Why Apple’s $1 Billion App Revenue Month Isn’t Great News For Developers

Overnight, Apple announced that it generated $US10 billion in app sales in 2013, including $US1 billion in December alone. Those figures are testament to the fact that the iTunes App Store is a huge revenue generator — but developers shouldn’t lose sight of the fact that money-making apps are still very much in the minority.

Here are the key facts from Apple’s latest press release on the scale of the App Store:

  • Total App Store revenues for the year were $US10 billion, a figure which includes both app sales and in-app purchases. Apple would have claimed $US3 billion of that (it takes a 30 per cent cut from sales through the App Store).
  • In December, there were 3 billion app downloads — a new monthly record, Apple says. That figure includes both paid and free apps.
  • Since the store opened in July 2008, developers have earned $US15 billion in total. When Apple last quoted figures back in May, it said the figure was $US9 billion. That big jump emphasises that 2013 saw app revenues grow impressively, despite the fact that Android has overtaken iOS in market share.
  • There are now more than one million apps offered for iOS. Roughly half of those are native iPad apps. If that trend continues, iPad will soon be a more important platform than iPhone.

The timing of the announcement — during the middle of the Consumer Electronics Show (CES) — isn’t coincidental. Apple made a similar announcement at this time last year. It doesn’t exhibit at CES, but (speaking cynically) it can’t afford to be completely invisible in news terms during the show.

Clearly, the iTunes App Store has been a successful business model for Apple. However, the warning I’m going to make here for developers is the same one that I offered the last time the figures came up: those big revenue figures shouldn’t blind you to the fact that the vast majority of app downloads are free. Most developers don’t make money from apps directly.

The December figures underscore the point neatly. In that month, there were 3 billion app downloads, and $US1 billion in total app sales. The cheapest price an app can sell for is 99 cents, so at most the total number of paid app sales was 1 billion. That would mean two-thirds of apps were being given away for free.

In fact, the proportion will be much higher, for two reasons. Firstly, not all apps are priced at 99 cents. Secondly, a big chunk of that money would come from in-app purchases, not the sale of apps themselves. A study we reported on yesterday suggests that 92 per cent of revenues on the App Store are from in-app purchases.

What this means for developers is that a strategy based purely on app sales is very unlikely to succeed. If you’re not one of the hero apps that people are prepared to pay to download, it will be tough going. That’s not solely an issue for Apple — the same issue applies to every mobile platform. But it’s something worth remembering when you see those billion-dollar figures floating around. They’re about the exceptions, not the majority.

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