The App Store: A Billion Downloads, But Not Much Revenue

Apple (AAPL) has announced with no little fanfare that it already has had more than 1 billion downloads from the iPhone/iPod App Store. You’d think the company would be raking in big bucks. But maybe not.

Jeremy Liew, of Lightspeed Venture Partners, wrote a blog post yesterday asserting that Apple’s revenues for those 1 billion downloads are no more than $20 million to $45 million, barely moving the topline needle.

Here’s how he got to the number:

• Start with a billion downloads.
• He says estimates are that free downloads outnumber paid downloads by anywhere from 15:1 to 40:1. That suggests 25 million to 60 million paid apps.
• A recent O’Reilly survey, he notes, found the mean price of paid apps at $2.65. Liew asserts that the weighted average is probably lower than that; but he uses $2.65 anyway.
• At 25 million paid, that’s gross revenue of $66 million. At 60 million, $160 million.
• Apple’s take of the gross is 30%. Ergo, $20 million to $48 million.
• If you assume the weighted average is $1.50, the take drops to $12 million to $27 million, he writes.

I would add that, given the Street sees revenue for the September 2009 fiscal year of just over $35 billion, that’s a revenue boost of roughly 0.1%.

I point out Liew’s post not to imply that the App Store is somehow unimportant. It is significantly changing the way way people think about mobile devices, and has triggered a response from Research In Motion (RIMM), Google (GOOG), Microsoft (MSFT), Nokia (NOK) and Palm (PALM). But what it clearly is not doing is generating a lot of revenue.

Original post

Comments

[Drew Arnold:]

Maybe it's not directly generating much revenue, but the App Store has surely convinced at least some customers to choose iPhone over Blackberry. One could view it as an additional feature as opposed to a revenue stream.

May 14 01:55 PM

[Anthony B:]

I'm glad someone has made an estimate on the bottom line the app store brings in, about what I would expect.

As long as they break even on the costs associated with running the app store, which isn't much because of the synergies with iTunes. The app store is a feature of the iPod touch/iPhone that can drive sales. The really important thing is that they now have a developer ecosystem dedicated to their platform, something that all other smartphone manufacturers desperately want.

May 14 02:03 PM

[David Hasson:]

It might be generating a large amount of ad revenue for the free apps that are downloaded (but not for Apple). And the marketing value of each app downloaded is huge... I'd argue that it's an intangible number.

Plus, add into the mix the fact that the current marketing campaign heavily leverages the app store as a reason to purchase the iPhone, and even greater, the iPod touch.

May 14 02:18 PM

[Zobby:]

Better than Microsoft Entertainment and Devices Division LOSING 31 million last quarter!

last quarter (reported in April 09) Microsoft's Entertainment
and Devices Division which includes

download services like Xbox Live

PLUS Zune, all MS devices like keyboards mice joysticks etc, all the Games studios, Windows Mobile and all Xbox hardware...


LOST 31 million!!!

Paraphrasing this blog (and much more appropriate) with Win Mobile (all the phone, PDA etc licenses), Xbox etc. "You’d think the company would be raking in big bucks."

so Apple's less than one year old App Store not doing so
bad in comparison huh?

Msft E&D is roughly equal to the App Store, iTunes, iPod and iPhone, Apple TV and all Apple keyboards etc

looks like fresh new little App Store outperforming the whole dam MS division!

May 14 03:09 PM

[Flander:]

The app store is also shaking up Nintendo, which is looking to emulate the openness to third party game development. Where's that DS phone?

May 14 05:03 PM

[brewer:]

So, basically some investment firm is trying to make money by shorting Apple and to do it they are pulling a lot of estimates out of nowhere in a strained attempt to make it look (somehow) as if the app store isn't the biggest thing to hit the computer industry since the iPhone. OK, next topic please.

I don't think it's a stretch at all to think that nearly all software will be delivered in a like manner within a few years.

But the biggest take home point of all this is that app store development is the hottest thing in programming now (has been for awhile now) and all these new programmers are now coding for OS X and not merely the iPhone. Slick move. Developers, developers, developers!!!

May 15 09:52 AM

[rd4sndk:]

The following article

"news.cnet.com/8301-135... "

suggest that the first week of the release of the iphone 3G gemerate 60+ million downloads and $30 million in revenue. That translates to $0.50 per app store download, including freebees. Translating this number to 1 billion downloads would put apple revenue at $500 million. What's also important to note is that the average cost for downloads are probably increasing given that the ratio of freebees to total apps is dropping. Apple gross profit would be $150 million.

Now the infrastructure to run the apps store is already created through itunes however, the SDK development, and the added support staff for software quality control(SWQC), app review and commission, accounting software all would require additional staff fix and veriable cost. I would assume that I least 50 engineers are working on SDK with 15 SWQC engineers, 10 app reviewers and 10 member management team including accounting, legal, regulatory etc. That's a 75 person team costing Apple about $150K per year puts cost around $11million annually. Its just a guess but Itunes could have been given $10 million initially to upgrade there server farm to handle increase transactions by 10%. Storage would be neglegable given only 50K apps. As time went on, transaction speed would had to have been upgraded further perhaps another $20 million.

Bottom line, I believe cost for app store is annually $10 million to $15 million annually with an initial start up cost of $41 million. It looks as though Apple will do somewhere near 1.5 billion apps the first year. That'll amount to around $200 million with a first year cost of $50 million. Gross profit would be north $150 million.

May 15 12:34 PM