Wed, Nov 21, 2012
A few days ago I wrote a blog post about “The False Economy of Apps”. The tl;dr is — forget building (just) an app if you want to make a living. Go and read it if you haven’t done so and are inclined. There is another piece in there which I find interesting: The notion that the people who run app stores are actually making money. I am fairly sure they don’t. At least not much.
Here’s the logic: Let’s take Apple as an example. The average selling price of an app is somewhere in the $1.50 to probably $2.00 range. Apple takes a 30% cut — which leaves them with $0.45 to $0.60 per purchase in gross revenue before cost. Doesn’t sound too shabby if you sell millions and millions of apps, right? Well — not so fast.
For their $0.45 Apple needs to pay their payment processor (which is actually at least two parties: The credit card provider such as VISA or MasterCard and a payment provider such as Chase Paymentech). That will cost them for a $1.50 transaction somewhere in the $0.10 to $0.15 range. Which leaves Apple with $0.30. For those $0.30 they need to run the whole iTunes store operations: data centers, Internet traffic, people who vet each application, all the engineers who are actually building and maintaining the store and not to forget: Customer support. Assume for a moment that 1% of all customers who bought an app have some form of customer support interaction with Apple. And assume that this interaction costs our friends from Cupertino $5 on average. That means that per app Apple incurs another $0.05 in customer support costs. And now for the real hit to the bottom line — they need to do all this also for all the apps which are free.
Which leaves me to conclude that Apple doesn’t make money (at least not a substantial amount) with their app store. And the story is the same for all the other app stores such as Google Play, etc out there. Does Apple care? No. For them it’s perfectly fine to run the store break-even as long as they make tons and tons of money on their hardware. Does Google care? No. They don’t make money on hardware but can see it as a strategic investment into the mobile market (more Android phones equal more Google services consumed). Does an indie app store operator care? You bet.