When Apple launched its App Store eight years ago with a selection of just 500 applications for iPhone users, not many of the company’s famously bullish executives could have expected that it would grow into an earnings juggernaut. The iPhone and iPod were overwhelming successes and the iPad was just around the corner: apps seemed like an offshoot.
But last year, Apple’s app business made almost $30bn (£24bn) as the Pokémon Go phenomenon drove purchases, taking total store sales to $85bn since 2008. This week’s latest quarterly results will confirm its importance to the tech group, with iPhone sales losing steam and the group’s services unit – home to the app store and iTunes – becoming increasingly important to Apple.
Matti Littunen, a tech expert at Enders Analysis, says the iPhone remains the cornerstone of the business, accounting for well over 60% of revenue, but the store is a key part of Apple’s strategy to make more money away from hardware.
“The App Store business is of growing importance to Apple,” says Littunen. “Following the decline in iPhone sales, the services division is becoming more important. Apple needs to do everything it can to make sure it has the best services available and top developers on board.”
But it is not just Apple and its investors that benefit from the store. App developers keep the majority of the income. Last year, the $28.6bn earned by the store was split between developers, who took home $20bn, and Apple, which pocketed $8.6bn from its 30% cut.
Peter Molyneux, a renowned British video game designer, says that the arrival of Apple’s store and Google’s rival service, Play, has represented a revolution for games and product developers.
Molyneux says one of his first hits, Fable, took seven years to sell 10m copies after it was launched in 2004. The latest game produced by his 22cans studio, The Trail, passed that total within a matter of months thanks to the store. “In November we launched The Trail and it has passed 10 million downloads already. More people are interacting with one game I release now than almost the entirety of the games I made when doing so for consoles. The fascinating thing about the app economy is you can create a game, or an app, that reaches the entire world.”
Growth in earnings from the App Store shows no sign of slowing down. Revenues are rising 40% year-on-year, while in China, where Google does not operate a rival service, they are growing at 90%. It is little wonder that Apple thanked developers recently while gently reminding them that “our products” – an ecosystem of phones, tablets and the store itself – make it all possible.