Over the weekend Apple announced that it has achieved 10 billion downloads in its iTunes App store, an impressive feat no matter how you look at it—unless you’re looking at it from a revenue standpoint. In an interesting analysis of Apple’s 10-billion download milestone, Peter Kafka of All Things Digital pointed out that while app downloads have increased an astounding 233% in the last year, revenues from the iTunes increased only 23% in the last fiscal year. Bottom line: iPhone customers are downloading a lot of apps, but they’re not paying for them.
There are two big caveats, which Kafka was quick to mention: 1) Those numbers are for iTunes in general, and iTunes sells a lot more than apps, and 2) Apple has never pretended it ever wanted to make money on iTunes—the store has always been a means to sell more hardware.
Because Apple has long sold music, movies and TV shows in big numbers, the app store would have to generate some hefty sales figures to have an impact on iTunes overall revenue. Some of those iTunes music and video sales—and now with the iPad launch, book sales—also have a indirect impact on wireless content sales, since customers are downloading them for consumption over wireless devices. So it’s safe to say that app store revenue and iTunes content geared at Apple’s mobile device line is growing far faster than 23% a year. But given that an increasing number of iPhone apps are free, it makes sense that downloads would far outpace revenues. Again, Apple probably doesn’t mind. The more neat free apps available in its store, the more attractive the iPhone and iPad become to potential buyers.
All that said, it is still easy to see a close parallel to Apple’s experiences with mobile data and the experience of mobile operators in struggling to monetize mobile data usage. For operators, overall data usage is booming, but revenues aren’t necessarily keeping up. Data revenues are most certainly increasing quickly, but not at the lightning-fast pace of overall data consumption. U.S. operators long ago reached the point where data traffic exceeded voice traffic on their networks, but not only does voice still accounts for the majority of their revenue, but SMS — and not mobile browsing or mobile app — still accounts for for a good deal of their data revenues as well.
The difference is Apple is in the hardware business. It certainly doesn’t want to take a loss on content or data consumption. But as a break-even venture, especially if the App Store continues to fuel i-device sales, Apple is feeling just swell.
For mobile operators, data consumption is its bread and butter. If some kind of balancce between data revenues and usage isn’t achieved, they won’t have hardware sales to fall back on.