One of the numbers I told readers to look out for, in 2010, was when Apple will announce it has passed 1 billion dollars of App Store sales. We didn't hear that moment, but when Steve Jobs announced the iPhone 4, he did reveal that Apple has now paid out 1 Billion dollars to Apps developers. As Apple keeps 30% of the revenues, that means that as of June 7, 2010 - in a little less than 2 years from launch - the total revenues generated by all iPhone apps sold since July 2008 has now passed 1.43 Billion dollars - of which Apple has kept 30%, and paid out 1.0 Billion to the developers.
So 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 29 cents 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 smaple 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 paid of 95 cents paid per downloaded app. That is clearly not reasonable where the minimum price of any iPhone app is 99 cents and many apps cost far higher levels like 3.99 or 4.99 or 9.99 etc. We had Chetan Sharma's calculation of the average price of a paid app to be 1.90 dollars. Yankee Group measured it at 1.99 dollars. Both of these were numbers effective March 2010. If we assume the average price is the half point of those two - at 1.95 dollars per iPhone app, that means that to get 1.43 Billion dollars 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 for 15% of all apps.
ANNUAL SALES LEVEL
The number our readers most want to see is what is the annual level of sales. And for that too, we have now the first indicactor. We do not have full info yet, as we only have two data points - it was zero dollars in June 2008, and has 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 iPhone (July to June), and years as in calendar years (January to December). So lets split the linear growth into four halves of the year, to see how the sales has 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 1B dollars
TOTAL CUMULATIVE SALES so far 1.43 Billion dollars over 2 years
Projected same pattern for second half 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 iPhone installed 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 Touch's and iPads. If we divide 1.43 Billion dollars of apps revenues by 90 million users, we get the average spent by an iPhone or equivalent user, of 15.89 dollars spent by the average user over the two year period. So the consumer buys a 600 dollar super smartphone and then adds under 16 dollars of apps 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 its 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 dollars cumulative revenues earned by those 225,000 apps, we get an average revenue earned of 6,355 dollars per app (over 2 years). Remembering that the average app development cost is between 15,000 and 50,000 dollars, if we assume an average app costs only average of that development cost, of 35,000 dollars, 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 dollars for any re-release of an app - remember we are assuming now 10 years the app is not changed) or any marketing costs etc. This is totally 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), ie Apple's iPhone App Store - earned about 715 Million dollars in calendar year 2009 - which is almost 10% LESS than the most conservative of the analysts, Morgan Stanley and their widely reported number. Yes, all those who promised Apple iPhone App Store sales of over a billion last year were totally off (as we suspected) and even Morgan Stanley's number was too high. It was about 715 million dollars last year, thats all. Of that, Apple kept 215 million dollars, and paid out 500 million dollars to developers.
This is not a significant money-making opportunity. Not now in 2010. Maybe in a few years down the line but not now. Just for contrast, the 'non-messsaging' mobile data 'services' revenues in 2009 were more than 100 Billion dollars. The real money is 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.