$5 Billion Apple App Store Revenue in 2012 - Will New Maps and Passbook Propel Growth?

By Tony Rizzo September 20, 2012

September 19, 2012 was the big day for Apple users everywhere to update their devices to the new iOS 6. Given Apple’s successful track record regarding users updating their operating system versions – it is at least 80 to 85 percent and likely better – we anticipate a huge groundswell of upgrades over the next few days and month. The iOS release is certainly substantial, with over 200 new apps, features, tweaks and updates to the previous version, iOS 5.1.

Two key new changes that come with iOS 6 are the addition of its new Passbook app – Apple’s new design for a mobile wallet. Passbook is an integral feature of iOS 6, but more importantly, Apple has made Passbook APIs available to developers that will allow Passbook to be extended and integrated with what should end up being a vast array of external sources. Interestingly, Passbook is partly the work of mobile wallet and NFC guru Benjamin Vigier, who now works at Apple. Vigier has worked on Starbuck’s 2D barcode mobile payment solution, Paypal Mobile, Sprint MyMoneyManager, and numerous other mobile wallet and NFC projects.  The initial iteration of Passbook is merely the beginning of what Apple is looking to accomplish here.

The other major addition to iOS 6 is Apple’s own new Maps platform. Apple has parted ways with Google Maps (or we should say, with the underlying data that Google is able to provide to map applications). The Map app has gathered a few knocks from early reviewers – it lacks depth in terms of finding businesses and other LBS-based data. That will certainly change over time, though we can anticipate Apple won’t take long to make right on this issue. On the other hand, SIRI is now integrated into MAPs and the combination does an excellent job of providing turn by turn directions and such things as traffic-based re-routing.

Through these two specific apps Apple has now directly extended its own smartphone and tablet ecosystem reach into the “real world,” which will help drive the company’s app store revenue, which is expected to be up by nearly 70 percent this year. Global Apple app store revenue is set to increase to $4.9 billion in 2012, up from $2.9 billion in 2011, at least according to a new IHS Screen Digest Mobile Analyst Commentary report.

This means that nearly half of the revenue generated by the App Store in its five-year history will actually be earned this year alone. With this strong growth, Apple this year will command about a 65 percent share of the global application store market. The figure below presents annual and cumulative revenue for the Apps Store.

What do we mean here by “the real world” exactly? Ian Fogg, senior principal analyst for mobile at IHS says that "Until now, Apple’s iOS ecosystem has focused on virtual services, such as apps, digital music and movies.  However, with iOS version 6, Apple is moving into real-world location and financial-transaction features. The new Apple Maps and Passbook apps and accompanying location platform for app developers is the keystone for this real-world expansion, and will help support the accelerated growth of the Apple App Store market in 2012.”

It is an interesting perspective, and Fogg is certainly right that these apps represent a shift in Apple’s direction. More accurately, it’s not really a shift but an addition to Apple’s traditional virtual services approach.

The value in having the amazingly high percentage of iOS users upgrading to the latest version of iOS is that Apple continues to own an amazingly tight – and advanced – overall mobile ecosystem. Developers know that they can simply jump right in and develop to the latest iOS standards. Developers can, for example, take immediate advantage of both Apple Maps and Passbook with the understanding that almost all iOS users - somewhere between 80 and 90 percent of that entire Apple mobile ecosystem of users - will be able to immediately tap into and take immediate advantage of whatever new apps and new capabilities the developers put out there.

This is the core strategy that continues to differentiate Apple from the Android marketplace. Yes, it is certainly true that through numerous device manufacturers Android has many more Android devices in the field than Apple has iPhones. However – and this is huge – Android’s latest Ice Cream Sandwich and Jelly Bean upgrades probably run on less than 10 percent of all Android devices currently in the field. From an OS version perspective Android is highly fragmented, and there is no way developers can count on finding a holistically integrated market. Developing apps to take advantage of the newest version of Android – unlike Apple – results in a tiny piece of the overall Android market for developers. It is a significant disadvantage for the Android marketplace.

An Ecosystem of Gargantuan Proportion

Another interesting aspect of the overall Apple ecosystem is that Apple has in hand – and it is very hard to provide enough emphasis on this - more than 435 million iTunes (online/cloud) accounts, complete with credit card information, which translates directly into users who are in a position to buy. The number is up significantly from the 225 million reported for June 2011.

There is little doubt that this hyper-growth has not resulted from both record-breaking iPhone shipments, by the iOS 5 feature set – and by the conversion rate by Apple’s users to iOS 5.1. Also critical, as IHS points out, last year’s iOS version encouraged users to sign up for Apple's ID to enable iOS app downloads, iCloud backup and Game Center support. These accounts use the same Apple ID that ties together Apple's other online services including the iTunes music store. This all means that Apple’s mobile users enjoy an entirely seamless and frictionless user experience. This is what makes Apple different.

The only thing that is still missing is that long rumored Apple TV. OK, NFC as well, but time is on Apple’s side to deliver. Rest assured that when it does move on these they will also be deeply integrated into the entirety of the Apple mobile ecosystem.

Edited by Brooke Neuman

TechZone360 Senior Editor

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