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Why Apple doesn’t care about the Appstore

By on January 8, 2013

$7 billion sounds like a lot of money. That’s how much Apple has paid out to developers making apps for the Apple Appstore since the Appstore was launched in 2008. Given that 30/70 split in the favour of developers, the Appstore has grossed $10 billion, making Apple a cool $3 billion.

In January 2012, Apple announced it had paid out $4 billion, so in the last twelve months, it has paid out $3 billion, and Apple has trousered $1.3bn. Which again sounds like a lot.

In Apple’s last financial year, ending September 29, 2012, Apple generated revenues of $156 billion. The iPhone division alone made $80 billon. iPad made £32 billion. The company as a whole made a net profit of $42 billion. The Appstore represents less than 1% of Apple’s business.

Apple doesn’t care about the Appstore as a source of revenue. It cares about the Appstore only as a mechanism of shifting more hardware. The initial decision by Steve Jobs to make free apps available completely for free – with Apple swallowing the credit card, hosting, bandwidth, customer service and limited curation costs – were all about getting lots more software onto the phone. Apple focuses on the revenue from the Appstore not because it cares about the revenue, but because it knows that developers care, and it wants lot of independent businesses vying to make the best possible products for its ecosystem.

All developers are competing for a prize, the prize of being a top-selling developer on iOS. That prize can be worth having. Apple announced that DragonVale from Backflip Studios and Clash of Clans from Supercell have between them grossed $100 million.

In Adapt, best-selling economist Tim Harford argues that prizes may be the best way of encouraging innovation. Prizes like the £20,000 prize offered for the first person to solve the problem of how to find longitude at sea or the $10 million X Prize for achieving economical space flight. To be fair, Harford argues that prizes should be deployed alongside traditional mechanics for innovating, not replacing them.

But it looks as if Apple had dangled, and keeps dangling the prize in front of devs. It doesn’t care about whether you make money. It doesn’t even care if the AppStore makes money. It cares about whether the Appstore is a place where companies keep looking for ways to do things that makes consumers happy, love their devices and want to recommend them to their friends.

It doesn’t mean you shouldn’t develop for the AppStore. It does mean that you shouldn’t expect Apple to care about you one bit.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • http://whatgamesare.com Tadhg Kelly

    Yep. It’s a marketing spend.

  • http://www.facebook.com/hrishi.oberoi Hrishi Oberoi

    Just because they don’t make that much money out of it does not mean they don’t care about it, or about developers. In our experience with them, they care… certainly more than the other guys.

  • http://www.mainlyaboutgames.co.uk FreakyZoid

    Click-bait headline that doesn’t match what you say yourself in the article. Of course they care about the app store, just not the revenue they make from selling the content on it.

  • http://www.lapegna.com/ Joey Pepperoni

    Seems similar to how the author doesn’t care about giving us a real editorial and just a provocative headline.

    It doesn’t mean you shouldn’t read the article. It does mean that you shouldn’t expect the author to care about you one bit.

  • http://twitter.com/Sikthehedgehog Sik

    Indeed, in fact they do have a big reason to care and it’s even mentioned in the article itself: they want to keep developers around to make apps as a way to drive people to buy their hardware. Without developers they’d be forced to make all the apps, and most likely they won’t be able to get anywhere as far that way.

  • http://www.gamesbrief.com Nicholas Lovell

    Interesting. I do think this is real editorial with accurately researched financial details.

  • http://www.gamesbrief.com Nicholas Lovell

    OK, I admit to a little bit of click-bait.

    I still think the analysis is right (and something that devs ought to be aware of, and think about).

  • YourUncleBob

    If the revenues aren’t important to Apple why are they taking the 30%? That 30% may not mean anything to them but it means a lot to me. It seems that the arguments you make for attracting developers become a lot stronger with Apple taking a smaller piece of the pie.

    I agree that this would be a great way for Apple to look at things, but are they? Is Apple really a monolithic entity or does the App store division need to turn a profit on its own?

  • Ryan

    If most recent #’s are correct ($6B -> $7B paid to devs in less than 3 Months) – the App Store is a $6B business for Apple – and accelerating. Though representative of single digit %, it’s still a meaningful #.

  • http://www.gamesbrief.com Nicholas Lovell

    Depends on how you define “for Apple”. $1bn in 3 months is $4bn a year (I don’t really think “since the Appstore launched” is a useful comparison metric, unfortunately.)

    Of that $4bn, Apple gets $1.2bn. It’s possible they book the full $4bn as revenue, but then they’ll have to take the $2.8bn as cost of sales, hurting their margin. It is a meaningful number, but it is nowhere near as meaningful as revenues from hardware.

    My point is that the Appstore is a tool for making the hardware look more attractive to consumers. Developers would do well to remember that.

  • http://www.facebook.com/barry.oneill1 Barry O’Neill

    Good article. It is feasible that Apple isn’t eve running the App Store at a profit. This has been suggested by several analysts over the last few years, including Piper Jaffray, who estimated that apple really only made 14% gross margin on a paid transaction (of $1.49). Add to that the massive hosting, data infrastructure costs, the costs of initiatives such as building and managing the app store on devices, associated services, support, the editorial teams, the dev relations teams etc. If it is profitable at all it’s marginal compared to apple’s core businesses, and is possibly justified as a COS for hardware business.

  • http://twitter.com/Sikthehedgehog Sik

    “Why Apple doesn’t care about Appstore’s profits” would have been just as much of a click-bait and yet way more accurate =P

  • http://en-gb.facebook.com/people/Nic-Brisbourne/608641437 Nic Brisbourne

    I follow and agree with your logic. The fact that they fell out with content publishers so badly over the 30% cut and that they haven’t dropped it in response to developers carping suggest they do care about the revenues a bit

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  • Serendipity Seraph

    It is about control and customer lock in as is much of the design of the Apple ecosystem including iCloud only accessible from Apple devices and Apple app store approved apps. I would think this much is obvious.