App Store making millions for Apple

Despite popularity of free apps, Apple (and developers) are raking in revenue from paid apps

They truly changed the music industry with the iTunes Store and, now, Apple appears to be changing the mobile phone industry with the iPhone App Store.

According to a new report from Toni Sacconaghi, a top-rated analyst at Bernstein Research, over 1.8 billion apps have been downloaded from the App Store as of early September.

And those downloads are making Apple good money.

One might expect that the vast majority of downloads from the App Store would be priced somewhere between “Free” and “Free.” One would be right: Sacconaghi says over 90% of the most popular apps come at no cost.

Nevertheless, taking another look at the App Store environment, Sacconaghi found something interesting. Once you exit the range of the most popular apps, you find that paid applications win big over less popular apps. The research guesses that nearly a quarter of all downloaded apps are paid and that paid apps typically make up 7% of the Top 100 downloads by category.

Still, with paid apps typically selling at an average of $3, one could understandably be led to believe that neither Apple nor app developers are actually making a killing on app sales.

Though that’s technically true, it might be up to interpretation.

Sacconaghi’s research estimates that Apple brings in somewhere between $60-$110 million every quarter from app sales alone. Crunching the numbers, one finds that app sale revenues account for just barely 1% of Apple’s $8.34 billion revenue from last quarter.

The value to Apple, of course, is not in the numbers. Just as the popularity of the iTunes Store was once partly to blame for the wild popularity of the iPod, so too is the iPhone gaining a whole lot of steam fed purely by raving app reviews and general app-mania. Apple kept their smartphone smart and useful, like all the rest, but they also made it fun by creating the adventure of searching for apps through the App Store.

More interestingly to app designers, Sacconaghi reports that applications developers are pulling in around $140-250 million per quarter. This, again, enforces the creative aspect  of the App Store.

We mustn’t forget, however, Apple’s floundering faults that have arisen from the App Store. Besides crippling applications that go above and beyond iPhone capabilities on other smartphones, Apple sometimes just flat out rejects amazing apps.

Hopefully, this report will remind Apple that they have a great product under their belt. Poor decision-making and the hindering of creative development shouldn’t waste it all away.