Analysis of The Iphone Application Market

Analysis
Analysis of the iPhone Application

market
January 2010 | Casaleggio Associati
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Focus – Analysis of the iPhone Application Market– January 2010
Table of Contents
Introduction
The spread of iPhones
The iPhone application market
Pricing choice: free vs paid
iPhone Apps prices in the marketplace
Profitability of iPhone apps
Conclusions
Methodology
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Introduction
2010 is set to be the year when mobile Internet will begin to overtake
desktop/laptop Internet. This analysis examines at the main mobile application
market for 2010, namely iPhone Applications. It looks at their potential and the
economic viability for businesses to get into this market.
Highlights
Summary of the research findings:
- 78% of all mobile Web browsing in Italy is done on Apple devices.
- At the end of 2009, there were 120-thousand iPhone apps, by the end of
2010 there will be some 300-thousand.
- 2010 will see a marked increase in the number of Google Androids, but the gap
between them and the iPhone in terms of users will remain unchanged until at
least 2011.
- The number of application downloads to the 26 million iPhones and 19

million iPod Touches range from 100 to 150 million a month.
- For the developers, the potential market is worth somewhere between 280
and 420 million Euro per year.
- On average, an iPhone app is downloaded around 120 times in a single year.
- The average income generated by these sales for the producer ranges from
2,300 and 3,500 Euro per annum.
- 32% of the latest applications available in the app stores are offered free of
charge.
- In 56% of all cases, the lowest available price is chosen, which is equivalent to
0.79 euro.
- The average price paid for the newest applications added in December 2009
was 2.70 Euro.
- Successful iPhone app traders earn more than 8-thousand Euro per day
from sales or 3.5-thousand Euro if they only advertise the application.
The spread of iPhones
The iPhone apps market is limited to the operating system owned by Apple and the
spread of iPhone devices is closely linked to the potential income generated by the
sale of apps. According to Apple’s financial reports1, by the beginning of 2010 there
were some 26 million iPhones in circulation worldwide. Based on this figure, we can
therefore analyse the maximum potential profitability of an app.
IPhones in circulation (thousands of items)
Source: Casaleggio Associati analysis of Apple Financial Reports
Apple does not reveal its geographical distribution data, however, we can safely
assume that the distribution of iPhones is far greater in the United States than it is
in Europe and Asia. The figures2 for the first week of sales in 2007 reveal that
European sales amounted to half of those in the United States, due in large
measure to the competition provided by other smartphone brands.
Today the number of iPhones and apps on the market has reached critical mass,
which strongly favours Apple products over those of the competition. Only Google’s
Android may be able to overtake the iPhone operating system, once it is loaded
onto telephones that can match the user-friendliness and innovation of the iPhone.
Comparing the distribution of the various smartphones used for online navigation in
the United States, the iPhone holds a 60% market share (source: AdMob, July
2009), while the RIM (Blackberry) holds 13% and the Android 12%.
In Italy, the advantage held by iPhone Web browsing technology was even more
marked in December. 67% of all mobile phone Web browsing takes place on
iPhones and, considering the fact that a full 11% is done on iPods, we begin to see
that today the reference market is undoubtedly that of Apple, which handles
78% of Web browsing done in Italy 3. Nevertheless, this figure could be
1
Data relative to the fourth quarter has been published but not yet audited.
2
http://www.toptechnews.com/story.xhtml?story_id=57082
3
Source: Casaleggio Associati, 2010. Data for December 2009, obtained by analysing some 6 million visits, of which
approximately 1% occurred via mobile devices.
deemed to be misleading in terms of apps only, since the iPhone browsing

technology is one of the iPhone’s differentiating features.
Another player that is beginning to emerge is Nokia (SymbianOS), due to its
previous positioning outside of Europe and its acquisition of a larger market share.
The Android and the Blackberry still only hold less than 3% market share, for very
different reasons: the former because it has not distributed devices loaded with its
own operating system and the latter because it is designed for mail and diary
management rather than for Internet browsing.
Estimated sshare of mobile internet browsing business in Italy
BlackBerry PalmOS
Android
2,38% 0,07%
2,82%
iPod
10,90%
SymbianOS
16,96%
iPhone
66,87%
Fonte: Casaleggio Associati, 2010
The iPhone Applications market
The development of applications for the iPhone is accelerating, with the around
120-thousand available apps in circulation as at the end of 2009. Within
the next year, another 180-thousand are expected to become available, taking the
total up to 300-thousand by the end of 2010.4
However, the number of apps being developed is even higher, with Apple claiming
that they receive 10-thousand for approval every week and that, based on current
production, it would be enough for them to approve one out of every three of
these new apps (around 3,500 each week) in order to reach the forecast figure of
300-thousand apps by the end of this year.
When compared to the figures relating to its main competitor, the extent of the
gap between Apple and its competitors becomes patently clear. As at the end of
2009, there were some 20-thousand Android apps available and this figure is
expected to increase to 100-thousand by the end of 20105. This
notwithstanding, 2010 will not yet be the year of the Android, which is
still a full year behind when compared to the iPhone.
The number of app downloads by the 26 million iPhones and 19 million iPod
Touches varies from 100 to 150 million per month. Since July 2008 when the
Apple store came on line, more than three billion application downloads have been
registered6. In their first month of business, 60 million application downloads were
done, generating some 30-million Dollars of revenue7. If this proportion were to
remain stable, then the current forecast turnover would be somewhere between 50
and 75 million Dollars per month, of which Apple would account for approximately
one third. The potential market for the developers is therefore estimated
to be between 280 and 420-million Euro per year (between 400 600-million
Dollars) from sales8, to which we must also add any advertising revenues.
By comparison, it is estimated that the overall revenues deriving from Android
Applications is around 41-million Euro per year (or 5 million Dollars per month) 9.
4
Source: IDC, 2009.
5
Source: IDC, 2009.
6
http://en.wikipedia.org/wiki/App_Store
7
Source: Apple, 2008. http://www.techcrunch.com/2008/08/11/iphone-apps-one-month-and-60-million-downloads-later-
but-not-one-of-them-is-a-killer-app/
8
Source: Casaleggio Associati, 2010
9
Source: adMob, 2009
iPhone (Apple) vs Android (Google)
300.000 100.000
N° applicazioni a fine 2010
120.000 20.000
N° applicazioni a fine 2009
630 41
Transato 2009 (in milioni di euro)
On average, therefore, an iPhone app is downloaded approximately 120

times in a single year, with a strong leaning towards those that are free of
charge and those on the most downloaded lists. The average sales income
generated for the developer is between 2300 and 3500 Euro per year. The
distribution of revenue is probably closely related to market share and, therefore,
the vast majority of the applications generate less than the above average figure.
Pricing choice: free vs paid
The choice as to whether or not to charge a fee for the application dictates the
profitability of an application. Currently, 32.2% of the latest applications
offered by the apps store are free10. This percentage varies significantly
depending on the category being considered. The apps category with the most free
downloads is the News, at 66%, while that with the least Travel with 8%. This
spread largely reflects the choice of online business model generally adopted by
the various sectors.
Free iPhone apps are downloaded 6.6 times more than those that are charged
for11, but if we look at individual applications, from the moment that it is decided to
begin charging a fee for an application that was previously free, the number of
downloads of that app can drop from 400 to 1 12.
Distribution of free applications
70% 66%
60%
50% 46%
42% 42% 42% 40%
40% 36% 34%
32% 30% 30%
28% 28% 28% 28% 28%
30%
20% 20%
20% 16%
8%
10%
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10
Source: Casaleggio Associati, 2010. Analysis of the latest 1000 applications made available as at 26 December 2009,
taking into account the latest 50 per category.
11
Source: Pinch Media, 2009
12
E.g. Galaxy Impact, http://www.techcrunch.com/2009/03/22/should-an-iphone-app-developer-charge-or-run-ads-galaxy-
impact-case-study/
Those that decide to offer their applications free of charge normally go one of four
routes:
1- Lite Versions. Making a trial version available free of charge in order to
stimulate interest, while advertising the full version at a fee (e.g. Games).
2- Version s with upgrades. Releasing regular upgrades of the application in
question (e.g. Utilities). In 2009 it became possible to receive payments
directly from within the app.
3- Advertising. Making content and services available with advertising included
(e.g. News).
4- Service and branding. Advertising an unrelated site, brand or service within an
advertising app.
The CPM for advertising on the iPhone costs between 0.34 and 1.39 Euro13 and
considering that, on average, a free app is used 12 times14 it follows that if you
choose to generate the same level of income from advertising, you will have to
distribute 20 to 80 times as many apps as you would have to if you sold the app at
a price of 79 cents. In minimum CPM terms, in order to match the income
generated by selling the app at 79 cents, you would have to charge 6 Euro 15.
However, if we take into account that the user is exposed to between 3 and 5
different adverts16 in every application, the anticipated free app to paid app
ratio drops to a minimum of between 4 and 27 times. In minimum CPM
terms , we are now looking at 1.2 Euro, based on an average of 5 application
utilisations.
If you want your application to be in widespread use, you will have to either
provide it free of charge, or the application has to be far better than all the other
existing applications. Most pricing changes involve providing previously charged-for
applications free of charge 17.
13
0.50-2.00$, Source: Pinch Media, 2009
14
Source: Pinch Media, 2009
15
Source: Pinch Media, 2009, http://www.pinchmedia.com/appstore-secrets/
16
Source: AdWhirl 2009 http://www.scribd.com/doc/15007502/Adwhirl-iPhone-Advertising-Snapshot
17
For hourly updated prices see: http://appshopper.com/prices/free
IPhone Apps prices in the marketplace
In two thirds of all cases, the application developers choose to charge for their
marketed applications. In 56% of all cases, the minimum price charged is
equivalent to 0.79 Euro, while in 16% of cases the price amounts to 1.59 Euro
and in 13% of cases the price is 2.39 Euro. In 99% of all cases the price charged is
in any event less than 12 Euro18.
Distribution of iPhone app prices
4,99 7,99
3% 3%
3,99
3%
2,99
3%
2,39
13%
0,79
56%
1,59
16%
Looking at the price distribution we note that, having overcome the psychological
hurdle of having to pay a fee for an application, the next hurdle thereafter appears
to be at 5 Euro. When the price is set above this threshold, in most cases it is set
at 7.99 Euro, highlighting the fact that breaking the 5 Euro barrier is essentially
worth at least 3 Euro.
18
Source: Casaleggio Associati, 2010. Data relating to the latest 1000 applications added as at 26/12/2009.
The variations in the price distribution of applications in the various categories

highlight the fact that the market adjusts itself to the level of competition in any
specific application sector.
Price distribution by category
100%
90% 79,99
69,99
80% 54,99
44,99
70%
39,99
60% 31,99
23,99
50% 15,99
11,99
40% 9,99
7,99
30%
6,99
20% 5,99
5,49
10% 4,99
3,99
0% 2,99
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The applications squeezed down to the lowest price range are those falling into the
Sport, Utility, Entertainment and Social Network categories, while those falling into
the Medicine, Reference and News categories are in the higher price range.
The average price of the latest paid applications is 2.70 Euro. The
applications with the highest average price, namely 14 Euro, are those in the
Medicine category. This category generates prices that are substantially higher than
in all the other categories, which all generate prices below 4 Euro.
Average iPhone app prices (in Euro)
14.06 Medicine
3.69 Web browsing
3.66 Reference
3.54 Finance
3.41 Utilities
2.82 Health
2.56 Education
2.17 e-books
2.09 Economics
1.78 Productivity
1.66 News
1.58 Travel
1.57 Fashion
1.48 Music
1.44 Photography
1.23 Games
1.14 Social networking
1.06 Weather
0.99 Entertainment
0.92 Sport
Profitability of iPhone apps
Anyone who develops a successful app can expect to earn more than 8.3-
thousand Euro per day (3 million Euro per year if sales remain constant) if they
sell the application, or 3.5-thousand Euro per day in advertising revenues
(1.3 million Euro per year if utilisation remains constant throughout the year).
However, of the 120-thousand applications available, on those on the list of the
top-100 downloads can expect to earn more than 1000 Euro per day, leaving a
mere few tens of Euro per month for the vast majority of the remaining
applications.
Amongst the major companies that have published their data, the most significant
ones are as follows:
- TomTom, the most popular of the satellite navigation units, which recorded 80-
thousand downloads during the third quarter of 2009, 19 equivalent to some 890
downloads per day at a price of between 69.99 and 79.99 Euro, is the most
profitable of all the applications sold in Italy.
- Proloquo was the highest earner overall in 2009, selling at a price of 189.99
Euro.
- iFart, an app that reproduces some interesting noises, which was in 15th place
overall on the list of top selling paid applications on 17 December 2008 with
2,836 recorded sales at 0.99 Dollars per download. In 2009 the developer
announced that the app had earned 2000 Dollars in one day in advertising
revenues generated by the game.
- Taptap Revenge, one of the most popular games available, recorded a total of
20 million downloads at 59 pence each (as at December 2009). A total of 600
million games have been played (an average of 30 games per person).
Tapolus, the company that produces this app, claims to be earning 1 million
Dollars a month from all of its iPhone based applications and advertising
revenues.
- 5800+ Drink and Cocktail Recipes, a cocktail recipe database, is turning over
1500 Dollars per day in advertising revenues.
- Sound Grenade is generating some 3000 Dollars per day in advertising

revenues.
- Fuzz Friend and iSay Free, after having made the top-100, began earning 400
Dollars per day in advertising revenues.
- The Guardian, the British daily newspaper’s application, headed the list of the
most downloaded British paid applications at the end of 2009 and held second
place in the American listings in the News category, having recorded 9,000
downloads per day in the first two days following its launch, which is equivalent
to 15-thousand British Pounds in just 48 hours.
19
http://blog.distimo.com/2009_10_tomtoms-revenue-from-the-apple-app-store-4-8m-q3-2009/
Conclusions
The market for iPhone applications is currently one of the most profitable and
fastest growing markets and is expected to remain so in 2010. Google’s Android
may begin to gain some ground in 2011, but only if they manage to source a
device that is up to the task, such as perhaps the Nexus One 20.
As at the beginning of 2010, there were approximately 26 million iPhones and
another 18 million iPod Touches (which are able to handle iPhone applications) in
circulation.
The proliferation of iPhone apps has ensured increasing levels of competition and,
by the end of 2010, any new iPhone application will have to compete against 300-
thousand other contenders, but this will not deter the development of yet another
180-thousand during the course of this year.
Nevertheless, for the developers, the market is growing in any event and estimated
sales are expected to reach somewhere between 280 and 420 million Euro, with
the top selling applications possibly earning as much as 3 million Euro per annum in
sales or 1.3 million Euro in advertising revenues.
During 2010 we will probably see many mee too applications, created for people
who want to feel involved, as well as a number of applications that will change
people, as well as their purchasing habits.
The choice of the business model is essential when an application first goes on line
because changing business models down the line has in many cases proven to be a
failure. For example, when the developers began charging a download fee for
Galaxy Impact because of its success, the number of daily downloads dropped by a
factor of 400 and by the time the charge was annulled, the number of daily
downloads had in any event dropped from 10-thousand to 1-thousand in terms of
the advertising value of the listings. When the developer later attempted to
introduce advertising, only one third21 of users installed the update, resulting in
revenues of merely 200 Dollars per month. 22
Many applications are designed to improve an existing service. This is particularly
true in the case of the news sites that are creating many free applications aimed at
granting easier access to the news being published. If the user base is sufficiently
large, then it may even be possible to charge a fee for the application, just as The
Guardian did, recouping its investment within the first few days after the
application was launched (15-thousand British Pounds within the first two days).
These figures also make us realise that the iPhone application business is
essentially limited to the top-100 applications.
Strategy changes can also be made along the way, but careful attention must be
paid to the management of those customers who have already paid.
In summary, as usual it is the utility or success of a paid service that dictates the
profitability of any application. It is not mere coincidence that the most profitable
applications are those that cost in excess of 50 Euro.
20
http://www.hwupgrade.it/news/telefonia/online-le-prime-recensioni-del-nexus-one_31192.html
21
Of the 500-thousand downloads, 160-thousand were updated to the version with advertising
22
December 2008
Methodology
The research was conducted during the period between 26 December 2009 and 5
January 2010 and including information available on the Web with regard to the
profitability of iPhone apps.
The iPhone distribution data is based on the official financial reports released by
Apple.
The turnover data is approximate and is based on estimates of Apple’s business,
which the Company never divulges.
The analysis of iPhone browsing utilisation in Italy is not entirely representative of a

cross section of the Italian utilisation, but it is nevertheless indicative of actual Italian
utilisation, having taken into account some 6 million hits during the month of
December 2009, without any significant bias in favour of mobile devices.
The analysis of the distribution of application prices is based on quantitative research,

which revealed the prices of the latest 1000 applications added to the Apple Store as
at 26 December 2009.
Anyone wishing to study this research in greater depth or to expand or supplement it

should kindly contact us at rapporto@casaleggio.it. Anyone wishing to comment can
do so at www.casaleggio.it.
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Analysis

Analysis of the iPhone Application

Proprietà intellettuale: C A S A L E G G I O A S S O C I A T I - è vietata la

The spread of iPhones

The iPhone application market

Pricing choice: free vs paid

iPhone Apps prices in the marketplace

Profitability of iPhone apps

Summary of the research findings:

- 78% of all mobile Web browsing in Italy is done on Apple devices.

- The number of application downloads to the 26 million iPhones and 19

- On average, an iPhone app is downloaded around 120 times in a single year.

The spread of iPhones

IPhones in circulation (thousands of items)

Source: Casaleggio Associati analysis of Apple Financial Reports

deemed to be misleading in terms of apps only, since the iPhone browsing

Estimated sshare of mobile internet browsing business in Italy

Fonte: Casaleggio Associati, 2010

The iPhone Applications market

iPhone (Apple) vs Android (Google)

N° applicazioni a fine 2010

Transato 2009 (in milioni di euro)

On average, therefore, an iPhone app is downloaded approximately 120

Pricing choice: free vs paid

Distribution of free applications

Source: Casaleggio Associati, 2010

IPhone Apps prices in the marketplace

Distribution of iPhone app prices

Source: Casaleggio Associati, 2010

The variations in the price distribution of applications in the various categories

Price distribution by category

Source: Casaleggio Associati, 2010

Average iPhone app prices (in Euro)

Source: Casaleggio Associati, 2010

Profitability of iPhone apps

- Sound Grenade is generating some 3000 Dollars per day in advertising

The analysis of iPhone browsing utilisation in Italy is not entirely representative of a

The analysis of the distribution of application prices is based on quantitative research,

Anyone wishing to study this research in greater depth or to expand or supplement it

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