October 2011
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Day October 6, 2011

Steve Jobs didn't

  • Steve Jobs did not create products. He created an organization that predictably and reliably created emotionally resonant products.
  • Steve Jobs did not make movies. He made a company that predictably and reliably made blockbusters.
  • Steve Jobs did not wrest market share from competitors. He created new markets that attracted and sustained competitors.
  • Steve Jobs did not design anything. He gave others the freedom to think about what jobs products are hired to do.
  • Steve Jobs did not re-engineer processes. He brought engineering processes to works of creativity and the creative process to engineering.
  • Steve Jobs did not develop new management theories. He showed by example that innovation can be managed.
  • Steve Jobs was not a visionary. He put the dots together and saw where they led.
  • Steve Jobs was not a futurist. He just built the future one piece at a time.
  • Steve Jobs did not distort reality. He spoke what he believed would become reality at a time when those beliefs seemed far fetched.
  • Steve Jobs was not charismatic. He spoke from the heart compelling others to follow him.
  • Steve Jobs was not a gifted orator. He spoke plainly.
  • Steve Jobs was not a magician. He practiced, a lot.

He had taste.
He was curious.
He was patient.
He was foolish.
He was hungry.

These things many others can do. Maybe you can.

At $2.9bn/yr apps are challenging songs as the most valuable online medium

During the October iPhone event Apple gave an update on the app and song download totals. This is a reliable gauge of the iTunes ecosystem performance and Apple has been supplying these numbers for several years.  Plotting these numbers gives us a good idea of the trend in mobile content consumption. Here is the data to date:

The total number of apps downloaded (excluding updates) overtook songs in June/July and continues on its trajectory. In fact, the rate of downloads for Apps is now over 1 billion / month. Given the data points above, I calculate it to be about 34 million per day. The corresponding rate for songs is 8.3 million per day.

You can see the rate of downloads as it’s changed over time here:

I used trailing four periods’ moving average for the lines to show the trend more clearly. The gap in download rates is large and increasing.

Now most observers would note that songs are much more expensive than apps, especially since there are no free songs and many apps are free. This would imply that the music business is probably more valuable than the app business.

That’s true, but not by much. To determine how much, I used the other data point offered: $3 billion in payments to developers. Since that represents 70% of gross revenues to Apple, we can determine that the average price per app is now 23.8c (down from 28.5c in April 2009)[1]. Knowing the app price we can plot both revenues and the margin that Apple keeps.

We can compare that with the margin that Apple keeps from songs (assuming a price point of $1.2 per song and a 73% pay-out to labels.)

The data jumps around quite a bit but the trend is pretty clear. After paying the content owners, iTunes is left with about $75 million per month from apps and $85 million per month from songs.

Apple then needs to pay other direct costs like credit card processing, bandwidth, storage, curation and testing. Then there are other operating expenses like R&D and marketing. These costs add up such that, according to Apple, they cover revenues, yielding a break-even operation.

Break-even or not, the way the data is trending it’s pretty clear that Apps will be responsible for a the majority of content cash flow at Apple.

At a billion downloads a month (and rising) the value in terms of revenues is already a run rate of $2.9 billion per year. This has been enough to overtake a business that has been running for more than seven years.

Notes:

  1. The payments to developers probably includes in-app purchases.