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One of the numbers I told readers to look out for in 2010 was the date on which Apple (Nasdaq: AAPL ) will announce that it has passed $1 billion in App Store sales. When Steve Jobs announced the iPhone 4, he revealed that Apple has now paid out $1 billion to app developers. As Apple keeps 30% of the revenues, that means that as of June 7, 2010 -- in a little less than two years from launch -- the total revenues generated by all iPhone apps sold since July 2008 has now passed $1.43 billion -- of which Apple has paid out $1.0 billion to the developers.
We also heard that the total cumulative downloads had passed 5 billion apps, so if we count that across all apps, we get an average of $0.29 earned per app downloaded. That is not exactly overwhelming.
Of course, the vast majority of all apps are free apps. The conventional wisdom -- based on no real facts, but some gut feelings and very small sample surveys -- has been saying that 70% of all apps are free, and thus 30% of all apps earn revenues from the consumers who download them. That is now not supported by the facts from Apple.
If we map out app revenues against the 30% of all downloaded apps, we get an average price of $0.95 paid per downloaded app. That is clearly not reasonable, where the minimum price of any iPhone app is $0.99 and many apps cost much more. We had Chetan Sharma's calculation of the average price of a paid app to be $1.90. Yankee Group measured it at $1.99. Both of these numbers were effective March 2010. If we assume the average price is the half point of those two -- at $1.95 per iPhone app, that means that to get $1.43 billion total revenues, there were 732 million apps that were paid apps, and almost 4.3 billion free apps. Thus, free apps would form 85% of all downloaded apps on the Apple iPhone App Store, and paid apps only 15% of all apps.
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Annual sales level
The number our readers most want to see is what the annual level of sales is. And for that, too, we now have the first indicator. We only have two data points -- it was zero dollars in June 2008, and it reached a cumulative level of $1.43 billion by June 2010. But until we get more data, we can plot a linear growth curve and estimate the sales, both per years from launch of the iPhone (July to June), and years as in calendar years (January to December). So let's split the linear growth into four halves of the year, to see how the sales have grown:
- 2H 2008: total App Store Sales in half $143 million; annual sales calendar 2008 $143 million
- 1H 2009: total App Store Sales in half $286 million; cumulative sales first year $429 million
- 2H 2009: total App Store Sales in half $429 million; annual sales calendar 2009 $715 million
- 1H 2010: total App Store Sales in half $572 million; cumulative sales second year $1 billion dollars
Total cumulative sales so far: $1.43 billion over 2 years.
Projected same pattern for the second half of 2010:
- 2H 2010: total App Store Sales in half $858 million; annual sales calendar 2010 $1.4 billion
How much per user, per developer
So when we then look at the App Store installed user base -- and remember, in case of the iPhone, we have to add the iPod touch and iPad users as well -- we had, roughly speaking, about 90 million cumulative shipments of iPhones, iPod touches, and iPads. If we divide $1.43 billion of apps revenues by 90 million users, we get the average spent by an iPhone or equivalent user, of $15.89 spent by the average user over the two-year period. So the consumer buys a $600 super smartphone and then adds fewer than $16 of app sales. I do not see this as a radical change to the business in either apps or mobile. The proportion of spending on apps is under 3% of the amount spent on the device. The point gets ever more obvious that it's the free apps which drive the traffic, not the paid-apps business.
What of the developers? The latest count I've seen is 225,000 total apps on the App Store. So if we divide the $1.43 billion cumulative revenues earned by those 225,000 apps, we get average revenue earned of $6,355 per app (over two years).
Remembering that the average app development cost is between $15,000 and $50,000 (the lowest estimate for a casual game was $6,453), if we assume that an average app costs only the average of that development cost -- or $35,000 -- and assume the app is so successful it does get average downloads, it would take 10 years to recoup its development costs. And that is before any redevelopment costs (typically $10,000 for any rerelease of an app -- remember, we are assuming that in 10 years that the app is not changed) or any marketing costs. Is this a pointless economic pursuit?
There were tons of so-called experts who claimed the smartphone app stores were earning tons of money last year. They were not. The world's most successful smartphone app store (there are over 30 of them already) -- Apple's iPhone App Store -- earned about $715 million in calendar year 2009, of which Apple kept $215 million and paid out $500 million to developers. This is not a significant moneymaking opportunity. Not now in 2010. Maybe in a few years down the line, but not now. Just for contrast, non-messaging mobile-data services revenues in 2009 were more than $100 billion. MMS itself is considered a failure, and it is a $30 billion business. The real money lies in mobile services, not in smartphone apps. As I have been saying for a long time, smartphone apps are a false promise now in mobile.
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This article was originally published by brightsideofnews.com and modified by The Motley Fool.