Sunday, June 27, 2010

How much is 1 Billion?

Apple told us that they paid to developers for the iphone apps over 1 Billion dollar.
How much is this money. We know that Apple is paying 70% of the collected money to the app developers. This means Apple did get around 1.45 Billion USD.

In the app store are around 225,000 applications, and the free versus paid ratio is 1:10. This means 22,000 applications are paid applications. Most of them are  $0.99 and the average price of an application is $2.99.

1.45 Billion USD divided by $2.99 is 476,000,000 downloads. When we divide this by 22,000 we get a number of 21,000 download per application. This means a paid application does make around $63,000 revenue. Which is pretty impressive.

Now we need to know that the top 20 paid applications have together 60,000,000 downloads. This keeps us for around 20,980 applications 416,000,000 download, if we subtract this from the total, then the revenue in average is around $59,000.

Unfortunately the math does not always work like this and the success in the app store is surely the short long tail principle. This means 80% of the revenue will be produced by 20% of the paid applications.
Top 20% apps generating around 1.16 Billion USD. This is $263,000 per application.
The rest of the paid applications (80%) are doing not so good. This is only $16,477.00 in average.  If you take the 30% for Apple out it will be even only $11,500.00. If a developer has only one application in store and it is not a top seller then the money is not enough to live from.
Maybe it changes with iAd. Developers can easily put an ad spot in their app and Apple does the whole ad serving and selling of iAds. The developer will get 60% of its generated revenue. Analysts are estimating that apple will reach in 2011 revenue of 2.5 Billion in iAds (See below Apple Stock Watch by Bryan Chaffin).

60% of 2.5 Billion is 1.5 Billion, with my math above, the revenue per application will little bit more than double, that means for the long tail developers (the 80%) the revenue will go up to maybe $24,000.00

Overall the money does lot look big for me (maybe I made some calculation errors). A developer need to have really a good idea how to monetize or be a part of a bigger company which has the marketing power and is able to produce 20 or more applications.

Apple Stock Watch by Bryan Chaffin
Apple’s new iAd mobile advertising network could add US$2.5 billion in revenue per year, and $1.00 in earnings per share, according to Broadpoint AmTech analyst Brian Marshall. Mr. Marshall said that while Multitasking was the big announcement in iPhone OS 4, iAd “stole the show and will be significant to the financial model.”
“In fact,” he wrote in a research note to clients obtained by The Mac Observer, “we believe the iAd platform could generate an incremental ~$2.5bil in revenue and $1.00+ to AAPL’s financial model when the business hits its stride.”
To put those numbers into perspective, ~$1.00 EPS would be ~10% more to his current calendar 2010 estimates of $12.75 for the company. That said, he cautioned his clients that he made numerous assumptions to arrive at those numbers.
“In our view,” he offered in summary, “Apple remains the best technology company on the planet with numerous catalysts on the horizon (e.g. international iPhone ramp, iPad ramp, emerging recurring revenue stream from content purchases/Ad sales, etc.). We currently see no real business model issues.”
Mr. Marshall reiterated a “Buy” rating on AAPL and a price target of $280. Late in the Friday trading session, Apple was trading higher at $241.29, up $1.34 (+0.56%), on light volume.

Some nice numbers how much apple lost through Piracy
Apple (NASDAQ:AAPL) and the companies that sell software for the iPhone and iPod touch at the App Store have lost over $450 million to piracy since the store opened in July 2008 according to an analysis by 24/7 Wall St. There have been over 3 billion applications downloaded since the App program began.  Bernstein analyst, Toni Sacconaghi, estimated that between 13% and 21% of those downloads are from paid applications. According to this analysis, the average price of an application purchased at the App Store is $3.  Sacconaghi estimated that Apple’s revenue from the App Store is between $60 million and $110 million per quarter.  That amount has certainly increased since this research report was published because of the rapid growth of the number of applications. 
However, behind all this success lies an insidious force that has plagued the music, software, and movie industry for decades.  Developers of iPhone applications have reported alarming piracy rates for their software, and the ease with which users may obtain pirated versions of paid applications for free is only increasing.  The total number of applications available at the store, including those which are free and those which require payment, is in excess of 100,000.

Anyone who is familiar with the iPhone is likely to know that these phones can be “jailbroken” or, to use the more common term “unlocked”. Jailbreaking an iPhone modifies the OEM Apple iPhone OS.  This allows the user to circumvent the limitations put on the phone by Apple. Apart from the ability to modify the OS itself to allow for customizing of icons, backgrounds, functionality and processes, a jailbroken iPhone permits the installation of applications from sources other than the iTunes store.  It is even possible to use an unlocked phone for access to carrier services other than AT&T (NYSE:T) and the Apple-assigned retailers outside the US. The great majority of iPhones sold in China are unlocked and Apple partner, China Unicom (NYSE:CHU), have only begun to sell locked phones in the last three months

Most iPhone users have not jailbroken their phones. This is likely a result of the perception that this process is incredibly technical for many non-tech savvy owners.  Others may fear that Apple might retaliate.  No rabid Apple fanatic would risk being placed on a DO NOT SELL list!  However, the technical barriers to jailbreaking an iPhone or iPod touch are rapidly decreasing.  The original process required at least some programming ability.  The most recent jailbreak software makes the process accessible to even most Luddites, so the number of jailbroken iPhones will only increase.
It is difficult to get precise figures for the number of iPhones and iPod touches that have been jailbroken.  Jay Freeman, operator of Cydia, a renegade app store that can be found on almost any jailbroken iPhone or iPod touch device is probably the best source for this estimate. Freeman told Wired Magazine in August 2009  that he has received over 4 million unique visitors to his store.  This represents about 10% of iPhones and iTouches that existed at that time.  The jailbreaking process has only become easier since August, and if that figure is still about 10% of all Apple devices that can access the App Store, that would mean that the total number of jailbroken devices today is approximately 7.5 million assuming that total worldwide sales of the iPhone and iPod touch are now 75 million.  It is important to note that not all people who jailbreak their iPhones are pirates.  Pinch Media, a company that specializes in mobile software analytics, has found that only 40% of jailbroken devices use pirated software.

While it is difficult to get a firm grasp on exact piracy rates, some developers have put features in their software that prompts it to “phone home” when the phone has been cracked.  Developer testimonials put the figure much higher than many analyst would expect.  Developers Neptune Interactive Inc and Smells Like Donkey Inc have reported piracy rates has high as 90% for their game $1.99 Tap-Fu, and claim that it was available in a pirated version within 40 minutes of its release on the App Store.  Web Scout Inc. reports a 75% piracy rate for its $0.99 iCombat game.  The developer of the $4.99 art program, Layers, reports a piracy rate of 75%, and Fish Labs reports 95% for its $7 Rally Master Pro 3D. Piracy rates almost certainly increase with the cost of an application.  TomTom’s US & Canada GPS product for the iPhone, which retails for $79.99, ranks second in handheld application downloads on, a file-sharing torrent.  The top 100 downloads listed at is littered with expensive TomTom and Garmin GPS products.  A conservative estimate of the average piracy rate is that for every paid application developed and sold at the App Store 3 more are pirated.

There have been over 3 billion downloads since the inception of the App Store.  Assuming the proportion of those that are paid apps falls in the middle of the Bernstein estimate, 17% or 510 million of these were paid applications.  Based on our review of current information, paid applications have a piracy rate of around 75%.  That supports the figure that for every paid download, there have been 3 pirated downloads.  That puts the number of pirate downloads at 1.53 billion.  If the average price of a paid application is $3, that is $4.59 billion dollars in losses split between Apple and the application developers.  That is, of course, assuming that all of those pirates would have made purchases had the application not been available to them for free.  This is almost certainly not the case.  A fair estimate of the proportion of people who would have used the App Store if they did not use pirated applications is about 10%. This estimate yields about $459 million in lost revenue for Apple and application developers.
Apple, which takes 30% of  the revenue generated by downloads at the App Store has lost about $140 million from piracy. If Apple’s revenue was between $500 million and $700 million from the App Store since its launch, that is a significant loss.  Despite this fact, Apple has been mute on the subject and done nothing to prevent acts of piracy, which is not unlike the stance it has taken on illegal music downloads to iPods.  Even though piracy has caused a big financial loss for Apple, the income from the App Store is dwarfed by sales of iPhones and iPod touches.  As big a problem as $150 million is for Apple, the $310 million cost of piracy to developers really makes it their problem. Apple intends to ignore the piracy of applications and will focus on the tens of billions of dollars that it makes on its hardware.

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