Apple's AppStore closes in on $500m in software sales

Analysis Apple is as usual dazzling the market with stunning headline figures that frequently overshadow underlying problems and dissatisfaction with its iconic iPhone and associated services. As bullish analysts say the device is set to sell almost 4.5 million units this quarter on the back of aggressive international expansion, CEO Steve Jobs crowed that the AppStore, launched a month ago with the 3G iPhone, has already processed 60 million downloads and is generating $1m a day in sales of paid-for software, and could crack the half-billion dollar mark within a year of opening.

As of Friday, 8 Aug, there were 1,647 applications officially available for the iPhone. Many downloads are free, but the first month saw $30m in paid-for software sales. The store is having a wider impact on download pricing too. When the store opened in early July the popular market price for a program was $9.99. In the month following the prices have dropped so far that many are now 99 cents, and even popular games are now debuting at this price.

Assuming sales continue at their current pace, by mid-2009 Apple and its developer partners are poised to earn at least $360m in new revenue from the digital storefront.

"This thing's going to crest at half a billion, soon," Jobs told the Wall Street Journal. "Who knows, maybe it will be a $1bn marketplace at some point in time. I've never seen anything like this in my career for software."

Apple takes a 30 per cent cut though after operating costs, AppStore is less of a cash cow than a further incentive for users to buy iPhones and iPod Touches and to purchase content from iTunes. Some developers are however raking it in, according to Jobs, who said the top 10 sellers in the AppStore have made $9m between them since the launch.

All this attests to the power of Apple marketing and brand, and the genuine usability of the iPhone, with its interface that, in the US in particular, has moved the goalposts of the mobile internet user experience. But Apple is in the fickle and rapidly changing mobile market now, and would do well to listen to some of the complaints about its platform, and bear in mind what happened to Motorola only two years after it boasted similarly stunning statistics for its RAZR (still one of the world’s most used phones).

On the one hand, Apple is expanding its sales and brand reach - though potentially damaging its margins - by cutting prices and turning the once exclusive iPhone into a handset for the mid-market. This is a good move for a device that relies primarily on brand and desirability rather than market-beating technical features (in these terms, it has never been a frontrunner, and has been regularly leapfrogged by new products from the Koreans, HTC and others).

More forgiving

Mid-market users will be more forgiving of the iPhone’s failings – this week, complaints have focused on slow boot-up and frequent dropped calls, especially when roaming, and on the iron control that Apple still exerts over software in its store. Power mobile web users will quickly be frustrated by such limitations and will seek the latest gadget to storm the performance barriers – and of course, they are the ones likely to spend the most in the AppStore.

So while physical glitches may be easily addressed, Apple really needs to be wary of its reputation in the web software field. First it had an entirely closed development environment, which is now open though still largely proprietary and under Apple’s control. That is fine – developers can decide whether or not to back it, or go for the ‘real openness’ of Linux, and the sales of the iPhone mean many will opt for Apple. But consumers with heavy usage of mobile web applications may not care about the development platform, but they will resent any attempt to restrict their choices.

In recent weeks, Apple has killed several apps in its store (Macrumours is compiling a master list here.) The vendor also admitted it had a ‘kill switch’ for zapping unwanted programs on the phone. The ‘kill switch’ is not just annoying end users but digital privacy and security experts, who are angry that each iPhone contains code that could theoretically remove software from the device at Apple's discretion. Jobs said it is necessary to deactivate a malicious program, though “hopefully we never have to pull that lever, but we would be irresponsible not to have a lever like that to pull”.

In most ways, all this comes as no surprise. Apple’s level of control of its software is less tight than that of many operators, but is more remarked upon because of the level of publicity it attracts for every move. We all know that the mobile internet cannot be as open as the PC internet because of the networks upon which it runs – and while Verizon Wireless and AT&T preach open access and the right of any developer to put software on their systems, in reality they firmly reserve the right to kill any feature that might harm the network or damage security or performance for customers.