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

Posted:
in iPhone edited January 2014
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.
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Comments

  • Reply 1 of 49
    cubertcubert Posts: 728member
    "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.
  • Reply 2 of 49
    kenaustuskenaustus Posts: 916member
    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.
  • Reply 3 of 49
    bizlawbizlaw Posts: 13member
    Quote:
    Originally Posted by AppleInsider View Post


    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.







    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).
  • Reply 4 of 49
    eriamjheriamjh Posts: 1,399member
    Many companies would be happy to make $45 million on something.
  • Reply 5 of 49
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by bizlaw View Post


    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.
  • Reply 6 of 49
    Quote:
    Originally Posted by bizlaw View Post


    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.



    Quote:
    Originally Posted by Eriamjh View Post


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



    Especially because Apple only has 3 Apps amount 30,000.
  • Reply 7 of 49
    btitusjrbtitusjr Posts: 53member
    Quote:
    Originally Posted by AppleInsider View Post


    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.



    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
  • Reply 8 of 49
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by btitusjr View Post


    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.
  • Reply 9 of 49
    justflybobjustflybob Posts: 1,337member
    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!
  • Reply 10 of 49
    christopher126christopher126 Posts: 4,366member
    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
  • Reply 11 of 49
    macfandavemacfandave Posts: 603member
    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."
  • Reply 12 of 49
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by christopher126 View Post


    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.
  • Reply 13 of 49
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by macFanDave View Post


    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.
  • Reply 14 of 49
    cameronjcameronj Posts: 2,357member
    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?
  • Reply 15 of 49
    christopher126christopher126 Posts: 4,366member
    Quote:
    Originally Posted by solipsism View Post


    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
  • Reply 16 of 49
    rot'napplerot'napple Posts: 1,839member
    Quote:
    Originally Posted by AppleInsider View Post


    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...
  • Reply 17 of 49
    christopher126christopher126 Posts: 4,366member
    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!
  • Reply 18 of 49
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by christopher126 View Post


    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.



    Quote:

    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?
  • Reply 19 of 49
    cczaphodcczaphod Posts: 5member
    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.
  • Reply 20 of 49
    teckstudteckstud Posts: 6,476member
    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?
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