Apple's App Store Sales Top $30 Million In First Month; Can Free Apps Make Developers Money?

Dianne See Morrison
Monday, August 11, 2008; 7:00 PM

Since opening its App Store for the iPhone in July, Apple (NSDQ: AAPL) has raked in an average of $1 million a day in sales, a cool $30 million for the entire month it has been open. Apple chief Steve Jobs told the WSJ in an interview he'd "never seen anything like this in my career for software," and said if sales kept up with this pace, they'd stand to earn $360 million in new revenue from the App Store's first year. Said Jobs, "This thing's going to crest a half a billion, soon. Who knows, maybe it will be a $1 billion marketplace at some point in time."

Despite these figures, there's apparently not going to be a whole lot of direct profit made off the store, Jobs said. The 30 percent cut Apple takes from developers (who keep 70 percent of an app sale) pretty much covers its expenses of maintaining and running the store, as well as credit card transaction costs. But what Jobs is banking on is that applications will help sell even more iPhones and wireless-enabled iPods. Of course, this is not a new strategy. Nokia's had this as an aim for quite a while now, while Microsoft ( NSDQ: MSFT), Google ( NSDQ: GOOG) and RIM ( NSDQ: RIMM) have all spoken of apps as the way to capture consumers.

But what's different is that the popularity of the iPhone has apparently surprised even developers, who are now concentrating their efforts on Apple's handset. Sega'sMonkeyballgame which costs $9.99 has sold more than 300,000 copies in 20 days. Sega's president of its U.S. unit said that was "substantial business," and that "it gives iPhone a justifiable claim to being a viable gaming platform."

There has also been some grousing of how some applications?so far three, have been pulled from the store with no explanation, as well as code in the iPhone that lets Apple remotely remove any undesirable software from the gadgets. Jobs confirmed to the WSJ that yes, Apple can do this, but only have the capability in case a program they okay through their store turns out to be a malicious one. Despite the cries that Apple is playing Big Brother, Jobs said it would be "irresponsible" not to be able to do this.

Interestingly, while the iPhone has some 500 applications for download, it's the top ten developers that are making nearly half of the sales. Of the $21 million that developers made in the first month of sales, $9 million went to the top ten developers. So how do you make money if you're one of the free games on the iPhone? Businessweek, in another iPhone app story, takes a look at the Swedish two-man band Illusions Labs, which makes free games. The problem, of course, is how do these tiny outfits make money?

Based on Illusion Labs' experience it looks like the route is to establish a decent audience for a free game, and later create a deluxe version that players are willing to upgrade too. The tiny company is behind the populat iPhone game Labyrinth, in which a player must guide a ball through a maze without letting it fall in one of the holes dotted throughout it. The free game, according to the company, gets 80,000 downloads a day. It recently released an upgraded version, selling for $6.99 in the App Store, though no comment on how many of these games they've sold. Illusion Labs have also, however, caught the attention of marketers, and was commissioned by Carling and its ad agency to create the iPint game for it. The game is similar to Labyrinth, but instead of a ball, you guide a pint of beer through a maze, to a waiting hand. Once it reaches the hand, the screen turns into a glass of beer with Carling's logo on it. The two expect to do more of these virtual ad-games.


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