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Are revenues per app decreasing?

Apple has been releasing data about payments to developers with increasing frequency. Last week’s $5 billion announcement was the fifth such update and came after about one quarter since the last.

Knowing the payments to developers and the cumulative download count allows us to get a very accurate revenue point for each download. As the frequency increases we can observe growth and seasonality patterns.

The following chart shows how average revenue per app download and the average payment rate to developers has changed since the iTunes app store opened and given the data points available:

The green area in the chart should add up to $5 billion. The average revenue for all downloads is 24c. 

Although there has been a drop in the revenue and payout rate in the last six months, the cause may be due to seasonal effects. We have not been able to see data that might show seasonality in prior years so we can’t be sure it exists. However, it makes sense to me that new buyers are likely to engage in a burst of app buying and there are more iPhone purchases in the second half of the year than in the first.

In any case, the current “run rate” of payments to developers is about $7.5 million per day or $230 million per month. Both are up from last year.

Whether revenues are decreasing or not will require some more data. The last period’s 20c is not far below the app store lifetime pricing of 24c.

 

  • http://twitter.com/BenjaminCousins Ben Cousins

    Isn’t it misleading to use the concept ‘price of download’, given how much freemium there is on the App Store, especially high grossing apps? ‘Revenue per download’ might be a better description encompassing something close to lifetime value for a freemium app as well as price for a premium app.

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

      Yes, I was using both price and revenues. I’ve edited the post to be consistent with the word revenues.

      • http://twitter.com/BenjaminCousins Ben Cousins

        Great!

  • kankerot

    Total cumaltive downloads includes free apps?
    I would say it’s the effect of icloud. I can buy one app and have it synced to my phone, and tablets – yet only pay once. In fact unless there is a limit you could have one itunes account and sync it with all your families apple products only pay once and get x copies.
    $5bn in sales sustains how many billions in ios sales.

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

      It includes all acquisitions of an app and excludes all updates.

  • http://twitter.com/Yelmurc Brian W. Crumley

    With Apple keeping the 3GS around they are selling more phones into a lower end market. I can’t help but wonder if those customers are less likely to pay for Apps and is a growing percentage of Apples overall market.

    • FalKirk

      “I can’t help but wonder if (free 3GS) customers are less likely to pay for Apps…”-Brian W. Crumley

      Maybe. But I think that the exact opposite is happening.

      You don’t buy a three year old phone for the hardware, you buy it because it is a gateway into the Apple ecosystem. When you buy an iPhone 3GS, it comes with 600,000 Apps. That’s the draw and that’s the reason why I think that newly minted 3GS owners are just as likely to buy Apps as any other iPhone owner.

  • http://www.facebook.com/people/Luis-Alejandro-Masanti/1074106344 Luis Alejandro Masanti

    I also think that you should add some correlation with the relation between free/paid apps. Is this relation “constant” over time? Has it increaded/decreased? Also, in-app purchases modify the relations.

    • http://twitter.com/razvandan Dolce Vita ☀❤ 

      Right, Horace, I think we should look for this correlation. For many free apps the developers have actually been paid by the “owner” of the app, the organization which commissioned the app’s development. So in fact the entire “app economy” is much larger than Apple’s revenue and payment figures, and if Apple’s average payout per app download has decreased lately it may have been complemented, in case of an increase of free apps, by an increase in payments to developers from the app owners.

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

        I agree, but we just don’t have the data about the split between free and paid app downloads.

    • http://twitter.com/WalterMilliken Walter Milliken

      I think this ratio has been shifting constantly as a result of both changing market conditions and Apple policies, so I’m not sure historical data is useful here — maybe in another year or two.

  • http://twitter.com/e_orione Emilio Orione

    The app store does not allow demos as traditional app consumption did. Developers had to find a way to allow user’s to try their software.
    At the beginning they tried with two apps, one free (with or without ads depending) and limited the other paid and full.
    That’s still true but recently the in app download is taking space. You make a free limited app that can be enhanced with in app paid upgrade.
    This is taking more and more space in iTunes store. These are not free apps that use ads, are demo apps that can be upgraded to full version.
    You divide the number of downloads by the total revenue for developers (paid by apple to them). But the number of downloads is increased by in app purchase?
    If it counts for multiple downloads (as it should, you have downloaded the demo and then downloaded the full app), your average revenue per app download is lower then reality, since one app counts for multiple downloads.
    Let’s do a simple math: 10 downloads free, only 50% does upgrade (1 euro each) so 5 euro of revenue and 5 more downloads, average revenue per app download 5/15 = 0.33 instead of 0.5.
    One app can also lead to multiple payments since some apps allow multiple upgrade, each one enabling more functions (look at ice age or dwarf’s village for instance).
    Suppose that 3 of the 50% does a second 1 euro upgrade, you will have 18 downloads with 8 euro of revenue, average 0.44.
    This number has even least significance.
    If in app purchase are not counted your number is more meaningful, but not accurate.
    Same math 5/10=0.5 and 8/10=0.8 average revenue.
    http://148apps.biz/app-store-metrics/?mpage=appprice maintains statistics on app store data. It’s average app price is 1.99$

    They count 659.000 apps available in iTunes now, that is without counting in app purchases, counting the demo and the full version as only one app.
    Do you know if in app purchase are counted or not in apple numbers?
    Also a single payment with multiple downloads (since the same account can have up to 8 iOS devices) count as 1 or not?

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

      Apple refers to “payments to developers” so I have to assume it includes in-app purchases.

  • http://twitter.com/dr_stupid anna boros

    I wonder if the numbers Apple announced include iAd payments or not

  • kankerot

    The App store is like the American dream you only have it when you are asleep. How many developers have actually made a living from app downloads – it seems very few – there are a few winners and many many losers who if they worked out their opportunity cost wouldnt do it again. Distimo reported along the lines that the top 100 apps account for 40% of the total downloads.
    But Apple being shrewd will shout out big numbers to entice peopel to develop. Perhaps its like a pyramid scheme those developers who have not tasted success are replaced by those too naive to know better.

    • Sharon_Sharalike

      Most businesses fail. Not just in software, but in any entrepreneurial endeavor. Often it’s because the business doesn’t (yet) know enough or is lacking in skills. Those failures lead to learning. Sometimes it’s simply poor timing or plain old bad luck. Angry Birds was not Rovio’s first product. Nor its second or third or tenth. It’s not easy. And it certainly takes a lot more than just getting an app accepted. That’s only the very first step.

    • Sam

      I know plenty of developers making a living doing nothing but writing iOS apps. However, none of them are writing their OWN iOS apps. Who do you think develops the hundreds of new apps a week various businesses and organizations put up in the store?

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

      Since when does making a living matter? If it did there would be no art, no sport and no human pursuit beyond subsistence.

      • kankerot

        Adam Smith disagrees. Now you are saying if I am correct you are advocating people should try their hand at app development even though the chances of success are minimal?
        How you can equate that the pursuit of arts and sport is mutualy exclusive to making a living is strange.

    • http://www.facebook.com/youmonkey Shawn Arney
  • Walt French

    “Bits & Pieces Put Together To Present A Semblance Of A Whole” (theme of the Walker Art Center in Minneapolis).

    Developer revenue seems an important measure of how Apple is moving towards Internet 3.0, one driven by very purpose-built apps that offer the best possible channel for communicating between the user and the net. But certainly to Apple, and maybe for analysts, too, this is a pretty rough measure of where the consumer perceives the value stack in this mad post-PC evolution.

    As a rough measure, I compared the $230mm/mth versus approximately $10 billion/month of iOS device revenues: less than 3%. Consumers may want to run apps that need a generic smartphone, but it seems they download or buy apps to supplement their chosen phones. The perceived value under today’s economics favors Apple, 45-to-1.

    And that’s without looking at the carrier charges. A US iPhone user pays maybe $40/month above the iPhone subsidy, so the “expensive” Apple gadget is less than ⅖ of the cost of getting directions, tweets and etc. While I hope to see connectivity a LOT cheaper, I don’t see it too likely that apps will get much of a revenue increase from a shrunken overall pie. Apple seems to be the winner if connectivity is perceived as less valuable. (And Android is likely to win if the smartphone becomes taken for granted, while connectivity rules.)

    The apps are essentially free; I saw “Tin Pan Alley” mentioned yesterday and that seems right: app developers are doing essentially the sweatshop work of the mobile revolution, cranking out barely-differentiable products at subsistence rates (with a lottery ticket attached) while others get all the glamor.

    Does this seem all too negative? I think the rewards today are favoring the real innovators, in ways that past disruptive revolutions have NOT necessarily. Even the developer of Instapaper credited another app for discovering how to trigger actions on a change in location; Apple prevents (regulates?) too many disruptions from coming out of the apps world. Services and/or apps that figure out a way out of the crappy economics of mobile advertising (see Gassée’s recent Monday Note), or can create a whole new ecosystem such as Twitter, will be the winners.

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  • http://ouriel.typepad.com OurielOhayon

    Horace your analysis is based on a blended revenue from paid, freemium and free apps. What could affect the average revenue is that actually users download a lot more free and freemium apps and less paid apps (and actually convert less to in app). This level of granularity is critical to really know if the average revenue per app – which can generate transaction revenue – is growing or not.

    Otherwise you are just calculating revenues on apps which can never generate transaction (free apps which are either ad supported or off store subscription supported)

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