The App Store: Overrated?

When it comes to making headlines, Apple has made a habit of doing it with style. The success of its iPhone and App Store have garnered much attention and praise. The iPhone’s diverse capabilities give it the potential to be far more than a simple phone. Through the varied options at the App Store, users have a chance to discover new ways to use their phone, on a practical, social, and recreational level. Marketing these two services together is nothing short of a stroke of genius.

However, despite the unprecedented buzz and the news of other companies like Google starting up their own versions of the App Store, a recent report suggests that the App Store may not be quite as lucrative as previously believed. While some predictions have looked at the staggering number of downloads (now over one billion) and estimated the virtual marketplace to be worth a whopping one billion dollars in business, a new analysis suggests a much more modest income.

Jeremy Liew, who works for Lightspeed Venture Partners, completed his own examination of the App Store’s worth, and came up with the number of twenty to forty-five million dollars. While this number is still substantial, it falls far short of the much touted one billion in profit.

The problem, according to Liew, is the number of free apps available through the store. The store has always featured a mixture of apps, some for free and some at a cost, ranging in price depending on the value of the application. For every application bought at the App Store, it is estimated that at least fifteen to forty more are downloaded for free, severely limiting the profits garnered through the store.

It is important to note, however, that even with the press and popularity surrounding the App Store, Apple has always seen it as only a complement to the iPhone, which is where its real profits are made. Whether downloads are free or bought, the activity promotes iPhone sales, making the App Store a smart choice, even if not the golden ticket many experts thought it might be.