Apple may have made just $45 million from iPhone App Store

[AppleInsider]

Although many imagine the App Store a cash cow for Apple, a detailed examination has revealed that the iPhone maker may only have earned between $20 million and $45 million from the store for its first billion downloads -- a figure the company is likely more than happy to accept.

Lightspeed Venture Partners' Jeremy Liew made the calculation after learning that there's typically a ratio of 15 to 40 free apps for every one paid example and after discovering an O'Reilly estimate which determines that the mean price for an app is about $2.65.

At the time Apple crossed the billion app mark, this would have resulted in about 25 million to 50 million downloaded paid apps and produced raw revenue of between $70 million to $160 million. But because Apple only takes 30 percent of that revenue for itself, the company has only earned $20 million to $45 million itself. That could be cut in half again if the weighted average is actually at a lower figure such as $1.50, Liew says.

The calculation would have App Store purchases account for an extremely small fraction of Apple's iPhone revenue to date; if it were put up against Apple's early 2009 revenue alone, it would represent less than 3 percent.



Still, the Cupertino-based firm is unlikely to be concerned with the exact amount of income attached to its mobile software store. Similar to its stance on the iTunes music and movie stores, Apple has maintained that the App Store isn't meant as a profit generator and is instead a means of attracting customers to the iPhone and iPod touch, where the majority of the profit exists. The reasoning is most evident in Apple's recent, app-centric marketing campaign as well as in the billion-app contest itself, which gave the prize to a downloader of Bump, a free data exchange app.

[ View this article at AppleInsider.com ]

[Cubert]

"Apple has maintained that the App Store isn't meant as a profit generator and is instead a means of attracting customers to the iPhone and iPod touch"

And don't forget to add "attracting new developers to the Mac platform" to that list.

[kenaustus]

If the AppStore makes a profit it means that the cost of providing the store have been covered. Toss in a bit of software development and Apple has spent some money on this environment - just like they did with the original music on the iTunes Store.

New developers to the platform are very nice, as are the stories of some of these individual developers making some very nice money.

[bizlaw]

Originally Posted by AppleInsider

Although many imagine the App Store a cash cow for Apple, a detailed examination has revealed that the iPhone maker may only have earned between $20 million and $45 million from the store for its first billion downloads -- a figure the company is likely more than happy to accept.

Lightspeed Venture Partners' Jeremy Liew made the calculation after learning that there's typically a ratio of 15 to 40 free apps for every one paid example and after discovering an O'Reilly estimate which determines that the mean price for an app is about $2.65.

At the time Apple crossed the billion app mark, this would have resulted in about 25 million to 50 million downloaded paid apps and produced raw revenue of between $70 million to $160 million. But because Apple only takes 30 percent of that revenue for itself, the company has only earned $20 million to $45 million itself. That could be cut in half again if the weighted average is actually at a lower figure such as $1.50, Liew says.

The calculation would have App Store purchases account for an extremely small fraction of Apple's iPhone revenue to date; if it were put up against Apple's early 2009 revenue alone, it would represent less than 3 percent.



Still, the Cupertino-based firm is unlikely to be concerned with the exact amount of income attached to its mobile software store. Similar to its stance on the iTunes music and movie stores, Apple has maintained that the App Store isn't meant as a profit generator and is instead a means of attracting customers to the iPhone and iPod touch, where the majority of the profit exists. The reasoning is most evident in Apple's recent, app-centric marketing campaign as well as in the billion-app contest itself, which gave the prize to a downloader of Bump, a free data exchange app.

[ View this article at AppleInsider.com ]

And the calculations above do not take into account credit card processing fees, server expense, employee costs, or anything else. If Apple made money on the App Store, it made very little. The App Store is likely a loss leader which brings developers to the iPhone platform, and thus eventually to the Mac platform.

Don't forget, the entire reason Apple has the App Store is to sell more iPhones and iPod touches. This creates the halo factor, which sells more Macs (just talked to a buddy yesterday who finally saw the light and bought a Mac).

[Eriamjh]

Many companies would be happy to make $45 million on something.

[solipsism]

Originally Posted by bizlaw

And the calculations above do not take into account credit card processing fees, server expense, employee costs, or anything else. If Apple made money on the App Store, it made very little. The App Store is likely a loss leader which brings developers to the iPhone platform, and thus eventually to the Mac platform.

You are right, it doesn't take that into account, but I highly doubt it's a loss-leader. Even the iTS has never been a loss-leader from what I can tell.

[lightstriker]

Originally Posted by bizlaw

Don't forget, the entire reason Apple has the App Store is to sell more iPhones and iPod touches. This creates the halo factor, which sells more Macs (just talked to a buddy yesterday who finally saw the light and bought a Mac).

Right. Since Apple makes the SW and HW , just breaking down the App # dont give the whole picture. you have to add the ATT subsidiary number and touch number to this.

Originally Posted by Eriamjh

Many companies would be happy to make $45 million on something.

Especially because Apple only has 3 Apps amount 30,000.

[btitusjr]

Originally Posted by AppleInsider

The reasoning is most evident in Apple's recent, app-centric marketing campaign as well as in the billion-app contest itself, which gave the prize to a downloader of Bump, a free data exchange app.

[ View this article at AppleInsider.com ]

What does that mean. I thought apple gave the winner a computer, a ipod, and a 10k gift card. At least thats what it said on the apple site when I entered the contest. Not just a free data exchange app?! WTF

[solipsism]

Originally Posted by btitusjr

What does that mean. I thought apple gave the winner a computer, a ipod, and a 10k gift card. At least thats what it said on the apple site when I entered the contest. Not just a free data exchange app?! WTF

The billionth app downloaded was Bump. The downloader of that app won the prizes you mention.

[justflybob]

I always Have to chuckle when anyone writes or says "so and so only made so many millions of dollars."

As if anyone on this forum has ever had a $45 million dollar payday!

[christopher126]

I agree the halo effect is definitely there but as the apps become more powerful the opportunity for $30-$99 apps is there. I would pay $99 for a golf/GPS app made by SkyCaddy or app that allows me to open my real estate lock boxes so I don't have to carry a piece of crap SUPRA e-key....etc.

LOL

[macFanDave]

Don't the updates also count as downloads? The updates for free apps are always free (duh), and almost all updates for paid apps are free, Sometimes paid apps have updates that they want more money for, but that's quite rare.

Tens of millions of dollars to the positive is quite good in this economy. The hidden gem of the whole App Store venture is the phrase "There's an app for that."

[solipsism]

Originally Posted by christopher126

or app that allows me to open my real estate lock boxes so I don't have to carry a piece of crap SUPRA e-key.

In Florida, the MLS won't even work with OS X. It requires IE 7 or higher. You can either run Windows or CrossOver on your Mac, but neither one is ideal.

[solipsism]

Originally Posted by macFanDave

Don't the updates also count as downloads?

In reference to the 1B downloads, they only count the original app download per iTunes account. But they do count as downloads when Apple figures out their bandwidth usage costs.

[cameronj]

Um, do we really have any support that the percentage of paid apps is really only 2.5%-7%? This whole analysis hinges on that claim, and it seems a bit outlandish to me. Maybe I'm the only one who considers an app that costs $1.99 to be essentially the same as free?

[christopher126]

Originally Posted by solipsism

In Florida, the MLS won't even work with OS X. It requires IE 7 or higher. You can either run Windows or CrossOver on your Mac, but neither one is ideal.

Yep, same here in AZ, although in Phoenix the newest version of the MLS works on Safari but up in Payson (different MLS area) I have Parallels for that very reason...really annoying!

I can't believe there are companies that still create websites and programs that don't use the latest and greatest, ie., OSX

Regards

[Rot'nApple]

Originally Posted by AppleInsider

Although many imagine the App Store a cash cow for Apple, a detailed examination has revealed that the iPhone maker may only have earned between $20 million and $45 million from the store for its first billion downloads -- a figure the company is likely more than happy to accept.

Between $20 million and $45 million... is that code for $20 million if we paid out what the app store developers are owed and $45 million is we keep delaying payment...

[christopher126]

Originally Posted by solipsism
In Florida, the MLS won't even work with OS X. It requires IE 7 or higher. You can either run Windows or CrossOver on your Mac, but neither one is ideal.


Just a quick note, Solipsism...I would really recommend Parallels to anyone that has to have windows....the latest version when open sits in your dock and when not being used does not hog your RAM....the version before would hog half your RAM and really slow down my Mac.

Sorry off topic!

[solipsism]

Originally Posted by christopher126

Yep, same here in AZ, although in Phoenix the newest version of the MLS works on Safari but up in Payson (different MLS area) I have Parallels for that very reason...really annoying!

I can't believe there are companies that still create websites and programs that don't use the latest and greatest, ie., OSX

Regards

With pretty much all mobile browsers being non-IE-based, the increased Mac sales,and the growing number of users for Gecko engine (Firefox) and Webkit engines (Safari, Chrome) the likelihood of these sites making their web apps more compatible will grow.

There are still plenty of government websites that don't allow you to enter if you are using IE. However, you can sometimes trick it by changing your User Agent. If that doesn't work, you can almost always bypass their weak browser check by finding the cached site in Google. Once you enter there you are usually fine.

Just a quick note, Solipsism...I would really recommend Parallels to anyone that has to have windows....the latest version when open sits in your dock and when not being used does not hog your RAM....the version before would hog half your RAM and really slow down my Mac.

I'm not a Realtor®, but my parents are. I prefer VMWare, but for them I have installed Parallels. It works fine but the OS within an OS concept is not the easiest concept for most people. I have streamlined it as much as possible, but I wish it was better. CrossOver worked well for displaying on the screen but printing from IE in CrossOver was all messed up. I figure in a few years this won't be an issue.

What was this thread about?

[cczaphod]

I think the real story here is that Apple facilitated $160 Million for software developers. They've helped everyone from individual developers to established software firms make a significant amount of money.

If you thought Apple had brand loyalty before, there are 160 million more reasons for application developers out there to love Apple.

[teckstud]

I guess next we'll hear that the APP store is a hobby too. Whatever.
I want to know how much AT&T will make off their own video service as opposed to the SlingPlayer APP that never was?

[christopher126]

Originally Posted by solipsism

With pretty much all mobile browsers being non-IE-based, the increased Mac sales,and the growing number of users for Gecko engine (Firefox) and Webkit engines (Safari, Chrome) the likelihood of these sites making their web apps more compatible will grow.

There are still plenty of government websites that don't allow you to enter if you are using IE. However, you can sometimes trick it by changing your User Agent. If that doesn't work, you can almost always bypass their weak browser check by finding the cached site in Google. Once you enter there you are usually fine.


I'm not a Realtor®, but my parents are. I prefer VMWare, but for them I have installed Parallels. It works fine but the OS within an OS concept is not the easiest concept for most people. I have streamlined it as much as possible, but I wish it was better. CrossOver worked well for displaying on the screen but printing from IE in CrossOver was all messed up. I figure in a few years this won't be an issue.

What was this thread about?

[paxman]

Originally Posted by AppleInsider

Although many imagine the App Store a cash cow for Apple, a detailed examination has revealed that the iPhone maker may only have earned between $20 million and $45 million from the store for its first billion downloads -- a figure the company is likely more than happy to accept.

A figure I also would have been extremely happy with for my less than a year old internet start-up.

[digitalclips]

Originally Posted by solipsism

In Florida, the MLS won't even work with OS X. It requires IE 7 or higher. You can either run Windows or CrossOver on your Mac, but neither one is ideal.

AAgghh don't remind me ... groan ... (but wait for the bright spark that always chimes in that it works for him in Canada and have we tried using Safari with the debugger running?)

Only upside for me is I have earned a few coffees fixing Windblows in Parallels for friends who are Realtors running Parallels or VMWare in my spare moments.

(Yes it's freaking early .. got to drive to Miami at 3.a.m.!)

[digitalclips]

It is a small % of turn over and although great for Apple makes the chances of copy cats making money on far smaller sales slim. For example the ZunePhone App store will no doubt sell lots of 'Adventures of Monkey Dancer' internally but I don't see it hitting a billion sales in the first decade on other products based on history.

[Marvin]

Originally Posted by cameronj

Um, do we really have any support that the percentage of paid apps is really only 2.5%-7%? This whole analysis hinges on that claim, and it seems a bit outlandish to me. Maybe I'm the only one who considers an app that costs $1.99 to be essentially the same as free?

Yeah, the whole claim seems to be made by some guy who can scribble basic maths on a scrap of paper - a shame when you think he's supposed to have a degree in Pure Mathematics:

http://www.lightspeedvp.com/TeamMember.aspx?m=27

but then he did work for AOL.

"Jeremy Liew made the calculation after learning that there's typically a ratio of 15 to 40 free apps for every one paid example and after discovering an O'Reilly estimate which determines that the mean price for an app is about $2.65."

The ratio of paid apps to free ones doesn't mean anything in the calculation unless they are talking about downloads but the guy even admits it's a huge assumption that has no firm support. The mean price of an app doesn't really make a difference either as it's only based on data for the top 100 apps.

Until Apple actually release their earnings for the App Store, this is all just random and quite baseless speculation. Here's my take:

"Estimates from wildly unconnected sources suggest that the number of paids apps downloaded may in fact be 30%, which means that the number of paid downloads exceeds 300,000,000. The most popular apps were among the most expensive such as Super Monkey Ball, which still sells for about $5. This puts the mean price at around $3 so the income drawn is about $900,000,000 of which Apple make $300,000,000."

^ How is the data given here any less accurate? It was pulled out my ass just the same. These 'analyses' and subsequent rumors get pretty tiresome when they aren't based on facts.

[akf2000]

Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm Cupertino-based firm

[ivan.rnn01]

then you harvest.

[i2m]

I agree with Marvin. Numbers are wrong.
There are around 40.000 apps in the store now which produced 1 bn downloads.
Only 25% of those apps are free. Rest are paid apps.
If you take those absolut numbers into your calculations, the total number of downloads for paid apps should be around 200 m. This looks better to me.
Assumption is that a free add is downloaded 15x more than a paid app.

[RichL]

As an aside to download services, Sony now charges publishers $0.16/GB for free content on the Playstation Network for the first 60 days. The recent Resident Evil 5 demo is estimated to have cost Capcom $225,000 to deliver to fans on the PS3.

Obviously Apple is never going to bill app developers for bandwidth but it highlights the cost of bandwidth to the likes of Apple, Sony, Microsoft and Valve. I wouldn't be surprised is Apple is making something south of $20mil once you factor in all costs.

But that's not a problem for Apple. It's always been about selling hardware and the app store certainly does that.

[jfanning]

Originally Posted by RichL

As an aside to download services, Sony now charges publishers $0.16/GB for free content on the Playstation Network for the first 60 days. The recent Resident Evil 5 demo is estimated to have cost Capcom $225,000 to deliver to fans on the PS3.

What size is the demo? At 1.5GB there would have been about 1 million downloads of the demo, which is quite good.

[Adjei]

So between 950 million and 975 million apps were free?

[RichL]

Originally Posted by jfanning

What size is the demo? At 1.5GB there would have been about 1 million downloads of the demo, which is quite good.

1.5 million downloaded it so I assume the demo was ~1GB. Sales have been good so it looks like the investment paid off for Capcom.

[anantksundaram]

$45 million, lots of happy developers, a new ecosystem that everyone and his brother is desperately trying to emulate, and spillover effects in creating/sustaining hardware demand/sales.

What's not to like?

[solipsism]

Originally Posted by RichL

As an aside to download services, Sony now charges publishers $0.16/GB for free content on the Playstation Network for the first 60 days. The recent Resident Evil 5 demo is estimated to have cost Capcom $225,000 to deliver to fans on the PS3.

Just to be clear, the systems are different. Having a game demo in the GB and a free iPhone app that is just a few MBs are completely different dynamics.

Besides the size, one is a promo for an upcoming game that will be sold and the other is part of the draw to the iPhone/Touch consumer ecosystem, and even the draw for new developers to Cocoa and Objective-C.

While free to the demo users, that small charge that looks to be a break even price for Sony will just get folded into the game's price for the paying customers.

[solipsism]

Originally Posted by iStink

exactly. Even people who don't have iphones, or for some reason despise iphones, should be happy with the effect it's had on other companies trying to compete. Something like this just fuels innovation elsewhere.

Exactly. Love it or hate, your preferred smartphone will be better because of the iPhone's existence.

[Dr Millmoss]

Originally Posted by Eriamjh

Many companies would be happy to make $45 million on something.

I was about to say.

Compare and contrast to, say, Microsoft. Their new projects are called a success when they succeed in losing billions for years.

[noirdesir]

Originally Posted by kenaustus

If the AppStore makes a profit it means that the cost of providing the store have been covered.

If read the article, it clearly says that these 45 m are before cost. Nobody knows whether these 45 m (which are only a guess) cover there costs or not even though it is implicitly assumed that they do.

[mrjoec123]

Originally Posted by noirdesir

If read the article, it clearly says that these 45 m are before cost. Nobody knows whether these 45 m (which are only a guess) cover there costs or not even though it is implicitly assumed that they do.

Well, now we know why the app store approval process is so troubled. As I suspected, it's most likely two guys who review every single app one by one manually. They probably can't afford more than that without running the store at a loss.

[johnqh]

Micro-payment is expensive. Generally, the credit card transaction charge a fixed amount (for example, 15 cents) and then a percentage (like 2%).

Among the 20M to 45M, Apple probably get 10M to 25M after the credit card expense.