The Meteoric Rise of the App Store

Apple (s aapl), in the current second era of Steve Jobs, doesn’t “invent” products. Instead, the company generally takes existing ideas and massively improves upon them. The digital music player, smartphone, online music store and cell phone application store all existed in various forms at other companies before Apple decided to get involved — and turn those industries upside-down.

The App Store is just the latest game changer to come out of Apple’s Cupertino labs, and it has been a smashing success. The company today announced that 1.5 billion applications have been downloaded, with the latest 500 million downloads coming since just April. Approximately 65,000 apps are available for more than 40 million App Store-capable devices (the various forms of the iPhone and iPod Touch), and 98 percent of iPhone users have downloaded at least one app. AdMob founder Omar Hamoui thinks the App Store will be a $5 billion business in two years, though it looks like a relatively small number of apps will capture the lion’s share of that revenue — of course, like any consumer industry, advertising helps (subscription required). Some even think the iPhone is the hottest gaming platform out there; the rate at which downloads are growing would excite any investor:


Success breeds competition, though, and a number of Apple’s rivals are bringing their own wireless app stores to market:

Only one of these, Android, seems to be getting any real traction, though none are anywhere close to the size and depth of the Apple App Store. Google is having success mostly because it’s Google, and it is the only company that can come even close to matching Apple’s hype machine with developers. At the end of the day, though, Android is just a hobby for the company, and it will never be able to match Apple’s marketing prowess. (For more analysis on other players’ efforts to offer app stores, read this subscription-only piece on GigaOM Pro.)

Apple might latch onto other people’s ideas just to improve on them, but the company does so with fantastic success. Because Apple doesn’t launch products until they are ready, the massive hype is quickly followed by a real product that is totally unique to the marketplace. Meanwhile, competitors announce products before they’re finished, and when they finally ship, they remain inferior to Apple’s offering. Of course, with 40 million devices — and with users who download way more apps than their non-Apple using counterparts — it’s a circle of growth that will drive the App Store, and the iPhone/iPod Touch ecosystem, into further stratospheric heights, as will the new subscription and micropayments potential of the changes in iPhone OS 3.0. The company would be well-served to continue coming up with new App Store features to drive further growth.

Two years ago, I predicted Apple would be bigger than Google. It happened in less than a year, though more because Google lost value than because of Apple growing exponentially. I noted that the iPhone was the weakest of Apple’s three “tripod” legs: Macintosh, iPod, iPhone. Now, with the iPhone and App Store growing so quickly, it may soon eclipse the Mac as Apple’s greatest revenue generator. It makes sense that the company changed its name to Apple Inc.

(Chart from Apple 2.0)