App Stores Become Major Revenue Source, Apple Dominates

The app vs. mobile Web debate is over; there's a kind of detente in place. Google and others had originally expressed hope and the expectation that apps were transitional and HTML5 would supersede them over time. While that's still possible in the long term, the superior UX of apps, their sheer numbers and their revenue-generating capability mean that they're here to stay -- for at least the foreseeable future.

Yet apps remain optional for publishers, marketers and merchants, while an optimized mobile website is an absolute must now.

Today the app stores that matter are iTunes and Android. RIM's own App World will likely disappear over time as the company embraces Android apps, as it has done preliminarily with the Playbook tablet. Nokia-Microsoft is a bit of a wild card. Nokia has its own apps store in Ovi, which may atrophy over time as well.

Microsoft is aggressively courting iPhone developers and trying to make it easy for them to port their existing apps over to Windows Phones. It remains to be seen if this strategy succeeds. However apps are ultimately critical for near-term consumer appeal and the success of Windows. 

IHS/iSuppli has estimated app revenues growing to more than $8 billion by 2014, with Apple dominating and Android growing fastest. Here's what the firm has said:

Total download revenue from games and other applications are projected to continue rising in the next few years, jumping to $5.6 billion in 2012, $6.9 billion in 2013 and $8.3 billion in 2014

Mobile App Store Revenue

Apple, according to these estimates, currently owns more than 75% of app-store revenues. However IHS projects faster growth by Android, with revenues reaching roughly $425 million this year.

Apple reported that iTunes revenues (which includes movies and music) were $1.4 for the first three months of 2011. Assuming no growth that would mean total 2011 iTunes revenues of $5.6 billion. IHS says Apple's app-related revenue in 2011 will be $2.9 billion vs. $1.8 billion last year.

One reason Apple has more app-store revenues vs others (beyond sheer app numbers) is that it has a higher proportion of paid to free apps and its users download more apps than other smartphone owners. In addition there's less friction (vs. Android) in buying paid apps in the iTunes app store. Below are data recently released by Nielsen, comparing app consumption. 

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