Our analysis suggests that total App Store ecosystem revenues will be between $700 million and $1 billion for 2009.  This estimate breaks down as follows (** see note for more details):

2.7 billion downloads * ~15% of downloads are paid apps * $1.75-$2.50 per paid app = $700 million – $1 billion

But, as Digital Clockworks points out, in all the debate about numbers and methodology some of the most interesting and important elements of the story are being missed.  First, this is a big, rapidly growing market.  The key difference between our estimate and some of the lower numbers we’ve seen is that we’ve accounted for continued growth over the second half of 2009.  The second half of the year will generate 50% more revenues than the first half.  Also, we see this growth continuing.  Over the next 12-18 months the iTunes App Store will become a multibillion dollar annual business.

More importantly, however, the iPhone and the App Store have revealed a new paradigm for how mobile users will interact with their devices and use the Internet.  The App Store represents one more example of how “over the top” approaches over IP networks are beating out purpose-built, vertically-integrated network businesses.

Most of us wouldn’t dream of paying for a customized Internet experience on a tailor-made device from our broadband service provider (*** see note).  But that is the way we used to buy telephone service, and it continues to be the way we do things for mobile and video services.  Over time, all of these businesses will follow a similar pattern, breaking down into their component parts so that the best adapted players win in each piece of the business.  The only questions are:  “Who are the best adapted?” and “How long will it take?”

The App Store represents a major 'over the top' incursion in mobile data. How long will it take for 'over the top' models to eat into the mobile voice market and the video market?

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Notes:

** Total downloads for 2009 come from Endeavour Partners’ analysis and forecast of App Store downloads, tracking Apple announcements; ratio of paid vs. free apps comes from Pinch Media but is consistent across multiple sources; average price per paid download has been reported as low as $1.67 and as high as $2.87, so we used a range

*** We actually used to buy Internet services this way as well:  AOL, Prodigy, NetZero, and PeoplePC (which included a PC in the bargain!); there is a segment of users who appear to be heading back in this direction (see the success of Comcast.net or the recent push for connected netbooks with service from AT&T or Verizon)

Why is this so important? One of the things that we think is critical is a ruthless, relentless focus on the data; what do the facts tell us? One of the most common metrics used is market share, but here’s the very first question you should ask yourself:

• volume (units)?
• or value (revenue)?

In mobile phones, for example, these can mean very different things: Apple has ranked as high as #3 by value (and #1 or #2 by profit), despite having only a small share by volume. Whenever you see market share data, ask yourself if it’s market share of volume, or market share of value.

In mobile applications, where many are free, it’s not enough to just know ‘Top Free’ or ‘Top Paid’, you really need to know revenues to understand the economics well.

Moreover, if rankings on this chart at least, correspond to market share of value, rather than market share of volume for paid apps, it enables developers to re-price to maximize revenues. Compare, for example, Top Paid versus Top Grossing for today; Madden NFL is #2 on Top Paid at $7.99, but #1 on Top Grossing, as AppBox Pro only costs $0.99. Moreover, TomTom at ~$100 was always going to find it hard going to make it into the Top Paid (it’s not there now, at least down to #50), is #5 amongst Top Grossing.

Top Paid

Top Grossing

This may help stall the rush to the bottom which has been the cause of so much unhappiness amongst developers.

At this rate, Apple should reach 2 billion downloads the week of September 4th, 2009.

iPhone app growth

Blackberry App World has not released download stats

As we dug deeper, we found good reasons for this dearth of data.

First, BlackBerries sold through major network operators do not come with App World pre-installed; hence one of the key questions is how many BlackBerry users have downloaded, installed and set up App World.

Another challenge is that users can get BlackBerry apps from a variety of alternative sources, including:

• developer websites — for example, the excellent Google and Facebook apps for Blackberries are often acquired directly from the web and sent via email link
• Handango website — may be the leading single source for Blackberry apps
• Handango InHand — a pretty good 3rd party app store, downloaded to many BlackBerryies after Apple’s App Store became popular and before RIM’s own BlackBerry App World launched
• network operators’ websites — verizon.handango.com, for instance
• network operators’ app stores — mostly focused on ringtones and games; VZAppZone and AT&T Media Mall are examples

All this choice is confusing for both end users and for application developers.

Moreover our survey of retail store personnel at major US network operators found that they were either or both ignorant or unsupportive of App World when asked about how to get apps for BlackBerries:

• Sprint personnel did not know of any way to get applications onto a BlackBerry and began pitching the Palm Pre as a better device for apps (despite the fact that at present it only has 30 apps, and it’ll be late summer before the SDK has widespread availability)
• T-Mobile personnel knew there was a BlackBerry source for apps, but did not know the name or how to get it
• Verizon’s sales people pushed VZAppZone as an alternative for BlackBerry applications
• only AT&T front line personnel immediately knew about Blackberry App World and described how to find and install it (is this in someway a spillover effect from their learning with the iPhone and its App Store – experience that sales people at other network operators just do not have?)

Given little or no support from network operators, App World must first be discovered and downloaded by users; like any innovation, without information there’s no adoption. In addition, users must have a PayPal account or sign up for one to purchase apps on App World.

Here is a step-by-step comparison of first time use for Blackberry App World vs. Apple’s App Store:

Typical App World vs. App Store first time experience

Guess which application storefront has “Billions and Billions served” and which one has so far been less than forthcoming with performance metrics?