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Japan Will Make Apple's App Store Bigger

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Apple (NASDAQ: AAPL  ) announced earlier this week that it generated $10 billion in revenue from its App Store in 2013. To put that in perspective, that's nearly half of Apple's approximate total App Store revenue since it opened shop in 2008. Meanwhile, Google's (NASDAQ: GOOGL  ) Android continues to grab market share, but is still far from matching Apple's app revenue.

Interestingly, Google Play was able to close the gap in sales in the largest apps market, Japan. It's unlikely that Google Play will continue to outpace the App Store in 2014, however, as Apple has made moves to improve its position in Japan and remain a dominant force in the high-end market. It doesn't help that Samsung (NASDAQOTH: SSNLF  ) products don't sell well in the country, as it is one of the few companies that releases phones on par with Apple's.

A rapidly growing high-end market
In 2013, Japan surpassed the U.S. as the largest apps economy. The rapid growth in app purchases is due to the growth in smartphone penetration, which is now on par with the U.S. App Annie expects Japan's smartphone adoption rate to surpass the U.S.'s in 2014.

Japan is the fourth-largest smartphone market behind China, the U.S., and India. Unlike China and India, however, Japanese consumers buy significantly more high-end phones.

Currently, Google is winning app revenue share in Japan. Teaming with carriers to place app charges on phone bills has benefited the company in a country where credit card use is less popular than in the U.S. Google holds a slight lead in app revenue, and took over 60% of smartphone sales in the first nine months of 2013.

The release of the iPhones 5s and 5c, plus Apple's deal with NTT DoCoMo, likely decreased those numbers in the fourth quarter. A report from Kantar Worldpanel indicated Apple accounted for 76.1% of smartphone sales in October after the release of its new phones.

Apple could dominate Japan in 2014
Apple is poised to capitalize on the growth in the largest app economy. The company teamed up with NTT DoCoMo in September to offer the iPhone 5s and 5c to its 61.8 million customers. This move has led at least one analyst, Timothy Arcuri of Cowen & Co., to project that Apple could take 50% of the Japanese market in 2014. The iPad already holds over 50% of the tablet market in the country.

The deal with NTT DoCoMo also prompted the carriers two biggest competitors, KDDI and SoftBank, to offer the iPhone at no upfront cost with a two-year contract. Competition among carriers is great for Apple, and ought to increase iOS adoption across every carrier in 2014.

Google's reliance on Samsung as its most popular smartphone and tablet manufacturer has actually been a hindrance in Japan as well. As a Korean company, Samsung is automatically met with a certain stigma that hampers sales. As a result, Samsung is only the fourth most popular phone vendor in one of the largest and most profitable smartphone markets.

Samsung is still a force to be reckoned with, especially in the emerging markets of China and India. It has plans to launch its Tizen OS, which ought to help it extract more value out of its phone sales. To that end, Google is most at risk should Tizen OS catch on.

The App Store keeps Apple on top
The reason Google Play revenue has lagged App Store revenue despite Android's dominance of the smartphone market is because most of those Android phones are low-end devices.

As Apple hardware sales dominate the most lucrative app markets like Japan, developers will continue flocking to the platform. This preference creates a virtuous cycle for Apple, as developers focusing on iOS first will benefit iPhone and iPad sales.

Apple's partnerships with carriers like NTT DoCoMo, or even China Mobile, only help to cement its position as the most popular high-end device maker. The App Store is what keeps it there.

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  • Report this Comment On January 09, 2014, at 12:21 PM, Thompr97 wrote:

    People keep talking about Samsung moving to Tizen from Android. This seems like a path fraught with danger and unlikely to succeed. I can hardly believe Samsung will really even try it.

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Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

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