Daniel Eran Dilger
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iPhone Apps Store Growing Twice as Fast as iTunes Music

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Daniel Eran Dilger

Everyone was impressed last month when Apple announced moving 30 60 million downloads through the new iPhone Apps Store, bringing in $30 million of revenue (or a million dollars per day). Well, growth downloads more than doubled this month, bringing a total of 100 million downloads (and somewhere around another $70 40 million of software revenue). This has some interesting implications.

[Edit: to clarify, Apple first announced selling 10 million apps in the first 3 days, then announced 60 million downloads July 11, and most recently announced on September 9 “more than” 100 million downloads. The graphic above was corrected to show this. iPhone app sales compared to iTunes Store music has actually been four times greater at the two month milestone.]

Apple and the New Software Market
How Apple Is Changing the PC Software World… Back
iPhone Apps Store Growing Twice as Fast as iTunes Music
The Other iPhone Apps Store
SDK 3.3.3: The iPhone Podcaster Surprise Myth
Banned iPhone Apps and the John Gruber Podcaster Defense
The iPhone Monopoly Myth
.
Even if growth hits a plateau today and sales stay where they are right now, by next year Apple will have sold a half billion iPhone apps (bringing in around a half billion dollars of revenue), before the Windows Mobile 7 Skymarket launches. Of course, Apple’s mobile software sales are not likely to remain at 70 40 million per month, as its historical iTunes song sales indicate.

For comparison, the iTunes Music Store opened a year and a half after the iPod first went on sale, the same period of time as between the Apps Store opening and the iPhone’s original sale date. It took Apple two months to sell 25 million songs, and two years to sell a billion. That’s at least more than twice as long in both cases as the time taken to hit the same milestones in mobile software.

[Rephrased: iPhone app sales were:

  • ten times greater at launch than the iTunes Store song sales (10 million apps in three days vs 1 million songs in the first 5 days)
  • four times as great as iTunes music sales in its first two months (100 million apps vs 25 million songs).

Update: growth doubled to hit 200 million apps in October:

 Wp-Content Uploads 2008 10 200810211508
App Store continues to exceed iTunes song sales growth
]

Once it hit one billion songs (Feb 2006), the iTunes Store jumped to two billion a year later (Jan 2007) and then four billion in another year (Jan 2008). That’s a simple 100% year over year growth. And yet app sales are growing twice as fast more than twice as fast, meaning Apple could hit two billion software downloads by next year.

Organic growth.

I don’t think anyone has realized that Apple has short circuited the “Microsoft software hardware extortion model” by lining up a regulated software market for its iPod and iPhone hardware. As I noted in the previous article, Apple’s iTunes model for software works like a farmers’ market. It’s not designed to be wildly profitable for its organizers, but rather to attract individuals as a market destination.

Apple’s cut of iTunes revenues will enable the company to rapidly expand its merchandizing efforts and continue to give it huge market power to attract major content providers and mobile developers (as it clearly already has), and continue to develop new partnerships in the model of Nike+, Starbucks, auto integration, and so on.

 Wp-Content Uploads 2008 09 Wp-Content-Uploads-2006-12-Steve-Jobs-Wozniak-Apple-Computer

How Apple Is Changing the PC Software World… Back

A Difficult Path to Follow.
Microsoft’s Zune answer to the iPod came two years after the iTunes Store launched. Its Windows Mobile store will only be a year late. However, the iPhone software market is also growing twice as fast as iTunes songs did, which promises to leave the WiMo store in the same sort of shadow as the barren Zune Marketplace.

Other competitors will likely wish for a piece of Apple’s massive traffic in the mobile software market, but few companies share Apple’s circumstances. As with iTunes media sales, Apple has announced an intention to keep prices low and volumes high to help make media sales attractive to buyers.

That means there’s no big software profits for other hardware competitors to muscle away from Apple. It also means that the destination Apple created in iTunes adds a lot of value to Apple’s hardware, value that hardware competitors will have a hard time duplicating for their own products, because building another iTunes involves a lot of effort without any potential for a big profit payoff.

Neither Microsoft nor Google have announced any plans to build their own phone hardware, so neither has any direct hardware profits to propel store investment for their platforms. Hardware vendors with stores, such as Nokia’s Ovi media portal store and T-Mobile’s announced mobile app store for all the phones it sells, will both either have to raise their prices and lose a competitive edge, or match Apple’s prices and lose money at razor thin margins just like all of the iTunes Store competitors did in music.

Not even Wal-Mart could compete with Apple in music sales by competing with slightly lower prices. Amazon likes to advertise slightly lower music prices, but it doesn’t sell anywhere near the volume of Apple, and can hide its losses among its other sales.

While Microsoft has announced an intent to “monetize” mobile software (as it failed to do with music in Windows Media PlaysForSure and again with the Zune Marketplace), Google’s Android doesn’t even have a market mechanism in place yet. So far, its just a YouTube-style software distribution system with plans to add sales at some point.

That sets up an epic battle of unique business models for mobile software:

Apple’s iTunes
sells music, video and mobile software at low prices to lubricate the company’s hardware sales.

Microsoft Skymarket will be attempting to sell mobile software at a significant profit, and hopes sales will enhance its Windows Mobile platform, even though current WiMo software sales have done poorly.

Google Android Market is hoping to largely give software away and offer some ways to sell software to users at some point, in an effort to enhance its entire platform. The Linux desktop market has so far seen nearly zero commercial software, although there is a variety of DIY software packages.

T-Mobile will be opening a mobile software store that looks a lot like the record labels’ failed attempts to sell their music directly to consumers, as well as resembling Verizon’s BREW store, which attempts to rip off users on the same scale as wireless bills.

Nokia’s Ovi will have a lot in common with Sony’s failed Connect music store: software from a hardware company that doesn’t do software well.
Sit back and enjoy the fireworks. You already know which horse I’m betting on.

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