Is the App Store really a winner?
Although the Apple App Store has reached the milestone of one billion downloads, there is some proof that it has not resulted in a ton of profit. Are we sure the App Store should be considered a winner?
There was no lack of publicity centered around the billionth app downloaded from the Apple App Store. Countless sites and blogs joined in the countdown, Apple held an official celebration, and a teenager won an impressive collection of Apple goodies. No one is arguing that serving a billion apps is not an impressive achievement in only about eight months of doing business. The only thing that has been called into question is the financial value of the store to Apple.
The profits picture had not yet developed in many minds when an industry analyst, Jeremy Liew, of Lightspeed Venture Partners, wrote a blog post on the subject. Even though the numbers were right out in the open for everyone to see, a lot of people were surprised by Liew’s conclusion about the profitability of the App Store. Here’s how Liew has it figured:
- Begin with that billion downloads number.
- Liew says that he estimates that free downloads outnumber paid downloads by anywhere from 15:1 to 40:1. The exact percentage is not known.
- That suggests that between 25 million to 60 million paid apps have been downloaded.
- Liew quotes an O’Reilly survey which found the average price of a paid apps at $2.65.
- At 25 million paid apps, that yields a gross revenue of $66 million. At 60 million apps, that figure is $160 million.
- Apple’s take of the gross is 30%. Therefore, gross profit would be in the area of $20 million to $48 million.
Although it would be a lot of money if it was running through out personal bank accounts, that is not much money in the wider Apple financial scheme of things. It is, as a matter of fact, about one tenth of 1 percent of Apple’s revenue. That does not sound like much, and indeed is not.
But money is not the only thing that the app store brings to the table. The App Store provides a lot of people with a reason to own an iPhone or an iPod touch. In many cases, the apps that run on those platforms are at least as big a draw as the primary functions of those devices. For the personal user, apps are a way to leverage more good from their entertainment dollar. Not only can you listen to music, you can also play games, a wide variety of games, and watch videos.
Perhaps more importantly in Apples strategy, business apps have already grown markedly in the last few months and they are about to explode, driven by the new features of iPhone OS 3.0. Due to be released in June, this new operating system is engendering a plethora of new business apps for Apple’s entry in the business smart-phone race with Blackberry and Palm. The number and quality of apps in the arsenal will be a major deciding factor in who wins this war.
Apple, via the excellence of their mobile platforms, have a chance to compete seriously in both sides of the smart-phone marketplace. The variety and quality of the apps that Apple sells via the App Store gives them another leg up on the competition. The App Store could be the deciding factor in the war of the smart-phones, making it a true hero of high profits.
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