The real surprise of the App Store isn’t number of downloads or revenue

August 11th, 2008 . by Steve O'Hear, editor

That the iPhone’s App Store has delivered 60 million downloads and generated an average of $1 million a day in revenue since its launch a month ago isn’t all that surprising.

To begin with, the App Store couldn’t be any easier to use. All apps available to purchase and download either from the familiar iTunes Store or from the device itself. Next, factor in Apple’s marketing machine, the quantity and quality of apps available from Day One - many of which are free - combined with the fact that the typical iPhone owner has cash to spare and an early adopter mentality geared towards trying out new things, and you have a surefire hit on your hands.

Instead, the real surprise is that the carriers - AT&T in the U.S. and 02 in the UK - agreed to Apple launching the App Store in the first place. Or more specifically, that Apple could offer the App Store in the manner in which they have done.

Apple has a direct billing relationship with iPhone customers

This is really significant and is something that other major players have struggled with for years. When you purchase an iPhone, no matter how much upfront subsidy AT&T, 02 or whoever provides - you have to register the device through iTunes. That way Apple owns part of the customer relationship in a way that is unprecedented in the mobile phone world. Nokia, for example, would kill for a similar arrangement.

Applications can be purchased over-the-air

Whilst the App Store is accessible via iTunes, which users are forced to register an account with (see first point), incredibly it’s also installed on the iPhone itself, thus enabling over-the-air puchases not just side-loading.

No revenue share

In return for giving Apple a store front on the carrier’s network they take a cut from revenue generated, right? Wrong. As far as we know, revenue generated by the App Store, either through side-loading or over-the-air sales, is shared between Apple and the app’s developer only. Considering that games are proving to be one of the most popular type of paid-for apps, the lack of rev share is especially surprising. Game downloads have traditionally been seen as an additional revenue stream for carriers - along with music and ringtones.

To put the App Store’s unique position into further context, consider Nokia’s Ovi web services strategy in which the company is pushing a number of non-hardware offerings in the hope of growing revenue. These include a music store and game store/platform (the re-launched N-Gage). A major part of Ovi’s success is dependent on Nokia’s ability to persuade carriers, who subsidize the sale of the company’s handsets, to agree to bundle Ovi’s offerings - as standalone apps - on the phones themselves, just like the iPhone’s App Store. To that end, Nokia is reportedly giving carriers a cut of Ovi revenue in return for them doing so.

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