$1.2 Billion in iPhone Apps? Not Likely. 25 comments
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I am as much an iPhone cultist as the next guy, but Piper Jaffray analyst Gene Munster is taking this cult thing a little too far. He estimates that by the end of 2009 there will be 55 million iPhone users and that the iPhone App store alone could be a $1.2 billion business. Whatever he’s smoking, I want some of it.
Now, don’t get me wrong. I think the new iPhone apps will be the single biggest reason to buy a 3G iPhone, but there is no way they are going to pull in $1.2 billion in revenues in 2009. Let’s take a closer look at Munster’s assumptions, which AppleInsider discussed earlier today.
To be fair, the $1.2 billion is Munster’s most aggressive scenario. The conservative scenario for iPhone App Store revenues is $416 million and the “neutral” case is $777 million. But any way you slice it, his entire analysis lies on two faulty assumptions. The first one is that a certain percentage of “active” iPhone and iPod Touch users will download one free app and buy one $10 app every year from the iPhone App Store.
While this seems reasonable enough at first glance, Munster himself knows it to be bunk. In an informal survey he took of iPhone developers at the recent Apple developer conference, he found out that 70 percent of iPhone apps are likely to be free and that the price of those for sale will quickly drop to $3 or less. Of course, Appleinsider also covered these findings, but failed to note that they contradict the Munster math laid out in the earlier post. If 70 percent of apps are free, then the chances of every active user purchasing at least one of the apps for sale drops considerably.
Let’s take Munster’s neutral case. He estimates 77.7 million active users will get two apps each (155.4 million total). But if 70 percent of those are free, that would bring in only $466.2 million in revenues instead of $777 million. And if the price drops from $10 to $3, that further reduces the revenues to $140 million. For his aggressive scenario (where he is essentially assuming that 121 million apps are sold at $10 each), the total take would drop from $1.2 billion to $364 million.
But wait. We still have not addressed his second major questionable assumption. The total number of Apple (AAPL) iPhones that will be out there by the end of next year. His 55 million “conservative” estimate is anything but. So far, Apple has sold 6 million iPhones since it launched nearly a year ago, and is on track to sell 10 million total by the end of 2008. Munster thinks it will be able to sell 45 million in 2009, or more than seven times what it sold during its first year. Yes, the price cut (if you can call it that) to $199 will spur more sales. But not 7X more sales.
Munster is on the fringe here. As my former business 2.0 colleague Philip Elmer-DeWitt at the Apple 2.0 blog illustrates in the handy chart reproduced below, most other Wall Street analysts put 2009 iPhone sales at less than 25 million. And that’s even with revised numbers after the new pricing was announced. Toni Sacconaghi from Bear Stearns thinks Apple will only sell 10 million. So that could easily cut Munster’s iPhone App Store revenues by half again.
If the iPhone App Store pulls in just $150 million next year, I would still consider it a success. Apple makes plenty of money from the phones and the subscriptions. The more free apps there are, the better, actually. That is just one more reason to buy an iPhone.
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This article has 25 comments:
You have about a month left to criticise the Apps store! Everyone get in now and pick it apart! You'll join the ranks of naysayers who thought iTMS would fail because "people can get all their music free from Napster".
When developers make a neat game for an iPhone or Touch, MOST of their work is done to actually bring it to the MAC itself!
What a difference an OS makes!
Of course, I recall all the critics forever harping about how "Gamers" drive the PC world and the success of Windows, etc. Where are those voices on the iPhone now? Won't this kill Symbian and WinCE?
You can get a more accurate estimate of how big the games market for the iphone will be.
Considering price and quallity differences of the games platform (ipod vs iphone), just multiply historic data times 10.
However:
"His 55 million “conservative” estimate is anything but. So far, Apple has sold 6 million iPhones since it launched nearly a year ago, and is on track to sell 10 million total by the end of 2008. Munster thinks it will be able to sell 45 million in 2009, or more than seven times what it sold during its first year. Yes, the price cut (if you can call it that) to $199 will spur more sales. But not 7X more sales."
You're not taking into account the exponentional growth of the base in the last year (months, even). Add to that the fact that APPL is now finally giving Europe and Asia what they require in 3G. The previous version was nothing but a beta release in most of the world... I'm astounded it sold as well as it did in Europe.
So, you say "7x"? I say yes - entirely possible.
50 million in 2009? I think so.
RIM will suffer a little from this - why buy a Blackberry when for LESS cash you can have the exact same thing, only better, plus a host of great stuff, REAL web browsing, big screen, 16 gb of music, plus the Apps store.
The competition will do well if they can even be regarded as competition.
Right now, only the iPhone matters. The rest are nothing.
Toni Sacconaghi works for Bernstein not Bear Stears unless Bear Sterns has recently hired him after he was fired from Bernstein for all his harendously bad Apple predictions. Now if you can't get right what company an analyst works for why should we believe your financial calculations.
Erick, I don't think you will want to smoke what Toni Sacconaghi is smoking...
1) Sacconaghi has been dead wrong on AAPL for years
2) Munster has been right on the money on AAPL for years
3) The revenue from the apps store is a VERY, VERY small portion of Apple revenue in any scenario.
I'm not saying that there is a Visi-Calc for iPhone in the wings, or that one will ever be there. Only that one never knows what sort of clever and useful applications will be offered by the thousands of developers who have signed up to write for the iPhone.
I'm especially skeptical of any journalist's ability to see into the future.
Just doesn't add up, but you're strategy to stand by this column is (I guess) to sell.
Well, go ahead and reap the benefits of your wisdom.
I sold 25% of my modest holding at $185 to simply "lock in" my investment just over 4 years ago. I've banked double my stake, and still hold 75% of my AAPL portfolio. I'm expecting AAPL to start a steady climb within 4 - 8 weeks of the iPhone release towards $250 or more by end 2009, and around $400 by end 2011. I wonder if AAPL has finished with doing stock splits.
Amusing, actually.