UPDATED: Developers Call BS On $2.4B iPhone App Store Number

By Leander Kahney (12:41 am, Aug 28 2009)

The typical App Store sales curve, according to one iPhone developer (http://www.appcubby.com/blog/files/app_store_pricing.html).

UPDATE: The Yankee Group also says the numbers are way high, and AdMob defends its estimates, kinda, sorta. See below.

Estimates that the iPhone App Store is worth $2.4 billion a year are utterly ridiculous, iPhone developers say.

Mobile advertising firm AdMob on Thursday got a ton of press for estimating that the iPhone App Store earns billions. The number was extrapolated from a survey of about 1,000 users — and is massively overstated, iPhone developers say.

“Do the math and that’s a ridiculous claim,” wrote developer Layton Duncan of Polar Bear Farm, an iPhone developer based in New Zealand.

Duncan did the math: $2.4 billion divided by the 65,000 apps in the App Store is $37,000 per app, per year. And while some developers earn that, many do not. Long Tail anyone?

David Barnard of App Cubby, a developer based in Austin, Texas, says AdMob’s number is at least 5x too big. The iPhone App Store is worth $250 and $500 million per year, estimates Barnard, who keeps a close, professional eye on App Store sales.

Here’s what Barnard says are the average prices for Apps in the App Store:

Top 10 = $1.99
Top 50 = $2.23
Top 100 = $3.18

According to Barnard, it takes about 400 sales per day to break into the top 100; and about 10,000 sales per day to hit the very top of the charts.

Assume the average sales in the top 100 to be about 1,000 per day. If the average price for an app in the top 100 is $3.18, that’s about $116 million per year for the top 100 apps.

Outside of the top 100, some apps sell in the hundreds per day, but the vast majority are in Long Tail land: they sell in single digit territory.

“Most apps sell in the single digits per day, and quite a few don’t sell at all,” Barnard says. “There is a long tail, but it’s a very skinny one. I wouldn’t be surprised at all to learn that the top 100 grosses as much as all other apps combined.”

Barnard talks from experience. Two of his apps have been bouncing around #30 in their respective categories (Trip Cubby in Finance, Gas Cubby in Utilities).

“I’ve spoken with other developers who have apps in the top 100 lists of various other categories,” he says. “My rough, but informed estimation: The App Store grosses between $250 and $500 million per year.”

He concludes: “I’m just floored that a company like AdMob would put out such glaringly flawed numbers.”

I’ve emailed AdMob for their take and will update if/when I get a reply.

UPDATE: Analyst Carl Howe of Yankee Group emailed to say he will soon be publishing a forecast of U.S. smartphone app store revenues, and AdMob’s $2.4 billion is much too high.

“Our numbers line up with the developers you cited, not the $2.4 billion number,” he wrote. “We don’t have numbers for publication yet. But we will really soon and they sure aren’t $2.4 billion.”

That said, the number gets really big by 2013, Howe says.

Meanwhile, AdMob emailed Om Malik to sorta defend it’s estimate. The data is publicly accessible and the methodology clearly explained, AdMob said, without putting up a spirited defense. “It is always difficult to size a fast growing market, and we view our survey results as just one of the many data points that can be used to do that,” the company said.

17 comments »

About the author

Leander Kahney is the editor and publisher of Cult of Mac, and author of three books about technology culture: Inside Steve’s Brain, the New York Times bestseller about Steve Jobs; Cult of Mac; and Cult of iPod. Leander has written for Wired, MacWeek, Scientific American, and The Guardian in London. Follow Leander on Twitter @lkahney and Facebook.

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Posted in iPhone, News, Software |

http://www.ajnaware.com Graham Dawson
As a dev, actually I think the AdMob estimate is plausible. My own estimate is $1.4B per year, based on a curve fit of sales vs rankings from just one app – but taking into account the long-tail characteristics via a power law. The curve takes into account the long tail characteristics. Details:
http://ajnaware.wordpress.com/2009/08/28/estimatedtotal-value-of-app-store-market/
http://www.ajnaware.com Graham Dawson
PS – Based on the power law curve I have observed, the top 100 apps would account for about 1/4 of all app sales.
http://www.appcubby.com David Barnard
I keep finding more calculations to support my numbers over those of Ad Mob…
In July, Apple announced that downloads topped 1.5 billion in the first year of the App Store. Some have accused Apple of including re-downloaded apps, but even if it’s a true unique download count, the numbers don’t look good:
1.5 billion multiplied by the $2.5 average price (http://148apps.biz/app-store-metrics/) in the App Store comes out to only $3.75 billion. BUT, looking at Ad Mob’s own numbers, users download free apps at a ratio of at least 5:1 (I’ve heard from reliable sources that it’s closer to 10:1). So, actual *sales* are somewhere in the neighborhood of 150-300 million. At an average price of $2.5 per app, my estimate of $250-500 million is looking even more dead on.
david
App Cubby
http://blog.iharder.net Robert Harder
Frankly I find the method reported in _this_ article far more suspicious. This is based on anecdotes and hearsay regarding a few top apps. At least the other was based on a survey of actual purchases.
I’d like to see another survey conducted across a broad range of users to confirm the survey results though.
http://appsfire.com Ouriel Ohayon
back in august 08 Steve Jobs was declaring that the app store was generating 1million dollars in sales a day (that was with 60million apps downloaded in total http://online.wsj.com/article/SB121842341491928977.html ). That was a year ago. Given the exponential growth of the iPhone/iPod sales i would not be surprised that total sales have gone beyond the 500m USD a year. And are probably somewhere between 1 and 2 billion a year.
With appsfire.com we have more precise data on how much user spend **exactly** per iPhone and that we will release very soon (i believe this will be the first time such data will be released with such accuracy)
Stay tuned
Kendall
The estimates here seem unrealistic, when a number of top games that cost more than the average likely have more than 1000 downloads a day. That would mean sales of only 365k in a year for large titles like Super Monkey ball, which seems very unlikely.
It’s true that most titles will not see such success, but it does not mean that roughly that amount of money is flowing through the system.
abugida
Robert, I don’t get your logic. AdMob is a company who has no authority in paid apps (because their business runs on free ad-supported apps) and who has no way to count the number of downloads even of those free apps as they can merely count the number of uses. This is an online survey of what people are saying they spent, with no way to check the accuracy of their claims. A serious survey would rely on personal 1-to-1 interviews, and even that survey would be beaten by the actual first hand figures which were provided by not only these developers, but also by Apple which put out several milestone announcements for the number of downloads (for example 500 million from 23 April to 14 July, which is about 185 million per month) and which gave us at least once a hint on average revenue per download (according to Steve Jobs in the WSJ, it was $0.50 per download last August). Multiply these figures, and $100 per month would be the absolute maximum for any reasonable estimate.
abugida
Here are the sources for my post, which rule out $200 million in revenues per month:
Steve Jobs states $0.50 average price point per download:
http://brainstormtech.blogs.fortune.cnn.com/2008/08/11/steve-jobs-60-million-iphone-apps-downloaded/
Apple announces 1 billion downloads in April:
http://www.apple.com/pr/library/2009/04/24appstore.html
Apple announces 1.5 billion downloads in July:
http://www.apple.com/pr/library/2009/07/14apps.html
Flattip
abugida-
Did you just take price data from 2008, and download numbers from nearly a year later in 2009? Really? Seriously?
I’m thinking, as others have said, that they are looking at between 1 and 2 billion per year revenues.
And if I read about “The long tail” one more time. It’s was dis-proven people. By the person who did the actual research. Get over it.
ExitToShell
Well a $250-500 million range is still fairly wide; thats a 100% increase between the lowest and highest.
If you come up with that much of a range at this point I think you need to work on your numbers a little more.
Jesse
AdMob didn’t say that the App Store has already generated $2.4 billion over the past year. The AdMob report calculates an App Store revenue estimate for August 2009 of $200 million, which led some people to say that revenue *over the near 12 months* could be $2.4 billion. Given the rapid growth of the iPhone platform, this is quite a bit more believable.
http://www.appcubby.com David Barnard
When the store launched, the average price was around $5.50 (http://radar.oreilly.com/2008/08/with-the-itunes-app-store.html), now the average price is $2.50 (http://148apps.biz/app-store-metrics/?mpage=appprice). Overall sales have been growing, but the drop in average price is absorbing the additional volume. The average of $0.50 per download quoted last August (http://brainstormtech.blogs.fortune.cnn.com/2008/08/11/steve-jobs-60-million-iphone-apps-downloaded/) has undoubtedly dropped significantly.
Let’s just assume that the ratio of free to paid downloads stayed the same, that would put the average price per download at $0.25. Multiply that by 185 million downloads per month (a pretty accurate estimate done by abugida above) comes out to $46 million per month, or $555 million a year. A little over my estimate, but then again, I don’t think the average price per download is actually $0.25… $0.10-0.20 is probably more realistic based on the increase in “Lite” and ad supported apps. If you take advertising into account, the App Store is probably well on it’s way to $1 billion, but that’s even harder to quantify.
david
App Cubby
abugida
Flattip,
Yes I did refer to what Steve said last year, because there’s no newer data on averages prices from Apple AFAIK. A lot of other people have documented that prices have fallen dramatically over the last year, so what are you trying to say? That prices might be rising on the AppStore, not falling?
I also sense a little non sequitur between from your first to your second paragraph. Any reasoning why you claim those figures?
ExitToShell,
So if one poll told you that the Democrats are going to have 45 to 49 % in the next elections and the other poll told you they’re going to have exactly 47.3 % you would trust the second poll more because they’ve worked more on their numbers? AdMob have 0.0 genuine sales data, and they didn’t even bother to give a margin of error on their estimates.
Glenn Fleishman
Any estimates extrapolating from Jobs numbers last year or surveys limited to 1,000 buyers aren’t going to be as good right now as what Leander’s looking at, frankly.
The run to the bottom in pricing; the lack of upgrade pricing (which means some apps stop being revised or they saturate among buyers); and the number of free apps means that August 2009 sales are likely much different than those in 2008 when it was fresh and new and the model was still shaking out.
http://www.ajnaware.com Graham Dawson
There are various oddities/anomalies with the data used for estimates in this article, all of which result in underestimates of the sales figures – eg:
1) Most of it is based on data that was applicable 6 months ago or more. The number of devices (and hence rate of app sales) has increased substantially since then.
2) The 1.5 billion downloads is a cumulative figure since day 1, and is hence an historically biased figure which is unrepresentative of current download rates – which must be significantly higher.
3) Note the observation that prices INCREASE as you go down the app rankings (consistent with the fact that cheaper apps rise to the top in sales volumes). This implies that the long tail accounts for much greater portion of income than is estimated here. (I already noted above that sales beyond the top 100 could well account for 75% of the sales volume).
So IMO you can AT LEAST double these estimates to bring them up to date and account for these issues.
zato
90% of all the Tech articles on the internet are written to benefit Microsoft. When something like the Admob article is released, the Microsoft propaganda machine immediately goes to work to discredit it all over the internet. In the above example, sources are quoted who are known Microsoft “PR” operations, like the Yankee group. There is no “real” tech news on the internet, nearly all of it is Microsoft propaganda.
http://blog.endeavourpartners.net MIchael A M Davies
Itâ€™s taken us a couple of days, but weâ€™ve now been able to check this against some hard numbers: http://blog.endeavourpartners.net/2009/09/04/half-truths-and-app-store-statistics/