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Estimate Places Total App Store Piracy Cost at $450M

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An interesting article at the financial blog 24/7 Wall St. today estimates the total cost of pirated apps to the App Store, for both Apple (s aapl) and developers, to be somewhere near the $450 million-mark. That number depends on a revenue estimate of between $60 million and $110 million per quarter, which is probably less than the actual number since those figures are based on a slightly older report by Bernstein analyst Toni Sacconaghi.

The article also notes that finding good solid numbers related to both the number of jailbroken iPhones that are out there, and the number of those devices that are actually pirating games is difficult to do. After reviewing numerous sources of information, 24/ Wall St. arrived at the conclusion that an estimate of 75 percent piracy rates for paid apps was most accurate.

That means that for every paid app download, there have been three pirated downloads of the same app that result in no revenue. Given that the researchers behind the report also estimated that around 17 percent of the 3 billion app store downloads, or 510 million, were paid apps (though we found 1 in 4 in December, so that number seems to be growing), that means that the number of pirated apps is somewhere in the neighborhood of 1.53 billion apps. Not a number you’ll see Apple using in its promotional material anytime soon.

Even considering that only around 10 percent of those who pirated apps would’ve purchased them instead if the illicit option was not available, this represents a loss of around $459 million for both Apple and the app developers working with the Mac maker. Doesn’t seem like an insignificant number.

Insignificant or not, Apple isn’t doing much to quell piracy rates, either. Sure, it counters the most recent jailbreak exploit every time a new model of the iPhone is released, but those countermeasures are usually pretty easily overcome. Apple could do more on the software side, with apps themselves, but that would only spark another arms race-type situation between the company and the hacking community, and allowing users to jailbreak and pirate frankly helps Apple sell hardware, which is the real cash cow.

It’s a troubling report for developers who can’t afford to just eat these kinds of losses the way Apple can. But it also makes the assumption that piracy will continue to grow, which I think is a false one. Yes, it’s easier than ever to jailbreak your iPhone, but as Apple continues to work on the operating system behind the platform, there is less and less reason to do so.

Many users only jailbreak to get some extra functionality out of their device that already exists there, rather than being set on trying to get software for free. As long as iPhone 4.0 introduces true multitasking, I think we’ll see overall jailbreak rates fall off considerably, and likely piracy numbers will follow, too.

17 Responses to “Estimate Places Total App Store Piracy Cost at $450M”

  1. KsbjA, when you say “every test which calculates 1 illegally downloaded app = 1 lost sale is incorrect” you nail a point.

    In fact, I downloaded two dictionaries (Duden german only, and Pons german-italian) form an “alternative” source, and after a few weeks I bought them. Are these lost sales? No. Would have I bought these programs if I had NOT first tried them. Probably not. So in this case the two “alternative” downloads CAUSED legal sales and NO losses.

    I am sure that there are many similar cases, enough to destroy all these made-up statistics.

  2. Every test which calculates “1 illegally downloaded app = 1 lost sale” is incorrect, because not all people who get a paid app illegally are potential customers. Not everybody can afford buy an app, especially if they don’t know if it is good. Many people choose to rather get the apps for free, and some of ’em buy the apps afterwards, if they are good and affordable. (Time and feature limited demos and trials usually just don’t cut it.) Also, there are apps some people would never pay for – especially accelerometer toys and the likes. But if they’re free, why not? (Plus this spreads the word and friends of those people may actually buy such an app. May or may not, of course. But it’s a little bonus. Some statistics say this works with music downloads.)

  3. Greg Ward

    It looks complete rubbish to me. Apple claim 3 billion downloads and 60 million devices – so an average of 50 legit Apps per device. If Phill’s “guesstimate” of 10% for Jailbroken iPhones is correct (I have no idea but say it is for now) then each jailbroken device would have to AVERAGE 2000 illegal apps!

    I don’t think that’s even close to being true.

  4. I hope Apple will introduce an accessible file system (a third partition on the internal memory, for instance), email attachment saving, safari downloads, and an API for applications to access this data. This would basically kill 90% of the reasons for jailbreaking. What we also miss is a notification system that is more humane, with a push notification history (drop down a la android, for instance). Then, the iPhone would be near perfect.

  5. Unless I am very much mistaken (very possible) I’d like to point out that you are all talking about file-sharing, not piracy. Piracy is for profit (where you would download an illegal copy and then sell it yourself), file-sharing is merely obtaining and sharing a file, illegally or legally, for no profit.

    I can’t see why anyone would mind paying for a few apps if they increase iPhone functionality. The only thing that really irritates me about the device is the inability to delete some of Apple’s pre-installed apps, like ‘stocks’ which I’m never going to use. But it’s a small moan: I love everything else.

  6. I’ll be honest. I’ve pirated apps before. But at the same time I’ve probably spent $100 on apps in a year since I’ve had my iDevice (generally I only buy one to two games a month, I’m not an app fiend). However if it’s a game genre or style that I genuinely want to see more of on the iPhone I’ll buy it. Unfortunately with no real “demo” system for games piracy is also a good way to try games. Unfortunately converting those into sales is incredibly difficult. There has been many apps that I’ve paid for that I’ve been disappointed with, but at the same time there are also many pirated apps I’ve been disappointed with and glad I didn’t buy them.

    Fortunately as more major games from major developers from companies like Gameloft and EA I find myself purchasing more games because the quality of games are so high and I like playing real games on my iPhone and really would like to see more of them. I’m happy with Gamelofts production schedule lately though. Usually it’s two great games a month that I’m genuinely interested in and paying $10 a month to get a few good games is quite reasonable in my eyes.

  7. If you figure 10% of iPhones are jailbroken (which is probably high) and of those, say 25% are pirates (most people jailbreak to switch carriers or get added functionality), we are talking a population of 2-3% of iPhone users who are pirates. I can’t imagine those folks would be pirating that much product, unless literally every pirate downloads hundreds of pirated apps.

    • Yes, kids that jailbreak just to pirate apps download hundreds, if not thousands of apps. Apps that in most cases they would have *never* bought, since it would require more than 24hrs a day to do anything meaningful with all of them. But they slant the statistics, since most users do not purchase apps, but just use the builtin functionality.

      Still piracy is a problem and it would be very bad if jailbreaking countermeasures reduced the useability of the phone. For instance, I have a mail attachment saver and a safari downloader on my iPhone. With a file management utility I can thus move files directly in Quickoffice’s documents folder. This way I must not resend the email to a special address to redownload it again FROM Quickoffice! This is totaly insane, and a waste of bandwidth, but it is the only current solution on the iPhone: forward your mail with attachments to a special mailbox and access it from the application.

      I hope Apple will introduce an accessible file system (a third partition on the internal memory, for instance), email attachment saving, safari downloads, and an API for applications to access this data. This would basically kill 90% of the reasons for jailbreaking. What we also miss is a notification system that is more humane, with a push notification history (drop down a la android, for instance). Then, the iPhone would be near perfect.

      Apple should also not prevent tethering for customers on networks that are not official partners. I bought my iPhone in italy, factory unlocked, and I am using it with Wind (not with one of the two official partners, Vodafone and TIM). This is perfectly legal and did NOT require unlocking of my phone. This iPhone accepts ANY SIM. But, still, tethering with Wind was not possible. I had to enable it with a third party (jailbreak) app.

  8. I find the article believable. When I was trying to calculate the piracy rate of our apps it was – for every app bought 4 were pirated. After putting in better anti-piracy protection making it harder to get a pirated version our sales easily doubled.

  9. Of course the article also makes the (false) assumption that folks that pirate apps would have paid full retail if the pirated app hadn’t been readily available. That has never been the case in either the software, music, or movie business.

  10. i find this hard to believe. I have a jailbroken phone, but still pay for every app in the app store. a couple of bucks is worth it for a good app. hell, I have even paid for apps in the cydia store. Maybe I’m in the minority, but jailbroken phones are already the minority, how could 3 times as many apps be pirated.
    Now, apps for windows pc are a different story. NO ONE pays for those.