App Store Market Worth Nearly $2.5 Billion Per Year?

[*LTD*]

Ground to make up on what? Building a network that is substantially geared toward downloading free applications that generate no revenue?????

These numbers clearly show that there is a relatively SMALL number of paid applications you need to fill user needs they are willing to give up money for. If one of the competitors can go to market with a better density of worthwhile apps they would be very competitive. [ remove all the "free" stuff from the graph. You have 1 vs. 2.6 per month of paid apps on phones. 12-36 apps and the user is getting "paid for" utility out of the phone. Just need the right 40-100 apps, not the 10,000 random ones. ]


Similarly the huge revenue numbers are driven by number of platforms deployed. Again to bet Apple... deliver onto networks with lower costs. Android and iPhone download volume is about the same. Slightly higher "paid for" rate but that is certainly fixable with targeted effort. If Motorola, Samsung, and HTC all come out with better "generation 2" phones and pop up on larger wireless supplier networks it is a viable platform. Over time with a bigger ecosystem.

Competing to compose and deliver the highest number of free apps. That is chasing after fool's gold.

It's all done to sell the platform. Apparently consumers seem to think that the App Store is a big deal, and are ready to line up at the cash for iPhones and iPods because of it.

 

[Droid13]

Hmmm...

These numbers are completely out of line with reality.
There is no way the market size is anywhere near 200 million a month. That would mean the average app (assuming 65k apps) is making $2,000+ a month and that's including free apps!

Sounds like we need the full details of the "study" - aim, objective, METHODS, RAW RESULTS, discussion, conclusion - the bits in caps we don't have, and there is an awful lot of extrapolation going on here, magnifying any errors or assumptions...

Still, the figure will be pretty big - lots of apps being bought, right? All I hope is that, if there is good evidence to show that the app store is a valuable asset that potentially could make a profit, that Apple invests in it - as I said before:

What I hope is that figures like this make Apple realise how valuable the App Store is as an asset and that they devote more resources to it - having more testers, more thorough testing, a clear, transparent and detailed app approval process and so on.

I can dream. But a point has been made a few times: how were these figures arrived at?

 

[deconstruct60]

These numbers are completely out of line with reality.

the problem is perhaps two fold.

One they are counting every iPhone every sold. Not the number of iPhones in daily use ( and represented by unique iTunes accounts. Like a family synching two phones to the same account. )

The numbers sold.
http://en.wikipedia.org/wiki/File:IPhone_sales_per_quarter.svg#Data_and_references

For instance a generation one person who buys a replacement 3G/3GS and either puts it in a drawer (as a handy backup) or lets a household member synch off the same iTunes repository. Is going to be counted twice in these numbers. [ there is also a likely a much smaller number of broken phones which are also counted as driving purchases when they aren't usable. That's probably acceptable "noise" for the estimate. ]


I was also a bit surprised that Touch numbers were smaller than iPhone numbers given the Touch is less expensive. That seems odd. (although bundled networking to the system increasing perceived value may explain that. )





The second factor is app store purchase rates being internationally represented here. If they sampled just in US then extrapolating that to global buy rates is a bit dubious. I doubt most apps are global in localizations so buy rate will be different.
[ http://www.apple.com/iphone/specs.html
"... * Some features, applications, and services are not available in all areas. See your carrier for details.
* Some applications are not available in all areas. Application availability and pricing are subject to change.
..."
] So assuming apps are globally uniform is a leap.



There is also the other factor in the survey itself in that the demographic population is self selecting. These are folk who responded to an "ad" for a survey? What did they promise them in return?



P.S. Third factor if dig even deeper into their numbers. Some folks don't buy paid apps at all. The folks who paid for apps have a higher monthly rate of buy/downloads than the overall rate. So there is a substantial population of folks who don't buy anything. Again that goes into the flaw of multiplying by every phone ever made.

 

[iphones4evry1]

If the total App market is $2.5Bill, then this means that the average App developer is at least making some decent money off of this.

If Apple really wants to attract new devolopers (and attract developers away from the competition), they should announce at that Apple Media Event "The top App developer on the App Store made $X million dollars over the past 12 months." That's all Apple needs to say. App developers will run from Android and flock to iPhone App development.

 

[SleepyHead157]

I'm not surprised by the high number of iPod Touch users downloading apps. Most of my friends who are on Verizon all have an iPod Touch and they all download a lot of apps, always playing around. I own an iPhone but I rarely download any apps unless I need a specific app for something.

 

[jmadlena]

It's really a shame that children have less money than adults. Life is really cruel, isn't it?

'Full of win' must be the most political commenter on Macrumors. I only have one thing to say - Obama and his family use a number of Apple products. In fact, no president before him was as much Apple as he is. Now, what's the point of being political (and republican) on Macrumors?

His post said nothing about politics, or being a republican for that matter. His post was on topic, unlike yours (and subsequently mine). His signature is his opinion, but it was not directly tied to this discussion.

You brought up the fact that his avatar is of President Obama in joker makeup for... what reason was it again? How did bringing that up serve the community of MacRumors? The only reason I can assume would be because you disagree with his supposed politics - we really have no idea what Full of Win believes, and it probably isn't appropriate to 'call him out' based on his avatar, signature, or even his personal beliefs.

Point being, he didn't do anything to provoke you, so let's all leave politics out of it and discuss the iPhone App store. Take it to the politics forum if you really want to.

On topic: This data makes sense to me. People who want an iPhone but don't want to pay the monthly bill get an iPod touch. They have less money they want (or are able) to throw around.

 

[Speedy2]

even if the store operated at 0 profit margin or in the red, the revenue stream should be somewhere to be found in the financial reports. $2.5b just cannot disappear from the accounting, not in a publicly traded company with good reputation.

Again, it is $750m, not $2.5b. Can you not read?

The numbers of that survey are - of course - about the recent/current state of the market. Not the market 3 to 6 months ago. We only have Apple's numbers for the past, not for the future, where those current app downloads will show up. 3 to 6 months ago the AppStore was smaller, far less apps were downloaded. Ergo, you're probably looking at something from 100-300 millions in the last two quarters. Sounds quite reasonable to me.


Having said that, I think the survey is skewed towards a more app-savvy demographic and therefore a bit exaggerated.

 

[Speedy2]

It took apple almost a full year to hit the first 1 billion downloads. If you use the claimed 8 to 1 free-to-paid ratio that would mean 125 million app downloads of the 1st billion were paid apps. You're telling me that those 125 million app downloads are somehow going to generate $2.5 billion dollars?

Learn to interpret numbers correctly.
Who cares about those first 1b apps? That's history and not what the survey said. It is important how many apps are downloaded RIGHT NOW or in the future (because of more AppStore users), and that's what is relevant. The App Store will hit 2b much much faster than 1b. And 3b will be reached even faster. I hope you won't dispute that.

While I think the extrapolation of survey may be a bit on the optimistic side, there is not a shred of doubt that the AppStore will be a massive cash cow for both developers and Apple. You can easily expect revenues to be times 10 of what they are now. Why exactly do you think that other companies are rushing to copy the business model so uber-quickly and uniformly? Why do you think that the developers still can't stop writing tons of new Apps? If there is no substantial amount of money to be made, you would expect the rate of new Apps to have gone down by now.

I know from experience having an app that hit the #1 spot on iTunes that even if every app on the top 100 was making as much as we were at #1 the combined total would still be several orders of magnitude below these claims.

That's an anecdotal fact about one single App and says nothing about the current state of the market. As long as you can't gather some recent numbers about the entire market that have a certain significance, your claims don't hold.

 

[bghoward]

That's an anecdotal fact about one single App and says nothing about the current state of the market. As long as you can't gather some recent numbers about the entire market that have a certain significance, your claims don't hold.

Since our app hit #1 last month I would say that my evidence is pretty recent. From this I know what a top paid app makes, and I know how many sales an app makes at various points on the top 100. The point I was trying to make was that if indeed $200 million is being made a month I can tell you it's not being made in the top 100 apps within the last 30 days.

Learn to interpret numbers correctly.
Who cares about those first 1b apps? That's history and not what the survey said. It is important how many apps are downloaded RIGHT NOW or in the future (because of more AppStore users), and that's what is relevant. The App Store will hit 2b much much faster than 1b. And 3b will be reached even faster. I hope you won't dispute that.

I don't dispute that the market is growing quickly. I was again trying to make an illustration. Let me phrase it in another way with some more recent data. At an average app price of $2.74 (source) paid apps would have to have around 900 million copies sold a year to reach $2.5 billion. That would be around 75 million copies sold a month and I know from experience that a top paid app in the last 30 days does not even sell 1/100th of that amount a month.

 

[reverie]

developers are getting 70% of it. and the other 30% is to pay for the maintenance of the app store itself.

So? If Apple sells a MacBook for $1000, they keep $300, while $700 go to Foxconn, Intel, Nvidia, UPS and a bunch of other manufacturers, rights holders and logistics companies. Does that mean that Apple must not acknowledge those $700? Far from it, it's cost of goods which is part of a company's financial statements. For a service like an e-store it just depends on the fine print, which in the AppStore's case happens to be that Apple (unlike eBay for example) buys and sells the software on display in its store. That's why you get a bill from Apple, not from the developer/publisher of the software, as you would get for something bought on eBay.

iTunes music revenues have always been acknowledged in its full amount. There are $2 bn in Music revenues in Apple's annual report because Apple is selling about 2 billion songs per year. If the AppStore were anywere as big as music sales we would have noticed.

We don't, we just assume. Like with any other survey. Facts are always hidden in the small text, fancy graph is everything nowadays

Unfortunately it's all based on some online poll. AdMob cannot leverage its network of partner apps here, since they are almost all free downloads and therefore play in a different league than paid downloads.

These numbers are completely out of line with reality.

There is no way the market size is anywhere near 200 million a month. That would mean the average app (assuming 65k apps) is making $2,000+ a month and that's including free apps!

It took apple almost a full year to hit the first 1 billion downloads. If you use the claimed 8 to 1 free-to-paid ratio that would mean 125 million app downloads of the 1st billion were paid apps. You're telling me that those 125 million app downloads are somehow going to generate $2.5 billion dollars?

I know from experience having an app that hit the #1 spot on iTunes (I Dig It) that even if every app on the top 100 was making as much as we were at #1 the combined total would still be several orders of magnitude below these claims.

It's these ingenuous pseudo-reports like this that fuel the current iTunes app store gold rush. I would venture to guess the true iTunes app market size is more like $50 million a year.

Brian Howard
InMotion Software

++ Thank you for your insight.

The numbers of that survey are - of course - about the recent/current state of the market. Not the market 3 to 6 months ago. We only have Apple's numbers for the past, not for the future, where those current app downloads will show up. 3 to 6 months ago the AppStore was smaller, far less apps were downloaded.

Did you care to look at Apple's milestone announcements? They announced 500 million downloads in January, 1 billion in April, 1.5 billion in July. It took them 97 days from 0.5 to 1.0 and 82 days from 1.0 to 1.5. That is not explosive growth, but merely in line with iPhone and iPod Touch sales. The market has been stabilizing over the last 6 months, so it's very valid to talk about I Dig It, which was released just 2.5 months ago. A realistic estimate for AppStore sales right now will be $10 to $50 million. $200 million is just wacko.

Learn to interpret numbers correctly.
Who cares about those first 1b apps? That's history and not what the survey said. It is important how many apps are downloaded RIGHT NOW or in the future (because of more AppStore users), and that's what is relevant. The App Store will hit 2b much much faster than 1b. And 3b will be reached even faster. I hope you won't dispute that.

But still not fast enough to confirm AdMob's dream figures. If Apple actually announce 4 billion downloads next month (supposed there's an iPod event next month), you will have a point. But they will more likely announce 2 billion which makes AdMob's estimates impossible.

While I think the extrapolation of survey may be a bit on the optimistic side, there is not a shred of doubt that the AppStore will be a massive cash cow for both developers and Apple. You can easily expect revenues to be times 10 of what they are now. Why exactly do you think that other companies are rushing to copy the business model so uber-quickly and uniformly? Why do you think that the developers still can't stop writing tons of new Apps? If there is no substantial amount of money to be made, you would expect the rate of new Apps to have gone down by now.

App stores are seen as a way to sell more hardware, not to generate profits by themselves. That's how the iTunes Store has always been viewed by Apple.

That's an anecdotal fact about one single App and says nothing about the current state of the market. As long as you can't gather some recent numbers about the entire market that have a certain significance, your claims don't hold.

That's quite foolish of you to say. Neither you, nor AdMob for that matter, have any first-hand insight into to the sales of a number one app. It seems that you would rather believe AdMob, who have zero authority on paid apps and engaged in the laiziest form of market research, an online poll, than this very successful developer?

 

[Ericatomars]

my little rant~

hmm nothing suprising here, Apple knows how to market them selves... Apple is a house hold name. Its a symbol.

I love love love my macbook and my ipod, and if its true that the new ipod touch will have a camera i think it might be time to buy. I love my ipod and in feb i plan on getting an iphone... But im not the only person that has mulitpal apple products and this is how apple has grown to what it is now.. I think they make good products and they are easy to use.

Android is still new but still cant compare, though they try!

People buy iphones and ipod touches just for the apps... so of course the app store will be in full swing. They have some really cool apps and some really dumb ones. Reguardless Apple is headcheese~

 

[Speedy2]

iTunes music revenues have always been acknowledged in its full amount. There are $2 bn in Music revenues in Apple's annual report because Apple is selling about 2 billion songs per year.

Unfortunately, it's not that easy. Apple doesn't report "music revenues" but only "Other Music Related Products + Services". That includes "iTunes Store sales, iPod services, and revenues from Apple and third-party iPod accessories". In Q309, Apple reported about $950m revenue for that category. At the same time, more than 1b songs were downloaded from the iTunes store. If you were right, either all songs were bought at the $0.69 price point or as part of an album (both things are highly unlikely) OR not a single movie would have been rented or sold and not a single App or iPod accessory would have been sold.

Ergo: we can only guess how Apple accounts anything. My thought is: If they account Apps with their full "retail" price, they are killing their margins in the long run, which they definitely want to avoid. It is only a number, but you know analysts...

Did you care to look at Apple's milestone announcements? They announced 500 million downloads in January, 1 billion in April, 1.5 billion in July. It took them 97 days from 0.5 to 1.0 and 82 days from 1.0 to 1.5.

April-July is Apple's (and especially the iPhone's) slow season. They announced 1.5b on the very day the 3GS was announced. Wait till an entire year has passed. 200m Apps were downloaded in one month alone around Christmas 08/09. It will probably be more something around 800m this/next year.

That is not explosive growth, but merely in line with iPhone and iPod Touch sales. The market has been stabilizing over the last 6 months

Of course it is in line with iPhone/touch sales! But calling the market "stabilizing" when iPhone sales explode at the same time is truly an achievement... I don't know how well the iPod touch is doing at the moment, but new models on 9/9 surely won't hurt sales.

A realistic estimate for AppStore sales right now will be $10 to $50 million. $200 million is just wacko.

How exactly did you calculate those numbers? Can you base them on something more solid than wild guesses. I agree that 200m is unlikely, but not that far away from reality.

App stores are seen as a way to sell more hardware, not to generate profits by themselves. That's how the iTunes Store has always been viewed by Apple.

Yeah, that's what Apple keeps saying. Although, I'm sure they won't mind that nice wad of cash once the download numbers match the iPhone growth. I'm also sure they make a fair amount of money with music downloads these days, even though initially it wasn't much, if any. And we all know that at the beginning they said the same thing about the music.

That's quite foolish of you to say. Neither you, nor AdMob for that matter, have any first-hand insight into to the sales of a number one app.

You are very quick at ruling out the possibility that people download a lot more than what is in the Top10 or even Top100 of paid apps. All I'm saying is that this survey bears far more significance than sales numbers of a single app and unless someone else comes up with better numbers, it's the best we got.
Oh, btw, don't forget that the Top10 is different for each country. So sales of a Top 1 US App are not necessarily representative.

 

[Speedy2]

Since our app hit #1 last month I would say that my evidence is pretty recent. From this I know what a top paid app makes, and I know how many sales an app makes at various points on the top 100. The point I was trying to make was that if indeed $200 million is being made a month I can tell you it's not being made in the top 100 apps within the last 30 days.

Just out of curiosity: How many sales were international and how many in the US? Does Apple tell you that? How was your App placed in the Top100 of international App stores?

Did you have a $0.99 App or did you charge more? Did you have other Apps at other price points to compare their sales performance?

At an average app price of $2.74 (source) paid apps would have to have around 900 million copies sold a year to reach $2.5 billion. That would be around 75 million copies sold a month and I know from experience that a top paid app in the last 30 days does not even sell 1/100th of that amount a month.

error No. 1
The Top10 is not by revenue, but by download numbers. A no.5 app could make much more than no.1

error No 2
Your top spot is only in your country (probably US) and not in other App stores around the world. You have no real knowledge about the revenue situation in those other stores.

error No 3
You are underestimating the effect of the sheer number of paid apps. People are apparently also downloading apps that are not on the top lists.

Think about it:
If it only takes a monthly $4.5 download per user to get to that $200m figure, how could that not be totally possible. Most of my iPhone/iPod-owning friends download much more than that. I hardly know someone who doesn't download anything. This is anecdotal of course, but the survey points in the very same direction. The same people spend $50-70 a month on their plans! (iPhones only of course)

 

[bghoward]

Just out of curiosity: How many sales were international and how many in the US? Does Apple tell you that? How was your App placed in the Top100 of international App stores?

At our peak we were in the top 100 in 60+ countries and #1 in 16 countries. I can safely say that we were in the top 10 in all of the significant iTunes stores.

error No. 1
The Top10 is not by revenue, but by download numbers. A no.5 app could make much more than no.1

Sure it can make more revenue than a #1 app, but I do know how many COPIES it takes for several points along the top 100. My point was that if every app on the top 100 list had as many DOWNLOADS as we did at our peak and each was selling for $10 it would still not equal $200 million a month. If the top 100 isn't making the revenue, who is?

error No 2
Your top spot is only in your country (probably US) and not in other App stores around the world. You have no real knowledge about the revenue situation in those other stores.

It is naive for you to think that we don't track this information, of course we know our revenue situations in those other countries. As I mentioned our top spot was not only in the US, but in most of the world.

Look these reports are coming from a company that does not sell apps on iTunes. They deal primarily with advertisements on free apps. They also have a vested interest in overestimating these numbers because they want to convince developers and advertisers that large numbers of apps are being sold. My company is entirely dedicated to iPhone development and we have been in this market for over a year. I have invested real money and time into this market and I know the realities of making profitable apps in terms of how much you can spend in development and expectations about profit. If you want to believe these numbers, fine, but I will continue to base our business on our own evidence.

 

[firewood]

These numbers are completely out of line with reality.

There is no way the market size is anywhere near 200 million a month. That would mean the average app (assuming 65k apps) is making $2,000+ a month

If the total App market is $2.5Bill, then this means that the average App developer is at least making some decent money off of this.

There is no "average developer". An app near the middle of the store in rankings usually makes far far less than $2000 per month. A huge portion below the middle rankings make almost nothing. The top few percent make half the revenue; so there should be a lot more millionaire devs if the app store was bringing in 2.5B/annum in sales.

 

[reverie]

Unfortunately, it's not that easy. Apple doesn't report "music revenues" but only "Other Music Related Products + Services". That includes "iTunes Store sales, iPod services, and revenues from Apple and third-party iPod accessories". In Q309, Apple reported about $950m revenue for that category. At the same time, more than 1b songs were downloaded from the iTunes store.

Source? I have to admit I didn't follow the iTunes Music section lately, so I was pleasantly surprised that their sales have picked up again recently. Didn't know that, thanks for the heads-up.

But I can only find precise announcements from Apple for 2 milestones: 5 billion songs in June 2008 and 8 billion songs in July 2009. Plus some fuzzy announcement of "over 6 billion songs" at Macworld January 2009. Did they announce 7 billion at some time this spring? For now I would go with the 5 billion and 8 billion milestones, which tell me that 3 billion songs were sold in the last 13 months, or 2.7 billion per year. Revenue for the "Music++" category was $3.85 billion between July 2008 and June 2009. The 2.7 billion songs fit snugly.

They announced 1.5b on the very day the 3GS was announced.

Not true. 1.5 billion were announced 5 weeks later, on 14 July. So far all AppStore milestones were announced in a dedicated fashion, so I would call them accurate.

Wait till an entire year has passed. 200m Apps were downloaded in one month alone around Christmas 08/09.

...actually in 42 days between 12 Dec and 16 Jan, which would be 142 million per month. Since then the AppStore has trended up towards 150, 160, 180 million per month, based on the milestone announcements.

It will probably be more something around 800m this/next year.

That depends on Apple's hardware releases and price points. So far I can't see anything of that magnitude. But as you said, we should wait how it develops. Unfortunately, that's not what AdMob did.

Of course it is in line with iPhone/touch sales! But calling the market "stabilizing" when iPhone sales explode at the same time is truly an achievement... I don't know how well the iPod touch is doing at the moment, but new models on 9/9 surely won't hurt sales.

True, downloads are growing fast, but stabilizing on a per user basis (attach rate). I'm counting 4 to 5 downloads per month per device, and this rate has been steady since December.

How exactly did you calculate those numbers? Can you base them on something more solid than wild guesses. I agree that 200m is unlikely, but not that far away from reality.

I. $0.25 per download (based on Steve Job's comment of $0.50 per download back in August'08)
II. 200 million downloads per month (based on the last 2 milestones announced, plus a little)
= $50 million in revenue per month (or $10 to $100 million).

I would say it's an informed guess, that's why I'm giving a wide margin. What's AdMob's margin of error?

You are very quick at ruling out the possibility that people download a lot more than what is in the Top10 or even Top100 of paid apps.

I'm not calculating with the the Top 100 at all, I'm merely looking at the totals. It so happens that bghoward's and other developers' accounts match with what I've listed here.

All I'm saying is that this survey bears far more significance than sales numbers of a single app and unless someone else comes up with better numbers, it's the best we got.

I'm surprised you're still saying that. Did you read in what cheap fashion the survey was conducted?

- Participants were randomnly invited by banner ads.
- Then AdMob tried to weigh them by demographics to make it a little more representative.
- No telephone or personal 1-to-1 interviews. Online only.
- Participants were able to claim how many apps they downloaded how and much they spent without any proof, just from their own memory and vanity. AdMob did not have any genuine sales data and did not ask to see receipts from the iTunes Store.
- The report contains no qualifications or margins of error.

Bottom line: This is not a serious study by any standard. On the other hand, there are dozens of accounts from developers out there who told us how much they've sold on each of the AppStore chart positions and there are Apple's milestone announcement. These are factual results, not estimates, so they are the best we've got.

 

[kallisti]

Ground to make up on what? Building a network that is substantially geared toward downloading free applications that generate no revenue?????

These numbers clearly show that there is a relatively SMALL number of paid applications you need to fill user needs they are willing to give up money for. If one of the competitors can go to market with a better density of worthwhile apps they would be very competitive. [ remove all the "free" stuff from the graph. You have 1 vs. 2.6 per month of paid apps on phones. 12-36 apps and the user is getting "paid for" utility out of the phone. Just need the right 40-100 apps, not the 10,000 random ones. ]


Similarly the huge revenue numbers are driven by number of platforms deployed. Again to bet Apple... deliver onto networks with lower costs. Android and iPhone download volume is about the same. Slightly higher "paid for" rate but that is certainly fixable with targeted effort. If Motorola, Samsung, and HTC all come out with better "generation 2" phones and pop up on larger wireless supplier networks it is a viable platform. Over time with a bigger ecosystem.

Competing to compose and deliver the highest number of free apps. That is chasing after fool's gold.

You are making the assumption that the free apps do nothing for the platform. I'm not sure that is correct. Having a large number of free apps available may make the platform more appealing to consumers by adding perceived value. Which increases hardware sales. This is clearly of benefit to Apple. Importantly, it also expands the user base. A larger user base should result in a higher volume of software sales of the paid variety.