How Much Are Apple's 45 Million Users Worth?

Steve Jobs spun the app store as a means of driving sales of the iPhone and iPod touch. As we can only guesstimate how much Apple (AAPL) is making or can potentially make from the app store, so far it appears to be what Apple said it would be: not a huge revenue driver, rather a marketplace for innovation and entrepreneurial-ship: a place where ideas can brew in this nascent market, generate excitement and help Apple find ways to lead hardware into the future. At this stage of the game Apple can sit back and monitor the best apps and let the user themselves decide what functionality a pocket powerhouse or a tablet should really have. Of course, this is the strategy right now, but what about when the market matures? When the smart phone pie is falling into place and companies realize the true revenue streams are no longer from the hardware, but rather from the content?

We know from Apple that it is collecting 30% of the revenue generated to maintain the cost of the app store itself—how the company came up with the 30% number without any knowledge of how the app store will develop or how large it would be is beyond me. Yet the growth of the app store has probably been beyond even Steve Jobs' wildest expectations, and reaching 1.5 billion downloads with a 45 million user base is truly remarkable. But to put this into financial terms, I think there is too much of a focus on cost per app, etc… investors may be failing to see what Apple is creating here.

Instead of figuring out how much Apple makes off of each application—I suggest taking a different approach, one that I think is a better guideline for an iPhone’s worth. Let’s think in terms of how much revenue a user is worth to Apple. With the new operating system, consider the possibilities: movie downloads, ebook downloads, gaming and not to mention the already existing iTunes. In each of these content categories, Apple may be sharing multiple micropayments, even on free applications. The devices themselves enable the convergence of several industries. If Apple becomes a primary platform, if not the primary platform for media distribution, beyond news, music, television, radio, and video content, how much can Apple look to make each month per user? With every purchase of iPhone and iPod touch—when everything falls into place and a ridiculous number of corporations jump on board with their own iPhone apps as if fearful of losing their market leadership, be it through a third party service or not, the value of a customer is worth not only their upgrade to a new phone at a future date, but $20 a month in content revenue.

Alright, $20 is probably as arbitrary as Apple deciding it will cost 30% of app store revenue to run its site. But with these devices evolving into our wallets, our cameras, our video recorders, our television, yes our phones, our gaming devices and who knows what else… always connected, always in our pocket, backpack or wherever else depending on the devices we probably have yet to imagine. With all that convergence, I believe $20 in Apple's share of revenue per subscriber may possibly be on the conservative side. That would mean that all of the content providers combined can only get $60 a month out of an iPhone user in subscriptions fees.

But let’s do the math on this. Currently we have 45 million iPod touch and iPhone subscribers—at $20 per month, once the app store and the gold rush for market share among the app makers finally settles, this would translate into 900 million in revenue per month, or 2.7 billion per quarter. That’s with Apple’s existing user base. What about when the market reaches maturity? Currently there are roughly 4.1 billion cell phone users and growing. How soon before everyone has a smart phone? Let’s give Apple ten percent of the worldwide smart phone pie, which I would argue is evolving to be the only kind of cell phone pie. That would mean when the paradigm shift is complete and every phone is essentially a smart phone… with a mere 10% percent market share Apple would be drawing in 27 billion in revenue on content alone. Is this possible? How far are we from this possibility? The iPhone 3G now sells for $99 and a refurbished first generation iPhone for $49. How many years until the cost of an Apple iPhone is embedded in its subscription price completely?

I get the sense that something is beginning to happen at Apple at a quickening pace. Over the next six months, the new operating system will begin to drive app store revenues per user higher and higher. Though the average selling price may drop even further (because content providers are now inclined to sell apps as software apparatuses to enable content delivery paid month to month), the amount paid by users should be on the rise. In these terms, Apple is the gatekeeper, it has the power to decide which content gets blocked, as we witnessed with recently with Google (GOOG), and it also has the power to control pricing through the revised revenue sharing agreements we’ve seen with iTunes. The question should no longer be how many cents per app download; rather, how many dollars is each of those 45 million users worth?

Disclosure: Long on Apple.

Comments

[Camden:]

Excellent article.

Jul 29 10:25 AM

[Jon408:]

How in the world do you figure $20 per month per user in income when the "numbers" are more like $10 - $20 per year. Redo the scenario using my numbers and you'll have a far more believable article.

Jul 29 10:27 AM

[craigimass:]

Hogwash!

I am a relatively wealthy iphone user and there is icebergs chance in hell that I would spend $60 a month in addition to the regular phone fees on content!

Oh, I am a long time Apple shareholder too - but I certainly don't fool myself - the real story is good enough!

If you are going to go way out on a limb.....you might say that the AVERAGE user will pay $15 a month eventually for such content and that Apple would see $5. of it.

However, the selfish side of me hopes that folks like you keep pumping like this, because you will drive the stock price up and then I can sell....and maybe buy again when it crashes to reality.

Jul 29 10:31 AM

[20smoney:]

Interesting article with some large assumptions

Jul 29 11:25 AM

[Prudent Man...:]

Talk about an over-hyped stock! Of course this isn't the first time for Apple where some one with a computer program extrapolates the present into the future. Remember housing prices be touted daily in local press and on Wall Street.

This is the fabric from which "Black Swans" are woven. They can only come from over-confidence which is why prices go down faster than up.

Jul 29 11:29 AM

[LongAAPL:]

I guess Prudent Man doesn't think that creating new markets, expanding new markets, lots of cash on hand, highest margins in the industry, and increasing revenue, all during a recession counts for anything.

Go figure.

Jul 29 11:38 AM

[Tom B:]

When Win 7 flops, as it well deserves, "Prudent Man" might regret he didn't stock up on Apple. The "iProducts" are a beautiful and interesting sideshow-- but a sideshow nonetheless. The increasing Apple market share in computers is the Big prize, and the focus of all other things the company does.

Jul 29 12:10 PM

[Techtrader10:]

Apple has approximately 7.4 percent share of the market, just ahead of Toshiba!!! Where is all this market share increase?

And why does Win 7 deserve to flop?

You sound like your about 15 years old...


On Jul 29 12:10 PM Tom B wrote:

> When Win 7 flops, as it well deserves, "Prudent Man" might regret
> he didn't stock up on Apple. The "iProducts" are a beautiful and
> interesting sideshow-- but a sideshow nonetheless. The increasing
> Apple market share in computers is the Big prize, and the focus of
> all other things the company does.

Jul 29 02:27 PM

[Neil Anderson:]

Apple, with the help of iPods and iPhones, is rapidly nearing the tipping point with its computers being accepted by the mainstream computer user.

Jul 29 03:53 PM

[jack dee:]

wow, so Apple gets 10% of gobal phone market?

What are you drinking dude?

less than 3billion CELL phone sub across the entire planet, not 4, that number includes land lines.

OF the 3 B out there, 2 billon are in 3rd world countries.

That leaves about 1 BILLION subs , of which hundreds of millions are pay as you go basic users, the market for high priced plans is a mere few 100 million at best.

So lets be fair instead suggest 4 billion why not 400 million. and of course 10% of that is 40 million, so lets double it 80 million and there is a number that might be worth talking about.

100 million at a push.

Jul 29 05:13 PM

[Andrew Oresto:]

Hey Jack Dee,

I'm waiting until tomorrow's First Solar's earning before I start drinking, hopefully some celebratory drinking at that =)

Thought I made a big blunder, but I re-check the link in the article and 4.1 billion is accurate--there are approximately 1.2 billion landlines. Sticking with 10% of 410 million users forecast as Apple's share of the smart phone pie once the market reaches maturity.

On Jul 29 05:13 PM jack dee wrote:

> wow, so Apple gets 10% of gobal phone market?
>
> What are you drinking dude?
>
> less than 3billion CELL phone sub across the entire planet, not
> 4, that number includes land lines.
>
> OF the 3 B out there, 2 billon are in 3rd world countries.
>
> That leaves about 1 BILLION subs , of which hundreds of millions
> are pay as you go basic users, the market for high priced plans
> is a mere few 100 million at best.
>
> So lets be fair instead suggest 4 billion why not 400 million.
> and of course 10% of that is 40 million, so lets double it 80 million
> and there is a number that might be worth talking about.
>
> 100 million at a push.

Jul 29 05:51 PM

[Andrew Oresto:]

Thanks for your comments craigimass--how much Apple ultimately makes off these devices is certainly debatable; it's an important conversation for investors to have though, my belief is because these devices take the place and merge with so many different forms of devices (gameboys, televisions, walkmans, traditional cell phone, pcs, etc...), Apple stands to collect a substantial portion of what users pay for this content. Apple now has a relationship with their users that every day becomes more and more integral to their lives, a trend that will continue to deepen as the these technologies develop.


On Jul 29 10:31 AM craigimass wrote:

> Hogwash!
>
> I am a relatively wealthy iphone user and there is icebergs chance
> in hell that I would spend $60 a month in addition to the regular
> phone fees on content!
>
> Oh, I am a long time Apple shareholder too - but I certainly don't
> fool myself - the real story is good enough!
>
> If you are going to go way out on a limb.....you might say that the
> AVERAGE user will pay $15 a month eventually for such content and
> that Apple would see $5. of it.
>
> However, the selfish side of me hopes that folks like you keep pumping
> like this, because you will drive the stock price up and then I can
> sell....and maybe buy again when it crashes to reality.

Jul 29 06:15 PM

[jack dee:]

80% of the people on earth live on $10 a day or less. There is simply not enough people for apple to have 400 millon subs paying out anything like $60 a month. Not even for half that.
Even with 6.7 billion phones sold there would still only be a small fraction of users paying a lot per month. .. ...... ...

You just have to connect the dots to see that high fee phones are for the wealthy few..

Jul 29 08:47 PM

[Spook:]

Good assumption, 4.1 billion mobile phone user, however, Apple store is only available in US, Europe, and well developed countries, total mobile phone user of these areas are less than a billion.

Unless Apple store open up in China, India, Indonesia and other emerging countries where piracy is rampant, 4 billion potential paying users is a huge market.

> but I re-check the link in the article and 4.1 billion is accurate--there
> are approximately 1.2 billion landlines. Sticking with 10% of 410
> million users forecast as Apple's share of the smart phone pie once
> the market reaches maturity.

Jul 29 11:40 PM

[AdamC:]

@Jack Dee

No get to get so uptight, this is an opinion piece not the gospel type.

it may come true or not does not matter much unless one is holding Apple stocks then they would want it to come true - which may.

Jul 30 01:02 AM

[Will Ray, Jr.:]

I'm back! What is this nonsense. It is a cycle. Shareware has been around forever. The same kinds of ideas attract people every 10-20 years. This is not rocket science it is just a predictable low risk business decision. Find something that worked in the past, make it look new and sexy. Stick a new name on it, and Shazaaam you have a winner. Financial Services should be prepared to get hammered by some new innovation or should I say recycled garbage...lol

Jul 30 01:37 AM

[Nyetnichevo:]

Apple stock appears a bit pricey at $157 but one has to admit they have done a fantastic job in a very difficult environment. Let's not forget this company was dead and selling for around 10-14 bucks a mere nine years ago. Since then, the new computers, I Phone, I Tunes, I Pods, a myriad of downloadable media content and I Podcasts, and an operating system that is light ears ahead of Windows ( I am a recent convert myself after years of headaches) andhave set the standard of modern communications. I am in awe of how great this company has become. I even sold my Microsoft stock because the writing has been on the wall for quite some time. Google and Apple are state of the art modern technology, I look for them to keep growing and innovating despite the level of maturity they have both reached.

Jul 30 08:31 AM

[Tom B:]

I fail to see why you think I am 15. I take that as abusive.

If you had ever taken any comp sci you would know why Win7 deserves to fail and your wouldn't have to ask me. With Win 7 MSFT has again refused to modernize their OS. MSFT is not competing against itself (Win 3.x versus DOS) anymore; they are competing against companies with solid, secure, high-performance, MODERN, UNIX-based OS's; that is Apple (OS X is based on BSD UNIX) and LINUX. MSFT is whistling past the graveyard, hoping the inertia of their enormous market share will carry them along until they come up with a real plan-- and it's probably way too late for that.

On Jul 29 02:27 PM Techtrader10 wrote:

> Apple has approximately 7.4 percent share of the market, just ahead
> of Toshiba!!! Where is all this market share increase?
>
> And why does Win 7 deserve to flop?
>
> You sound like your about 15 years old...

Jul 30 10:22 AM

[Tom B:]

Unless you day trade, I would not call AAPL "pricey". They've been to $200, and will surely be there again within the next twelve months. I don't know where else a near-certain 30-ish percent return can be found in this economy.


On Jul 30 08:31 AM Nyetnichevo wrote:

> Apple stock appears a bit pricey at $157 but one has to admit they
> have done a fantastic job in a very difficult environment. Let's
> not forget this company was dead and selling for around 10-14 bucks
> a mere nine years ago. Since then, the new computers, I Phone, I
> Tunes, I Pods, a myriad of downloadable media content and I Podcasts,
> and an operating system that is light ears ahead of Windows ( I am
> a recent convert myself after years of headaches) andhave set the
> standard of modern communications. I am in awe of how great this
> company has become. I even sold my Microsoft stock because the writing
> has been on the wall for quite some time. Google and Apple are state
> of the art modern technology, I look for them to keep growing and
> innovating despite the level of maturity they have both reached.

Jul 30 10:36 AM

[phdinsuntan...:]

see you in $ 100

Jul 30 11:53 AM

[Mac'em X:]

Another positive iPhone sign: In Japan, iPhone carrier Softbank Mobile just reported a great quarter (thanks to iPhone, says the prez), while competitors DOCOMO and KDDI saw big unit sales losses.
www.mactivist.com/2009...

Jul 30 12:48 PM

[vloscomp:]

When did content owner paid platform provider a fee to distribute? This article is another mislead, and confuse APPL user. The microfee that you are assuming is bogus for APPL, the content provider will charge APPL a fee for its content.

Jul 30 01:02 PM

[vloscomp:]

For the last decade (1985-1995) APPLE users been declaring total domination and superior platforms. A decade (1995-2005) after APPLE still has less then 10% share of the market, and its users still declare dominate ... I am not sure what reality this is.

If the trend continues, the next decade (2005-2015) APPLE will rule the world ... This is going to be like the great ads that they had.

BTW: i had an MS in EE/CS and was a an embedded developer, and APPLE kernel is as crappy or worst when compare to WINDOW.

On Jul 29 12:10 PM Tom B wrote:

> When Win 7 flops, as it well deserves, "Prudent Man" might regret
> he didn't stock up on Apple. The "iProducts" are a beautiful and
> interesting sideshow-- but a sideshow nonetheless. The increasing
> Apple market share in computers is the Big prize, and the focus of
> all other things the company does.

Jul 30 01:13 PM

[brewer:]

Tom B., you nailed it.

Jul 30 02:39 PM

[brewer:]

There is real pressure on Win 7--a first for MS. As far as tipping points go, I think we are there already.

Jul 30 02:57 PM