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Summary:

When Apple (NSDQ: AAPL) launched its iPhone application store in mid-2008, it pointed out that the company wasn’t looking to make a ton of d…

imageWhen Apple (NSDQ: AAPL) launched its iPhone application store in mid-2008, it pointed out that the company wasn’t looking to make a ton of dough. It was more interested in creating a community that would help drive iPhone sales, a strategy that worked with the company’s launch of iTunes and the iPod player. So far the strategy appears to be paying off – Apple sold almost 14 million iPhones in 2008, but Jeremy Liew from venture firm Lightspeed Venture Partners has crunched the numbers and calculates that the apps have earned Apple a modest $20 – $45 million. Here is how he gets there:

–After surveying app developers and others in the industry Liew estimated 25 million to 60 million of the billion apps downloaded thus far were paid for.
–Using an online survey the median price per app was $2.65.
–That equals revenue in the range of $70 to $160 million, of which Apple keeps 30 percent.

The remaining 70 percent ($50 million to $115 million) goes to the developers, which may lead some to ask with that spread between so many developers why are venture funds putting so much money into companies whose only business model is to develop iPhone applications? Advertising, of course. Some estimate that ads either disguised as iPhone apps or placed within them will help increase mobile ad spending by $100 million this year. And don’t forget opportunities for commerce or virtual goods in game applications, which represent 25 percent of all apps downloaded from the Apple store.

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By Rory Maher

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  1. You trying to tell me that a maximum of 6% of downloads are paid? Only 1 out of 17? I am no expert, but this seems VERY low to me. Though the ASP seems a little high.

  2. NoTimeForRecess.com Thursday, May 14, 2009

    It seems low, but a majority of that I would assume is that these downloads that cost money almost ALWAYS have a free (lite) version to try it out. If they don't like it, they don't buy it.

  3. The report, which you can click through to from our article, puts the ratio at anywhere from 1:15 to 1:40. It's probably closer to 1:15, but that doesn't seem incredibly low. I would imagine most people download the free ones versus those that charge.

  4. I believe the lower estimate is correct. We've experience ratio as high as 1:100 between paid and free. E.g. an app that is offered for free gets 6.000 downloads a day and when we start charging 0.99 USD it gets 60 purchases a day. There are of course other reasons for this as well but the point is that most downloads from the iPhone Appstore are free and Apple doesn't really care if people download the free or paid ones as they make their money from the hardware business and deals with the operators. Most important thing is that there are great apps on the appstore and that people continue using and upgrading their iphones and itouches. Therefore Apple will obviously continue to ensure that there is a viable business model for developers but most developers will never become rich from their iphone apps.

  5. It's tough to compare downloads to sales. I want to know if when people report downloads they are counting downloading an updated version, some apps have updated 10x.

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