Categories

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.
  • http://www.outsidetheherd.com Edward Daciuk

    Where is the data for your analysis coming from? Just curious. Also at what point do you think app downloads starts to encroach on the consumer software market which is fairly large but hasn’t yet migrated to app stores?

    • http://www.asymco.com Horace Dediu

      The data is from Apple keynote events. I don’t track consumer software. If you know of public data sources, I could try to compare.

  • Canucker

    Good point about the benefit of cash flow – even though it largely flows through Apple. I’d bet they fully load the costs in terms of infrastructure to ensure the break-even is achieved as this likely helps in their price positioning with the developers and media companies and ensures the systems are pristine. There HAS to be margin since Amazon often prices less at lower volume (loss leaders) and I doubt Apple’s costs are less. This cash flow helps cover major investments like data centres.

    Respectful move with the Asymco logo. Today hurts.

    • Anonymous

      Re logo. If it was a respectful move, kudos; if just trying out something different, then great…I much prefer the typeface logo to the multi-coloured design – it looks more professional imo.

  • Anonymous

    How nice the apps are growing. The post is a humble homage to the apps creator, Steve Jobs.

  • MattF

    34 million per day? Um, holy cow. Are you sure that doesn’t include updates?

    • Anonymous

      That is the average. 1B per month translates to 34M per day.

      A better way of looking at it is – Apple has sold more than 250M iOS devices so far – which translates to roughly 4 apps downloaded per month per device.

      • Ahmad Kadhim

        That does make the number easier to mentally process, but I would assume that a significant portion of those 250M devices are no longer in use, broken, bricked, lost, recycled, etc… So the download rate per “active” iOS device would certainly be higher.

      • Anonymous

        Not really…………you would be amazed at the longevity of Apple’s devices……so it would only be a minor portion of the 250M that are not in use as of today………..worst case scenario – assume only 200M active devices – translates to 5 new apps per device per month on average……significantly higher than the competition…..

      • GeorgeS

        You need to remember that sales of the iPhone have gone up very quickly in the last year or so. From Apple’s own data, not counting the quarter just ended, about 80% of iPhones have been sold in the past 2 years, with over 95% in the last 3 years. Of course, all iPads have been sold within the past 2 years. I don’t know about the iPod touch, but suspect that it, too, has had rapidly increasing sales in the past 2 years–and it’s only 3 years old, to begin with.

        Here are the numbers as of the end of the June quarter:

        – iPhones sold in past 2 years: 102.6M; in past 3 years: 122.8M of 129M total;
        – iPads sold in past 2 yeasrs: 28.7M (all)
        – iPod touches sold to that date: 64.3M (Tim Cook said that they had sold a total of over 222M iOS devices by the end of that quarter, so I just subtracted the iPhones (129M) and iPads (28.7M) from 222M.) The iPod touch came out in September, 2008, so it had been out a bit less than 3 years as of the end of the June quarter–11 quarters. Let’s assume that sales did increase, so that, 15% were sold in the first 3 quarters, 85% in the last 8 quarters. (Do your own numbers, if you wish.)

        That would mean that about 84% of all iOS devices had been sold in the two years ending with the June quarter, and 97% in three years. The percentages based on the September quarter should be even higher, as sales have been going up. It’s possible that Apple sold more iPhones in the September 2011 quarter than they did the first two YEARS the iPhone was available–21.2M.

        So, it’s likely that 85-90% of iOS devices are now no more than 2 years old. Do you think that they die in under 2 years?

    • Anonymous

      These numbers DO NOT INCLUDE UPDATES. Apple does not include updates in its numbers.

      Thus, these numbers are MINDBLOWING.

    • http://www.asymco.com Horace Dediu

      App updates are not in these figures. Apple made this clear in a keynote in 2009.

  • http://twitter.com/stuartdredge Stuart Dredge

    Hey Horace, great post! The main thing it made me think, though, is that the respective value to Apple for music and apps is less about the revenues from sales of that content, and more about how many devices they sell.

    Or to put it another way: the promise of the App Store is one of the key factors selling tens of millions of iPhones, iPod touches and iPads. So in that case, apps may be already hugely more valuable to Apple as a company than music…

  • Pingback: As Mobile App Downloads Skyrocket, MP3 Rates Level Off « News Hub Today()

  • Pingback: As Mobile App Downloads Skyrocket, MP3 Rates Level Off - IProNews()

  • Pingback: As Mobile App Downloads Skyrocket, MP3 Rates Level Off | t3knoDorKs()

  • Egretry

    A lots of markets have Apps store, but no iTunes store yet, including greater China. I love to be able to download music from iTunes, but not.

    • http://www.asymco.com Horace Dediu

      That’s a very good point. Unlike other forms of media, apps are not controlled through multiple intermediaries with various other channels they need to protect. The music industry could probably benefit from world-wide distribution of downloads but it can’t get out of its own way and facilitate this distribution. It’s even worse for videos and movies.

      An artist who avoids “getting signed” today can distribute her work freely internationally on YouTube, or as an App. The same situation exists with self-published writers in eBooks.

  • Pingback: As Mobile App Downloads Skyrocket, MP3 Rates Level Off | Carry all Electronics and Compusales Services Inc.()

  • Pingback: October 8, 2011 | Butcher, Baker()

  • http://www.facebook.com/people/Pooja-Sharma/100003138965703 Pooja Sharma

    We have thousands of breathtaking digital wallpapers for mobile phone that nobody else has in collection. These wallpapers are come from the exclusive computer wallpaper collection available at the well-known mobile kespia.com website.

    http://www.kespia.com/