Apps continue to serve only as lure to hardware

In spite of the attention paid to it, and its dominance in the smartphone industry, the App Store still does not bring in much profit for Apple, an analyst observes. Piper Jaffray's Gene Munster comments that during his WWDC keynote earlier this month, Apple CEO Steve Jobs mentioned that $1 billion had been paid to developers during the App Store's lifetime. The company has meanwhile served over five billion downloads from a mix of both free and paid titles.

If one assumes a pricing scheme similar to the iTunes Store, says Munster, this translates into very little profit per app given the 70 percent paid to developers and fees paid for storage, delivery and credit card service. Gross margin should be about 44 percent, says Munster, or $189 million in gross profit, based on $428 million in App Store revenue to date. For contrast, Apple as a whole has generated $33.7 billion in gross profit since the App Store's 2008 launch. Apple has likely taken in a lot less than $189 million from the App Store, as the company may have paid about $81 million to process the roughly four billion free apps.

Apple has previously said it is "a bit over break-even" on the App Store. The main purpose of the project remains persuading people to buy iPhones, iPads and iPod touches. The policy creates a "virtuous cycle," Munster comments, in which apps increase the appeal of iOS hardware, generating sales, which help app development, in turn leading to more devices sold.

by MacNN Staff