Apple's App Store careful where you tread

Apple's App store continues it's awesome growth, with headline figures of 2bn downloads.

The rush to create new applications and get them onto the market continues, as does the rush of other platform providers to copy the success of Apple.

It's easy to extrapolate from the very large numbers being posted to the app store to assume that there are lots of developers making vast amounts of money from the App Store, and that Apple are in turn making vast amounts of money off it.

The truth might be somewhat different though - talking to developers who have applications on Apple's App store you get a somewhat different story - most people seem to be making a small amount of money - better than previous application store offerings, but not enough to build significant business on (by contrast the web, has a reasonable number of mid-size businesses, and a reasonable number of large businesses that sustain themselves solely by revenues generated from the Web)

So where is the gap? Is it that a very small number of iPhone application developers are making all the money, or do we need to look a little deeper at the App Store figures?

If we look at the headline number from Apple - 2bn downloads things look great.

However - how is this number counted? It's a total of downloads from the App Store. What might make up a download?

1. New, paid app that is bought, then downloaded
2. Free application that is downloaded for the first time
3. Updates to applications that have been previously downloaded automatically downloaded by iTunes

Application updates frequently get forgotten - these are a very important part of an application lifecycle - they enable application authors to incrementally add features in response to user needs, and to update to fix bugs - the App Store handles these particularly well - not quite as well as the web (where application updates happen server side) but better than any other App Store.

So how do Application updates work? The app author submits a new revision of an application, and it is approved by Apple's reviewers, and listed as a free download. Apple application review sites then typically pick up on updates, and add new reviews, and iTunes automatically tracks updated applications and downloads them.

The net effect? Application authors get a sales bump from submitting new versions. So some applications have very rapid version changes to maximise sales - some applications have update frequencies as often as once a week, once a month isn't uncommon, and it's reasonable to assume that on average many applications have an update once per quarter.

Each of these updates drives another download - to all the people who have previously downloaded the application - even if that application is not installed on their iPhone - iTunes will download the update to the host PC or Mac anyway.

If we believed the headline numbers from Apple we'd see

• On average the 50m iPhones + iPod Touch devices have 40 downloaded applications installed

This isn't true - though on average the 50 million host PC or mac devices have downloaded 40 application packages

If we assume that each application has had 4 updates during the year we can now assume that there have been 500M unique new app downloads to devices - 10 per device. If 80% are free downloads compared to paid - then that's 100M paid application downloads. With an average revenue of around $2.50 per application that's $250M revenue flowing through the app store system - $175m being paid out to application developers, or, if there are 40,000 paid applications, an average of $4,375 per year application launched. Some hits will be higher, but many will be lower than this. If an iPhone developer wants to earn $50,000 per year then she needs to be creating a new app every month.

Comments

[Greg Yardley]

At Apple's Sept. 9th 'Let's Rock' event, when the number of application downloads was at 1.8 billion, Apple confirmed that they didn't include application updates in this figure.

[Matt]

Interesting - got a reference? I've heard contrary from sources - the 2bn number does include downloaded updates, it's the 85k applications that does not include updates. (which makes sense as it's easy to verify the 85k number)