Om Malik breaks down a report on App Store revenue from Macquarie Capital Research, giving us some very interesting numbers. In a nutshell, as iTunes revenue stalls, app growth continues to climb at an incredible rate. While our thirst for music seems to be subsiding (or moving to streaming), we continue to spend for apps and, especially, games.
I suspect that the growth numbers reflect a continued expansion of the processing power of the iPhone and iPad. While the number of iPads and iPhones continue to expand, their processing power also increases. That extra processing power does nothing to motivate the purchase of music or enhance the experience of playing music. It does, however, directly impact the kind of games and apps we get to experience.
In addition to raw processing power, the sophisticated tools and libraries available to developers also continue to grow, meaning novel new experiences are available to users. New experiences turn into purchases, turn into revenue growth for Apple.
The Amazon approach is to create generic devices to funnel purchases to Amazon. Apple might consider the benefits of a similar model. The top grossing App in the App Store is Clash of Clans. It’s now available on Android.
Knowing that people are actually willing to spend hundreds of dollars on Clash of Clans (or other games), ask how they might best use their $$$: $299 for an iPad or $140 for a 7″ galaxy tab 4? The Galaxy Tab is inferior in every metric, except it’s cheaper and plays the game…. The point is, every increase in the cost of an Apple tablet/phone drives down consumption at the AppStore. It also drives people to the GooglePlay and, consequently, developers.
I haven’t owned anything besides Apple for the past few years, but I’ve got an 8 year old itching to have his own tablet and I’m having a hard time justifying the mini over a POS Android.
Which brings me to margins… Apple is printing money and flush with cash. So cut margins now to fuel the App Store future. Reduce Device margins to 35-45%. Give developers a 75% cut of all new content. The device matters, but only if it offers a superior price/performance metric to the alternatives.