18 January 2011
- Juniper estimates in-app purchase revenues going to $11B by 2015 (driven by social gaming).
- Horace Dediu, $2B cumulative paid in 34 months of App store (does not include in App Revenue which Apple enabled in Mar 2009).
As an investor.. my intuition is to ask… Are these forecasts reliable? Where is the revenue?
Perhaps LightSpeed Ventures can provide an update to their excellent 2009 analysis on Apple’s $25M App Store revenue estimate. The market has tremendous information on number of app downloads.. what we don’t see is much in the way of revenue numbers for paid apps (or in-app purchases).
Starting with the first study’s estimated 2010 app store revenue of $6.8B (Juniper also aligns on this estimate). The easiest place to start analysis is Apple’s numbers(as Nokia’s are even more obscure, and Android’s marketplace is fragmented). We can either calculate revenue as Lightspeed did (# paid apps x average price) or from Apples financials. Using Distimo data see for December 2010 350k paid app downloads per day at average price estimates ranging from $2.43 to $0.99 (with prices declining 15% YoY).
December Gross App Store Sales Estimate (excludes in app purchases)
350k * $2.43 *30 = $24.6M
For FY 2010 given 15% price decline and 40% growth rate, Apple 2010 App Store Gross Sales (Excluding in App Purchases)
Gross Sales = $24.6 * 12 * ((1 + 0.15/12)^12)* ((1-0.4/12)^12) = $228M
Apple’s Net App Store Revenue = 30% of $228M = $68.4M
Is there a way to validate these numbers using Apple’s 2010 10-k? A: Not really. As you know, App Store revenue is accounted for as “other related music products and services” which totaled $4.1B for FY10 (23%, $912 YoY growth), where this same category grew 21% in prior year (FY08 v FY09) and 34% (FY07 v FY08). This segment includes iTunes revenue (note App store launched in July 2008). On its face, it would certainly seem that App Store revenue has not significantly added any substantial growth for this “other” segment”, and the LightSpeed Venture 2009 analysis of $25M is aligned.
The question remains: to what extent does in app purchase drive app store economics (Apple + Nokia + Google +…)? This is where the Juniper Study comes in to play. The Juniper information is tightly correlated (directionally) with market G2 from both issuers and the card networks. The lightning growth is in social gaming segment of digital goods. I still have a hard time with a $7B number given that Apple’s total for the segment is certainly under $1B (10k). If there were some movers within the space I would expect to see Apple become more aggressive in investing and acquiring either directly or though their iFund investment vehicle (in partnership w/ KPCB). What is my guess? In-App and social gaming is the revenue driver of the segment and it represents $500M-$700M of gross sales. Adding Nokia and Android, this market is at most $2B Gross Sales.
- Go strong into social gaming
- Ensure in-app purchases are part of all plans
- Treat market analysis skeptically
- Watch for rollups and Apple investments.. this is where the money is.
Admittedly I have not wrapped up this analysis cleanly.. this is a blog not a treatise. I’d love your feedback on other numbers and perspectives.
Apple’s 1Q earnings call is today at 5pm… let’s see if we get any more insight.