Mobile apps: the Apple iPhone store is not about making money, but about selling hardware, which is growing

[Gartner] The App store just hit 1 billion downloads and with a billion downloads there has to be some money involved. Right? Well let’s do some math.
There are 1 billion downloads but it is likely that a minority of these are applications that consumers paid for. I will err on the conservative side and guess that 10% of downloads are applications that had a price associated with them. That gives us 100 million applications that were paid for. Most of the applications are centered around the 99 cent price point, with a few that are a little bit higher and very few that are much higher. For argument’s sake let’s say the average selling price was $1.20 for the paid applications. That gives us revenues of $120 million for the applications. Apple grosses 30% of the revenue so that gives Apple $36 million. Out of that they have to pay the credit card transaction fees which should reduce that by about $550 thousand. They also have to fund the infrastructure that delivers the applications to the Macs, iPod touchs and iPhones. That is hard to calculate but it is significant. For the sake of this exercise we will say that the infrastructure costs are $15 million. This is purely and estimate as some costs are fixed costs and some costs are variable costs. That leaves Apple with $20.45 million.
However there are other things to consider. Don’t lose sight of the fact that Apple has been running prime time television advertisements on the App Store and those certainly don’t come cheap. For the sake of this exercise let’s assume that these cost $120,000 for each airing. I haven’t counted the number of ads Apple is running but given what I have seen personally during the prime time I would guess that they are running at least 50 per week and have been doing that for the last couple of months. Let’s see that is 50 per week times 4 weeks times 2 months or roughly 400 ads for the App Store at $120,000 a pop. That is $48 million in ad expenditures over just the last two months and the billion downloads took 9 months. That leaves Apple with loss of roughly $27.6 million dollars.

Conclusion: the App Store is not about making money, it is about selling iPhones and iPhone sales for the quarter ending in March were up 123% over the year ago quarter. I guess I would call this a good investment.

Is Apple Making Money on the App Store?