iPhone app. If we get a hit on-deck, our iPhone numbers don’t get close to that, but on the average app we are happier with the iPhone numbers.”

Q: Why is that?

Lavine: “That’s because when we build an app [for a carrier], we test it, we give it to a testing body, then the carrier tests it. If it’s rejected, you rinse, lather and repeat. Then they put it up or not, and by that time so much time has passed that they might hit you up on revenue share again. It stays on the loading dock for such a long time, everyday is a day you aren’t monetizing it. On the iPhone, you build it, they test it, and then you put it up. It might not make as much money everyday, but you have more days to make money. But if you get a big hit on-deck, then you get big numbers, which is why we keep doing it.”

Q: Are you planning any acquisitions?

Lavine: “We’ve bought three companies along the way, and we are interested in innovative developers, specifically successful iPhone developers. Ditto for BlackBerry and Gphone. We’ve been profitable so we have money.”

Q: Have you raised venture capital?

Lavine: “Very little. $1 million. Most companies get to raise $20 million and then make one million on revenue. We are the other way around.”

Q: Can you share any of your financials with us?

Lavine: “We’ve been around for 10 years. We wouldn’t be around for that long if we weren’t profitable. No, we can’t say [our revenues], but we have 60 people here, and we are profitable, so that can give you a sense of scale. I think for us, one of our keys to success, has been willing to change with the times. We’ve adapted well the realities. At first wallpapers were big, and then ringtones was easy money, and then we diversified into apps and then into photo sharing applications.”

Q: What are you working on now?

Lavine: “We saw this whole economic storm brewing, and we decided that we aren’t going to play defensive. We are going to go and innovate. We are doing our most innovate stuff this year, and do a lot of stuff on multimedia messaging, and take ringtones to the next level….We decided to take advantage of the fact that there’s a lot fewer on-deck developers and take adv of the economic conditions and launch a lot of apps.” Lavine said they have launched “What’s on Your Mind?,” an application that translates a text message into a mobile graphic. If the message says ‘going out for coffee,’ then it would generate an image of a coffee cup. “I think mobile content can be used for communication, no one has done that well yet.”

Q: I take it you are mostly on feature phones today?

Lavine: “We’ve been mostly on feature phones, although we are trying to extend into smartphones. But we have more than 50 apps, so we can’t port everything everywhere. We are trying to bring the ones to the best storefront. We look at ourselves in the mirror and ask who do we want to be. We are more of a Nintendo-like company, which has fun applications that are kooky….We are less Xbox and more Nintendo. We are more interested in products that have broad consumer appeal, and building a brand about having fun with your phone. Our name and position makes us well suited for that.”