iTunes Store Revenue Expectations

  • Posted: 08 November 2010 02:25 AM

    In FY2010 Apple reported $4.1 billion in iTunes Store revenue. I expect that number to jump at a pace much faster than 22.6% increase for the revenue segment that includes iTunes Store sales. The Apple iPad factors heavily into my growth expectations.

    As I posted tonight on my iPad blog, I’m surprised how much I spent on the one purchase of OmniFocus for ipad. It’s more than I’ve spent in the iTunes Music Store over the past two years and my iPad app purchases since July are more than I’ve spent in the iTunes Music Store in probably the past four years.

    I’m expecting a big jump in iTunes store revenue this quarter and next quarter as iPad sales accelerate and consumers jump to more sophisticated and productivity oriented apps. iTunes Store sales accounted for 6.8% of Apple’s reported revenue in FY2011 and I expect iTunes Store revenue to push revenue much higher. I expect iTunes Store revenue to meet or exceed iPod revenue as soon as the June quarter.

         
  • Posted: 08 November 2010 04:00 AM #1

    I agree with you, I am spending much more on iPad apps compared to normal music or iPhone apps. But extrapolating this current effect without taking into account below points is a bit to easy:

    1. Average price for iPad apps will drop overtime
    2. First iPad buyers are probably buying more than people buying the iPad in a later stage
    3. The number of iPads is still small compared to the massive number of iPhones being sold

         
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    Posted: 08 November 2010 09:26 AM #2

    Software sales will continue to move the bar on iTunes revenue, but I think the lack of growth in music sales will moderate the overall growth rate of iTunes. Digital music sales were flat for the first 6 months of 2010.  IMO the price increase last year moved people back to free downloads.  99c was a good price and $1.29 they are trying to rip me off.  Some of the spectacular growth in the App store was hidden by the fact that the Music store was flat.  I agree that the ASP for software on the iPad should bump the rate of growth as well as the addition of books. Additionally we should see a bump in movie/tv show downloads via the new Apple TV, but the real growth is still a few quarters away as the user base builds. Im forecasting 25% YOY growth.

         
  • Posted: 08 November 2010 09:39 AM #3

    petertje - 08 November 2010 08:00 AM

    I agree with you, I am spending much more on iPad apps compared to normal music or iPhone apps. But extrapolating this current effect without taking into account below points is a bit to easy:

    1. Average price for iPad apps will drop overtime
    2. First iPad buyers are probably buying more than people buying the iPad in a later stage
    3. The number of iPads is still small compared to the massive number of iPhones being sold

    I don’t expect iPad apps to drop in price. I expect more sophisticated apps to come to market. The proliferation of iPhones will also lead to a rise in app revenue. I expect a migration from notebooks and notebooks to iPads. As business uses of iPads grows so will iPad app revenue.

         
  • Posted: 08 November 2010 10:09 AM #4

    petertje - 08 November 2010 08:00 AM

    1. Average price for iPad apps will drop overtime

    I disagree that iPad prices will drop, at least not for the paid ones smile There might be an increase in free apps though.

    The obviously mass-market oriented ones (games, mostly) are already as cheap as can be. The more vertical ones are - as far as I can tell - too cheap. That’s a mistake that I am personally moving to correct right now WRT my product. Example: If you make an education app, there’s a good chance that the device it will run on was purchased for that particular purpose. Thus, the price of you app will be part of the budget for “the seat”, and this means that it really doesn’t matter to the buyer whether your app is 2, 5 or 10 bucks, as long as it’s good value for money and nobody undercuts your value proposition.

    Lesson: Don’t compete with yourself - compete with your competitors.

    What I did: Initially I introduced an iPhone/iPd Touch only version at $1 and an iPad product at $2. I then raised the price on the iPad product to $4. This did not reduce units as far as I can tell. When I temporarily took the IPhone product off the market due to a blocking bug, I saw iPad units grow (go figure). Once the iPhone product came back on-line, iPad units dropped again. Phone units did not cover the loss.

    Lesson: If you make people choose, some will refuse to choose?

    I am introducing a new version that incorporates all suggested improvements from users ASAP. I will leave this at $4 for a while, then raise the price to $10 to see what happens.

    [ Edited: 08 November 2010 10:15 AM by dduck ]      
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    Posted: 08 November 2010 12:32 PM #5

    Cult of Mac has some recent data on App store pricing

    App Store analytics firm Distimo says that while the price of the average App Store app is rising overall, the average iPad price has gone up by 14.5 percent in the last six months, compared to the iPhone?s paltrier 2.3 percent gains.

    What is that average price? For an iPad app, that?s just under $5, although if your app is in the top 100 paid apps list, it costs $5.80 on average. On the iPhone, those margins are lower: the average app is a little more than four dollars, and if your iPhone app is on the top 100 paid apps list, it probably costs even less: just $2.14.

    Overall, the average iPad app in the top 100 paid apps list is charging 171% more than those in the iPhone?s top 100 paid apps list.

         
  • Posted: 09 November 2010 01:19 AM #6

    pats - 08 November 2010 01:26 PM

    Software sales will continue to move the bar on iTunes revenue, but I think the lack of growth in music sales will moderate the overall growth rate of iTunes. Digital music sales were flat for the first 6 months of 2010.  IMO the price increase last year moved people back to free downloads.  99c was a good price and $1.29 they are trying to rip me off.  Some of the spectacular growth in the App store was hidden by the fact that the Music store was flat.  I agree that the ASP for software on the iPad should bump the rate of growth as well as the addition of books. Additionally we should see a bump in movie/tv show downloads via the new Apple TV, but the real growth is still a few quarters away as the user base builds. Im forecasting 25% YOY growth.

    The rise in singles prices was forced on Apple by the music industry. But the move away from music purchases is indicative of a transforming platform. After working with OmniFocus for several days I’m game for productivity apps that increase my work efficiency.

         
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    Posted: 09 November 2010 02:27 AM #7

    DawnTreader - 09 November 2010 05:19 AM

    After working with OmniFocus for several days I’m game for productivity apps that increase my work efficiency.

    Care to sign an NDA ?

         
  • Posted: 09 November 2010 03:01 AM #8

    Frankly, I don’t get real excited from iTunes sales, except as a measure of growth.  The gross margin on iTunes sales is nothing to write home about, so it’s not an EPS # mover.  Don’t get me wrong, iTunes is a great trojan horse to sell hardware.  As a standalone profit center, it’s a pony.

         
  • Posted: 09 November 2010 03:20 AM #9

    pats - 08 November 2010 01:26 PM

    Software sales will continue to move the bar on iTunes revenue, but I think the lack of growth in music sales will moderate the overall growth rate of iTunes. Digital music sales were flat for the first 6 months of 2010.  IMO the price increase last year moved people back to free downloads.  99c was a good price and $1.29 they are trying to rip me off.  Some of the spectacular growth in the App store was hidden by the fact that the Music store was flat.  I agree that the ASP for software on the iPad should bump the rate of growth as well as the addition of books. Additionally we should see a bump in movie/tv show downloads via the new Apple TV, but the real growth is still a few quarters away as the user base builds. Im forecasting 25% YOY growth.

    On the contrary - the rise in price for music sales was positive for apple.

    30% increase in price & little to no drop in sales? That’s effectively a 30% rise in revenue! Plus album sales have increased, meaning people perceive the albums as better value, even though they are spending more than if they had just pirchased a few single tracks.

    Considering people are buying much more apps than before, and music sales remain flat, then itunes revenue should continue to increase.

    Appletv should boost movie sales somewhat (I’ve bought half a dozen movies myself since getting my unit)

         
  • Posted: 09 November 2010 02:21 PM #10

    At 22.6% growth in revenue last year for the revenue segment that includes iTunes Store sales (and of which iTunes represents about 85% of the revenue activity), I expect strong growth in revenue in FY2011.

    Revenue has not kept pace with growth in applicable hardware unit sales perhaps due in large part to the sharing of music and apps among devices and replacement devices. However, the iPad is a new product with unique apps specifically designed for its features and at comparatively higher cost.

    I’m watching the revenue segment closely and expect a pick-up in the revenue growth rate form the FY2010 performance.

         
  • Posted: 11 November 2010 11:32 AM #11

    I just purchased the iPhone version of OmniFocus and it synchs with the iPad version through MobileMe. I’m quite the happy camper. But again I’m stepping up my app purchases through iTunes is ways I hadn’t expected when I first purchased the Apple iPad.

         
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    Posted: 11 November 2010 02:09 PM #12

    DawnTreader - 08 November 2010 06:25 AM

    In FY2010 Apple reported $4.1 billion in iTunes Store revenue. I expect that number to jump at a pace much faster than 22.6% increase for the revenue segment that includes iTunes Store sales ... iTunes Store sales accounted for 6.8% of Apple’s reported revenue in FY2011 and I expect iTunes Store revenue to push revenue much higher. I expect iTunes Store revenue to meet or exceed iPod revenue as soon as the June quarter.

    Moons ago, I thot iTunes Store revenue would eventually be the highest revenue contributor.  Given the slow pace of growth, I begin to waver.  It is the combined revenue of iTunes Store and retail store that is the highest.  Apple is a retailer?

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  • Posted: 11 November 2010 02:16 PM #13

    Revenue is all well and good, but do we have any estimates as to what profit margin apple makes on the iTunes store?  I know the store is not meant to be a key profit driver for Apple given it is in place to sell profitable hardware, however, I highly doubt Apple isn’t making some form of profit from iTunes.

    Horace has had a stab at this I believe, but does anyone else have any estimates for profit margins for the iTunes store?

         
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    Posted: 11 November 2010 03:00 PM #14

    JonathanU - 11 November 2010 06:16 PM

    Revenue is all well and good, but do we have any estimates as to what profit margin apple makes on the iTunes store?  I know the store is not meant to be a key profit driver for Apple given it is in place to sell profitable hardware, however, I highly doubt Apple isn’t making some form of profit from iTunes.

    Horace has had a stab at this I believe, but does anyone else have any estimates for profit margins for the iTunes store?

    iTunes Store, AppleCare, iTunes gift card and AppStore made $ like insurance business.  Collect $ from consumers first and pay suppliers later.  Essentially providing cost free working capital, occasionally earn some interest on those cash.  Hence, even though it appears that the profit margin is low, the hidden profit is good.  Is hard to compute this hidden profit.

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  • Posted: 11 November 2010 11:49 PM #15

    By the end of the June quarter I expect iTunes revenue to exceed iPod revenue and continue to exceed iPod revenue for all but the December quarter each year.