AAPL’s App Store Explosion:
Background:
The Apple App Store is only two years old and has thus far been limited to the iPhone and other iOS-enabled devices such as iPods and iPads. The App Store’s walled garden approach with curated applications, where the publishers get 70% of the revenues and Apple gets 30%, has worked really well for Apple.
Yes, it’s a Billion Dollar Business:
The App Store has grown 250% YoY to 7,000,000,000 downloads and 250,000 apps to date (as per October 20th, 2010 data). This translates to over 300,000,000 downloads per month with roughly 30% of $280,000,000 in revenues going to Apple (based on published numbers). That 30% is $84M / month or over $1B / year run rate. That’s right, the Apple’s App Store is a Billion dollar business!
Volume:
Apple’s new Mac App Store for the new OS X (announced last week) is truly a brilliant move on Apple’s part. Here’s why:
Given that average App Store user is spending $4.37 on apps every month, the App Store is a numbers game / volume business… and how can Apple further capitalize on this? SIMPLE — just add more App Store users. Specifically, convert each and every Mac user into an App Store user by introducing the Mac App Store for the new Mac OS and retroactively patch older OS’es to capture the legacy users. This translates to 50,000,000 users minus any overlap from the 120,000,000 iOS-enabled devices sold thus far.
The overlap is probably significant given that many Apple users own more than one Apple device. However, it’s worth noting that the new Mac App Store will a) increase the combined app numbers by introducing Mac-specific apps, which are otherwise not available on iOS devices, and b) the Mac App Store prices will be significantly higher given the nature of these Mac apps. This will translate to additional revenue for Apple’s App Store.
MSFT’s Missed Revenue Opportunity:
Now, we all know that Microsoft is a dinosaur and will likely take another five years to figure this out…
Imagine for a moment that MSFT got its act together and released a “Microsoft App Store” for every Windows PC out there by patching Windows XP, Vista, and Windows 7 to allow over a BILLION Windows PC user to seamlessly find and download pre-approved Windows applications directly through the Windows OS via a curated “Windows App Store” (think “there is app for that” for Windows) instead of searching through millions of application stores/vendors online, making individual purchases with each vendor, etc.
Again, Windows is already deployed on over a billion PCs worldwide with countless Windows applications available through countless stores. Additionally, in the last year alone, MSFT had sold over 240,000,000 Windows 7 copies. So MSFT is missing the boat here — having a Windows App Store it’s a HUGE market opportunity, which could a) help MSFT define a new standard for purchasing Windows-based applications and get a cut from every purchased application and b) allow MSFT to boost sales for it’s existing products by featuring them in it’s “one-click-purchase” Windows App Store.
Imagine that you just bought a new Windows PC or laptop or simply upgraded or re-installed your operating system. What’s one of the first things you do with your new PC? INSTALL NEW SOFTWARE/APPLICATIONS! And what better way to do this than a single-click buy/download directly from the Microsoft App Store? It’s common sense! One of the first things each Windows user could potentially see right after they first boot up is a way to purchase & discover new applications for their PCs.
MSFT had basically squandered 240,000,000 such opportunities over the last year!
Note that the potential Microsoft Windows Apps & Games universe is significantly larger than Apple Apps Store’s so these are really conservative scenarios:
An imaginary scenario 1:
Let’s imagine for a second that an average Windows App Store user would only spend $1/month (compared to Apple’s $4.37/month) on Windows App Store software. This would translate to roughly three billion dollars per quarter in additional sales for Microsoft. Let’s assume that MSFT takes a 30% cut of the publisher sales. This would translate to $900M revenues with VERY high margins.
An imaginary scenario 2:
Now, given that MSFT has a much bigger potential application ecosystem than AAPL, it should be able to generate more than $1/user/month. Assuming it can match Apple’s numbers ($4.37/user/month) , it could be bringing in $4B per quarter in additional revenues (again with very high margins).
To put this into perspective, MSFT currently generates $16B / quarter in revenues with a 30% profit margin. An additional $4B /quarter in revenue of high profit margin business could significantly help it re-gain its sliding market cap and potentially catch up to AAPL.
Microsoft / Ballmer – please wake up and take a page from Apple’s playbook!
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DISCLAIMER: This blog is not to be construed as providing investment advice. This material is provided as a personal opinion for informational, amusement, and educational purposes only and is not affiliated with any organization. Always consult a trained, authorized, and licensed professional before engaging in any financial transactions relying on this or any other information.
Tags: AAPL, app store, apple, Apple App Store, Microsoft, Microsoft App Store, MSFT
