The iTunes App Store has reached its first birthday. This event deserves a moment of reflection on what Apple has achieved in its first 12 months of operating the App Store.

Tens of Thousands of Apps, Billions of Downloads

Apple celebrated the download of 1 billion applications from the iTunes App Store just this April. Anytime you have a one followed by nine zeroes, it certainly looks impressive, but the remarkable speed with which Apple reached this milestone makes the achievement even more noteworthy. It took just over nine months for the App Store to hit 1 billion downloads; there were also over 35,000 apps available at this time. Not quite three months later, and there are 58,000 apps available in the App Store and downloads are over 1.5 billion.

Love Me Some Apps

iPhone apps are a certified hit. According to a recent report from Compete, the App Store generates surprising engagement with customers. Twenty-seven percent of smartphone users have never installed any apps on their phones, compared with only 2 percent of iPhone users who have managed to avoid the App Store. Of those who have paid for apps, 86 percent have never paid more than $9.99, but 83 percent of iPhone users have downloaded at least six apps.

Seventy-nine percent of iPhone users have downloaded games for their device. Other popular app categories are Entertainment (78 percent), Weather (57 percent), and Music (55 percent). If we count all 21 million iPhones and 16 million iPod touch units worldwide at the time this report was released, these percentages mean that four out of five, or about 16.6 million iPhone users, have at least tried playing a game on their iPhone. If we assume a similar percentage for iPod touch users, then there are about 12.6 million more people downloading content for their device, or about 29.2 million users total who have downloaded at least one game from the App Store.

What should be even more exciting for iPhone developers is that the total installed base of iPhone and iPod touch units is set to nearly double within a year. At 7 million units a quarter, the market for the App Store will increase to 58 million devices by the end of 2009, or 65 million devices by April 2010, maybe 72 million to 75 million by the three-year anniversary of the iPhone and the two-year anniversary of the App Store.

The iPhone Marketplace is Huge

To get a sense of the scale and importance of the iPhone App Store, I went to Electronic Arts, a publisher with two titles on the all-time most popular paid apps leaderboard (Tetris and Monopoly: Here and Now). While it was reluctant to share specific numbers across platforms, it did have the following comment.

EA doesn’t share specific sales results, but the success of Spore Origins and SimCity being a No. 1 Top Paid App worldwide within a day of its launch speaks to the excitement around EA games on the iPhone and iPod touch. In looking at Apple’s game sales on the App Store in general, there are a few cases where Apple’s monthly sales have surpassed certain carrier sales for the same period. It is clear that the consumer is reacting favorably to the shopping, download and game-play experience that Apple and the publishing partners have brought to market. With over 60 percent of Top Paid Apps being games, EA is in an exciting category and we intend to apply our passion for gaming and our leading IP to this platform.

I think it is fascinating that the App Store has exceeded some carrier sales for EA. Of course, EA has games on other platforms, too.

EA continues to evaluate all current and emerging platforms and will launch on platforms that deliver great purchase and gaming experiences. EA has launched three games for the G1 on the Android platform, over 50 games in support of BlackBerry, and over 30 games in support of Windows Mobile.

I was a little surprised to learn there were so many titles on the BlackBerry. I have been a BlackBerry user for several years, but I don’t recall ever seeing an ad for software on the BlackBerry. The game market appears to be a leading indicator of the platform’s success. There are just 12 EA titles on the iPhone right now, but some big names are set to launch this year. If anyone had doubts about the viability of the app market, and more specifically the game market, those doubts should be gone.

Comparisons

There are not any clear apples-to-apples comparisons (pun intended) of mobile phone application marketplaces for the App Store yet, although that will change this year as Microsoft, RIM, Google and Palm all have launched or will launch marketplaces in 2009, but we can look at the existing online stores for the video game market to get a small sense of the scale of the iPhone market.

Xbox

If we compare the iPhone download numbers with Xbox Live, a successful online gaming marketplace for Xbox 360 owners, we begin to see how quickly the App Store has grown. Microsoft has sold about 28 million Xbox 360 systems (compared with 35 million Nintendo Wii systems, and 20 million Sony PS3 systems). Of those 28 million, there are about 17 million active Xbox Live accounts (about 56 percent of which are paid Xbox Live Gold memberships). A dedicated gaming system, with the best online marketplace in the gaming console business, that has been in use for four years, has only 58 percent of the active accounts of the App Store.

Nintendo DS

The iPhone platform is a formidable competitor to portable game devices, too. Nintendo announced just earlier this year that the Nintendo DS has now sold 100 million units. It took 3.5 years to reach this milestone. They are now selling about 8 million units per quarter, or slightly more than the combined 7 million iPhone and iPod touch units sold this last quarter. If Apple continues on its 7 million units per quarter pace, it will reach 100 million units about nine quarters from now, or almost exactly four years after the launch of the first iPhone. In comparison, the Sony PSP reached 50 million units after its first four years on the market. [Source: Kotaku]

Razr

The Motorola Razr, the hottest-selling mobile phone of the previous generation, took 1.5 years to reach 50 million units and had reached 110 million units after four years. The iPhone (by itself, without the iPod touch) will take about five more years (or 7.5 total) to reach 100 million at the current pace. Of course, the Motorola Razr benefited from being available on multiple carriers and having a subsidized price in the range of $50 to $100. If Apple can successfully move to multiple carriers in the U.S. and then worldwide, and lower the cost, then iPhone growth should accelerate. [Source: Wikipedia]

iPod

If we look a little closer to home, the iPod (across the entire product line) took 5.5 years to sell 100 million units and three years to reach 1 billion songs downloaded.

Why Comparisons are Never Fair

These comparisons are always unfair because of the amount of free content for the iPhone when you try to size that up against the predominantly paid content of the iTunes Music Store, Xbox Live and Nintendo DS titles. Still, the exercise gives a small indication of the sheer scale that the iPhone market has achieved in just 12 months.

So What Have We Got Here?

The iPhone and the App Store have created an enormous market. By the next anniversary, we should see 180,000+ apps available in the App Store, 72+ million iPhone OS devices, and 3.5+ billion downloads. The installed base of iPhone OS devices will quickly leap far beyond the installed base of Mac OS computers, meaning that there will be more Objective-C and Cocoa code running on non-Mac devices than Macs — a strange thought for sure. This next year will be interesting to see if the App Store continues its breakneck growth. I, for one, expect that the next 12 months will only see this trend accelerate.

What do you expect to see in the next 12 months from the App Store? More growth? Will the curve start to level out?

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This past Saturday, July 11, marked the 1-year anniversary of the opening of the iPhone App Store. In that time Apple has simultaneously redefined the expectations of what a mobile phone can do, and fundamentally changed the way that software for smartphones is delivered to consumers.

There are now about 58,000 applications available through the App Store, providing everything from bird-watching reference guides, to live video of baseball games, to first-person shooters like Doom Resurrection, to Koi ponds. Just like the commercials say, whatever it is you want to do with your iPhone, you are likely to find an app for that.

The Good

In April, Apple announced that as of the end of its second fiscal quarter, it had sold a total of 21 million iPhones and 16 million units of the iPod touch. Also in April, Apple announced that one billion apps had been downloaded by consumers, representing about 27 downloads per device at the time. Three months later, at the end of this quarter, we should expect something like 1.3 billion downloads for 45 million devices, if the trends hold up. The App Store has been such a success that all the other major smartphone makers are launching their own app stores, for the BlackBerry, Windows Mobile, Palm Pre, and Google Android devices.

This new model for selling software, pioneered by Apple, is a significant shift for the industry. Previously applications for smartphones were either available from the carrier directly, or involved finding software to purchase from independent software companies or in specialty online marketplaces. These models suffered from significant hurdles. The carrier model held back a large amount — sometimes over 50 percent — of the revenue from sales for the carrier itself. The independent distribution model lagged because of a lack of awareness among consumers, and even marketplaces like PocketGear have taken years to develop a catalog that Apple enjoyed within nine months of launch.

The appeal to developers was an important factor in this growth. Apple has put together some decent tools in Xcode since the transition to Mac OS X in 2001. The Mac developers that were already familiar with the tools and the Cocoa frameworks were eager to develop for the iPhone. Coders outside of the Mac circle were also quick to jump on board because at a fundamental level, writing Objective-C code against Cocoa libraries is not that different from writing C++ code for any other framework.

This distribution model for the finished software is, I believe, the key factor to Apple’s success. Combined with the ability to access the store directly on the device and a dead simple install process, the iPhone model has encouraged customers to try out software. A low price point, of 99 cents, and many free apps have driven download numbers. Now the iPhone is far more than just a great phone with email and web. It can be almost anything. It is no surprise that Apple’s marketing features the App Store by reminding everyone that whatever you want the iPhone to be, “there’s an app for that.”

The Bad

And while I am still blown away by the fact that you can purchase an app for $10 that lets you watch live baseball games on your phone, there is a bunch of junk out there, too. While there was a big stink made about farting apps a couple months ago as the leading title of that genre generated some not-so-insignificant revenues for its creator, the interest in fart apps has (predictably?) fallen off in recent weeks. There is frankly a lot of bad software among those 58,000 apps that doesn’t do much or offer much value to anyone and threatens to choke out small quality titles.

And while other fads will continue to come and go in the App Store, this leads to a crowded marketplace where it becomes difficult to find any software of real interest. One can either use the search field, which isn’t particularly clever and easily gamed with keyword stuffing the app description, or one can browse the categories and Top 100 lists. Either approach is somewhat lacking.

The Ugly

The ease with which consumers can try software has also led to some problems for the App Store. There is a significant trend to price apps at the minimum 99 cents in order to try and reach the Top 100 lists, which convey a significant boost in sales as they are featured to everyone browsing for software. To a certain degree, this price floor limits the potential for developers to push the limits of the platform. It makes sense for many shops to try making several small, 99-cent apps that might enjoy a few weeks or months of glory rather than shoot for a more substantial project whose price may keep it off the top sellers list.

It remains to be seen what patience the market will have for casual titles and software toys as the novelty wears off in this second year of the App Store. I hope we will see some significant titles get the attention that they deserve. I cannot tell you how impressed I was when I first saw Super Monkey Ball at the iPhone Developer Preview event. That title completely changed my perspective on what iPhone gaming could be. Titles like Real Racing, Star Defense and Tiger Woods PGA Tour have continued to advance what is possible. I want to see developers push the envelope to bring us amazing apps that will blow our minds. But there needs to be the right financial incentive in place so that developers can fund larger teams to bring us this software.

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• How to Market Your iPhone App: A Developer’s Guide
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