Who’s Really Winning the App Store Battle?

Android gets the numbers, but Apple gets the profit

Stock of the WeekOne of the bragging points for Apple’s (NASDAQ:AAPL) iOS mobile platform has always been its apps.

Apple’s App Store launched in 2008, just a few months before Google’s (NASDAQ:GOOG) Android version (now known as GooglePlay), but has long held the lead in the total number of apps.

With more app downloads as well — a January press release triumphantly announced the 40 billionth app download — Apple’s App Store was seen as proof that iOS was the market for app developers too.

However, things are changing. Actual app store numbers are tough to come by at the moment (both Apple and Google have been busy purging non-conforming apps from their stores in recent weeks), but they’re pretty much neck-and-neck on the number race. As for downloads, TechCrunch reports that GooglePlay surpassed Apple’s App Store for number of downloads in Q1 2013, with 6.8 billion — a 51% share.

When you look at the app store data since 2008, it resembles a slower version of the smartphone race: Apple gets out to an early lead before being caught and passed by Android. Android’s lead in apps isn’t nearly as significant as its smartphone lead yet (nearly 70% to Apple’s 20%), but the trend is there.

Inside Mobile Apps has some key milestones for the competing app stores:

  • 50,000 apps: Apple — June 2008, Google — April 2010
  • 100,000 apps: Apple — November 2009, Google — October 2010
  • 250,000 apps: Apple — April 2010, Google — July 2011
  • Both app stores hit the 600,000 mark in roughly June 2012 (although Apple hit it first)
  • Both app stores hit the 700,000 mark in the September/October 2012 timeframe

What’s interesting about this race is that the numbers are beginning to resemble the smartphone market in another way: According to that TechCrunch piece, even though GooglePlay now accounts for the majority of app downloads, Apple’s App Store that accounts for 74% of app revenue.

Compare that to smartphone numbers, where iOS represents less than 20% of the devices sold, yet Apple pulls in 70% of the profits.

In February, CEO Tim Cook pointed out that Apple had earned $8 billion in revenue from the App Store since its 2008 launch, paying out $5.5 billion of that to app developers.

The discrepancy between downloads and revenue likely means one of two things (or perhaps a combination of the two). Either Android users are focusing on downloading free or 99-cent apps, or iOS app publishers feel that iPhone/iPad/iPod Touch users are more willing to pay for high quality apps, so they offer more premium titles to Apple users.

Figures published by Forbes show that 72% of apps offered through Google Play are free (compared to 56% of those offered through Apple’s App Store). At the end of 2012, the average price paid for an app through Google Play was $3.06, compared to Apple’s $3.18 for iPhone apps and $4.44 for iPad apps.

That’s the average revenue for paid apps, though. (Free apps weren’t included.) The numbers would be much further apart if this were the average revenue per downloaded app.

The sheer number of apps available is largely a marketing metric. Having to wade through hundreds of thousands of apps becomes tedious for users — most of whom just want apps like Netflix (NASDAQ:NFLX) and Twitter. Case in point: 25 developers accounted for half of Apple App Store revenue (in the U.S.) in December.

Both Apple and Google are at the point where the number of apps is less important to users than quality and price; but that total remains a bragging point for marketing. That’s the reason why Microsoft (NASDAQ:MSFT) and BlackBerry (NASDAQ:BBRY) were willing to pay out bounties to developers in an attempt to prop up the numbers in their respective mobile app stores.

What will prove interesting is whether app stores and smartphones (plus tablets) will prove to be a chicken and egg thing, where one is needed to drive up or maintain market share in the other, even in a mature market.

We’ve seen that Apple doesn’t need to win the hardware numbers game to bring in revenues, but if sheer app store numbers turn out to sway smartphone sales, then Google Play’s ascendancy will spell trouble for Apple — developers could focus on the more popular app store, offering more of their premium apps there. That in turn could become a snowball effect that attracts users and more developers, further boosting Android popularity, hurting iPhone and iPad adoption.

On the other hand, we could continue to see the app store market mirror the smartphone market, with Android (and Google) winning the numbers game while Apple reaps the profits.

Either way, expect to see less emphasis on App Store size from Apple’s marketing team.

Whichever way you think it’s going to go — developers and users flocking to Android, or Apple keeping a disproportionately large chunk of app revenue — is going to be a big part of whether you think Apple is currently undervalued and due for a recovery, or whether a growing Android app advantage will lead to its iPhone and iPad business sliding and taking the stock price down further.

My money would be on the former.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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