Report: Apple made just $20-45 million from App Store

Report: Apple made just $20-45 million from App Store

Summary: Just a month ago, Apple announced that one billion apps had been downloaded in the first nine months of the App Store's existence. But Lightspeed Venture Partners managing director Jeremy Liew suspects the company made just $20 to $45 million from those 1 billion apps.

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TOPICS: Apple, Hardware
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Just a month ago, Apple announced that one billion apps had been downloaded in the first nine months of the App Store's existence. But Lightspeed Venture Partners managing director Jeremy Liew suspects the company made just $20 to $45 million from those 1 billion apps.

In a blog post on Lightspeed's site, Liew tried to wager the math behind that suggestion.

Using a 1:15 to 1:40 ratio of free to paid apps, Liew estimated that 25 to 60 million paid apps have been downloaded. Using a recent O'Reilly survey that noted a mean price for paid apps of $2.65 -- but acknowledging that "the weighted average price for paid apps is probably lower than this as the median is $1.99."

Using that price and multiplying it by 25 to 50 million paid apps, that suggests a cumulative revenue from apps of $70 to $160 million. Taking into account Apple's 30 percent cut of the profits, and we're talking $20 to 45 million, with a safer guess of $20 to $27 million.

But that's not a whole lot of cash in the grand scheme of things, Liew says. It's all about the hardware:

Given that Apple sold 13.7m iPhones in 2008, the app store is not a meaningful direct contributor to their overall revenue. Much like iTunes, Apple is using the App Store to drive demand for their hardware.

To me, this just seems too easy. For example, what about the overhead of running the App Store? And isn't $20 to $45 million still significant in this economy? Still, I concede that attempting to corner the smartphone market is without a doubt the more lucrative strategy.

What do you think? Is Apple banking on App Store profits, or is it all one big sales pitch for the hardware? Tell us in TalkBack.

Topics: Apple, Hardware

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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Talkback

14 comments
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  • Unlike printers...

    Apple wants to make money on the hardware and break-even on the apps (as opposed to literally giving away a printer and charging an arm and a leg for the ink).

    The apps attract people to the hardware. The apps keep people using the hardware (and upgrading). The App store is Apple's killer app. It means Apple makes money selling product, not software. Maintaining the servers is nothing compared to researching and developing all those apps that use the iPhone HW.

    It really is a genius of a way to market.

    Eriamjh
  • The App Store is a means to an end...

    It sells iPhones. The 45 mill is just gravy.
    BitTwiddler
  • Umm, So What? ...

    Apple reported 1 billion "downloads" not "purchases". There are tons of free apps to download from the app store. I think the point Apple is trying to drive home is volume versus revenue with the 1 billion download message.
    tonyhunterajh
  • another guess

    because like the author of these estimates and the author
    here at zdnet i have no insight or knowledge whatsover
    about the subject, let alone facts, here is my guess: apple
    made $23.345 from the app-store or 172 million. sorry i
    don't know, just my guesses.
    bannedfromzdnetagain
  • $30 million is $30 million

    Only a fool says: "We'll stop selling this profitable product because it only
    adds 6 zeroes to our bottom line instead of 9 zeros.
    frgough
  • Apple sells hardware

    The software is just a hook to lure customers - iTunes and its music downloads to sell iPods; App Store to sell iPhones; OSX and its software bundle to sell mac hardware. Once customers get attached to the software, they have to dish out whatever Apple decides to charge for the hardware and any subsequent significant upgrades, since Apple will insist on remaining the only source of compatible hardware for Apple's software. They don't pass on long-term savings to the consumer, thus allowing them to put billions in the bank.
    eMJayy
    • What are their long-term savings?

      Econ genius? I'll bet Dell, HP, Acer, Lenovo and all the rest wish they weren't in the commodity hardware business. The only game they can play is price because the crap is all the same. Does the company that makes boat loads of cash off of the sale of PCs pass along any of it to the consumers? Their name is Microsoft in case you hadn't figured it out.
      Has the price of Windows or Office fallen like the price of PC hardware? Nope! Why is that? Because they're a virtual monopoly on the PC.
      GoPower
      • You just said it, troll

        [i]The price of PC hardware has been falling over time for years.[/i] Apple gets their hardware from the same Asian manufacturers that supply Dell, HP etc. with high quality hardware components. Yet, you're more likely to see a fall in price in the higher end PC models from HP and Dell than from Apple. Instead of dropping prices, Apple simply 'refreshes' the line and kills the older line. That allows them to keep prices high. If they really wanted to pass savings down to their consumers they would have dropped prices on the older models and continued to sell them alongside the newer models. They don't - they just want to make as much money as possible. That's essentially why they sell most of their product out of their own stores.
        eMJayy
        • high margins

          and what is wrong with that approach? selling high price, high quality,
          high margin products? what's wrong with that?
          bannedfromzdnetagain
  • AppStore sucks!

    The idea of controling both hardware and software markets sucks! What the customers need are more choices.
    Gladiatorcn
    • Nokia OVI store sucks

      Even you combine all the mobile app stores they cannot match the quality
      of applications avialable on app store.
      TalentSupporter
    • Like your choice of Windows or Windows or Windows

      Sure maybe linux will one day bite into Microsoft's monopoly it's not happening now.
      GoPower
    • You do have a choice!

      Have you seen the app stores that are popping up online? They're competing with the iTunes app store. I use this one...

      http://www.smartappsdownloader.com/80333
      SmartPhoneApps
  • Better than MS Entertainment division LOSING 31 million

    last quarter (reported in April 09) Microsoft's Entertainment
    and Devices Division which includes

    download services like Xbox Live

    PLUS Zune, all MS devices like keyboards mice joysticks etc, all the
    Games studios, Windows Mobile and all Xbox hardware...


    LOST 31 million!!!
    with worldwide sales of Win Mobile (all those Sony, Samsung, HTC etc
    phone licenses) and Xbox boosting it!!!

    so Apple's less than one year old App Store not doing so
    bad in comparison huh?

    looks like little App Store outperforming all Zune and music stuff,
    Xbox including games and all Win Mobile!

    Msft E&D is roughly equal to the App Store, iTunes, iPod and iPhone,
    Apple TV and all Apple keyboards etc : imagine if this whole big bunch
    of Apple stuff LOST money!!!
    Davewrite