Can you build a Big Business on Apple’s App Store?

A good friend refers to the Apple App Store as the California Lottery. So I thought I’d do some rough numbers on how feasible it is to build a big software business creating apps for iPad and iPhone and selling them in Apple’s App Store.

The Apple App Store will still own three quarters of mobile app revenue by the end of 2011. It’s the place to be if you want to develop paid mobile applications.

According to Apple, they had paid out developers $2.5 billion since the creation of the app store until July this year. I’m including this as a sanity check on my numbers below.

According to this article, the combined revenue of all app stores will be $3.8B in 2011, with Apple owning 75% market share. That’s $2.85B total revenue for the app store in 2011 with 30% going to developers so total payout to devs will be approximately $1.995B for 2011 (which roughly gels with the total all time payout number above).

The app store just passed 500,000 approved apps in May 2011. (Edit: fixed a typo. Apps, not developers)

In May of this year:

  • $3.64 was the average price for paid apps.
  • There were 244,720 paid apps.
  • There were 85,569 unique developers.
If those paid apps split Apple’s projected 2011 revenue to developers of $1.995B between them, they each earn $8152.17 per year. There will be more paid apps by the end of 2011 than there were in May, so the same calculation for 2010 revenue to developers gives us: $2.1 total sector revenue X 75% apple’s market share X 70% developer share gives us $1.1025B / 244,720 paid apps = $4505 per app in 2010.
I’ve calculated both 2010 and 2011 revenue per app because the only data I have on total paid apps is from May.
So total revenue per app now is roughly between $4K and $8K per year based on my back of the envelope calculations.
While app store revenue is increasing, so is the number of developers in the app store, exponentially:
Lets say you create a startup producing Apple App Store apps. You manage to completely dominate the app store in 2011 and capture 1% of the total 2011 app store revenue of around $2 billion that Apple will pay out to developers.  That’s $20 million in annual revenue. Remember, you’ve just owned 85,560 other unique developers and a quarter million other paid apps, which is not impossible.
To put this in perspective, here is the 2010 annual revenue from a collection of well known software companies, leaving out the eye watering revenue from companies like Oracle, Microsoft, Apple, Google and the like.
Sources:

Food for thought.