Apple touts its app store as being one huge advantage for its iPhone and iPad systems over competitor's offerings. And you'd think a store with 200,000-plus articles on sale would be a screaming financial success, yes? Nope.
Apple Analyst Gene Munster at Piper Jaffray has been trawling through some of the stats revealed by Steve Jobs in his WWDC keynote, and as analysts are wont to do he's managed to infer some interesting little extras from them. The basic figures he worked from are 5 billion app downloads and $1 billion delivered to developers as cash payback from sales. Mixing in some thinking about app pricing and the total number of apps that are paid for instead of free, Munster's been able to work out that Apple's gross revenues on sales are about $1.4 billion since the store's inception. After sharing out cash to developers, with a gross margin on App Store sales of about 44%, that equates to a profit of around $429 million over the store's lifespan. With Apple's gross profit for this period equating to some $33.7 billion, this means Apple's profit contribution from the App Store is just 1%.
One percent is not much at all, folks, especially given the volume of attention (read: cash input) Apple must be paying to keep the entire ecosystem ticking over smoothly. But it's still a profit of half a billion dollars, so nobody's really going to be feeling sad for Apple over this. And since 81% of downloaded apps are free, the profits are from just a small fragment of the total store's business. With Apple's promising iAds system poised to return even more money from app sales, it's definitely not like Apple's running this service at a loss.
And actually, Apple's said before that it runs the App Store for close to break-even performance. Considering that the App Store is a big draw for users to buy Apple products, a 1% "loss"-leader like this is most definitely worth it, for the much, much bigger profits (in margin, and real cash return) Apple makes on selling its hardware to the public. Remember—3 million iPads have walked off the shelves in just a couple of months.
But what about the competition—surely they can't afford to run a competing store at less than Apple's profit margin? The Android Market place has got to be returning cash to Google by the ton, right? Well, some similar analysis performed by the guys over at LarvaLabs reveals that just $21 million has been paid out to developers from sales on the Marketplace since its inception—a figure 50 times smaller than Apple's equivalent, and which reflects directly into the profits that Google will be pulling in. According to Larva Labs, this confirms that while the App Store reflects a dynamic and growing business, the Android Marketplace is much more of a "cottage industry" with little to actually attract developers to it. Maybe it's this sort of statistic which has prompted Microsoft recently to pay for developers to port over versions of popular iPhone apps ready for its Windows Phone 7 Series devices ...