When Apple announced iTunes Match, a scan-and-match service for your entire music library, not just for songs bought through iTunes itself, it seemed to many that it could open the door to even more piracy of digital music, which is already a rampant problem. At the time, I suggested Apple might be anticipating the future of digital music distribution and getting out ahead of the competition early. Apple might also be less worried about the prospect of digital music piracy now that App Store revenue looks poised to overtake money made from iTunes music sales in just a few short years.
Asymco (via Silicon Alley Insider) estimates that based on current trajectories, income based on app sales will pass income based on iTunes music sales in just three years. iTunes music only generates about twice the income of App Store sales, owing to a much higher amount of retained revenue on app sales. Users buy about 67 songs per iTunes account on average, but also about 62 iOS apps, so revenue from apps is growing at a higher rate than is revenue from iTunes music sales.
iOS is a platform designed with the future in mind, and since it’s only three years old, we’ve probably only just seen the beginning of its success so far. Digital music, by contrast, is being attacked from all sides by alternative content delivery methods, including subscription services, and even free, socially sourced options like newcomer turntable.fm. Amazon and Google are offering cloud streaming services, and iTunes Match is a way to stay one step ahead of the competition. But as users increasingly turn to services like Spotify, and those services begin to play nice with record labels, the pay-per-track and download is beginning to show its age.
Apple knows apps are key to the future of its content revenue picture, and Asymco’s analysis serves to make that clear. Apple is still king when it comes to digital music, but to stay there in the long term, it has to shake up the way it does business. With the App Store, Apple still has the smartest business model around, and the one that’s most appealing to developers and consumers alike.