App Store Piracy Numbers: Implausible or cause for concern?

A controversial report was issued last week about the state of piracy for the Apple iTunes app store which ended up raising quite a few questions, including Apple’s lack of concern for it. In January, Apple announced that over 3 billion apps had been downloaded and since November there have been over 100,000 apps available in the iTunes app store.

The report in question suggested that the iTunes app store has faced losses of up to $450 million since launching in July 2008. The report first surfaced last Wednesday on 24/7 Wall Street’s website. The way they figured the amount starts somewhat sensibly but got a bit lost along the way.

Analysts first took the figure that with the 3 billion downloads, 17% were paid apps and the average price of paid app downloads is $3. Now, Wired report back in August that Jay Freeman, operator of Cydia, received over 4 million unique visitors to his store, which was 10% of the number of iPhones and iPod touches at the time. With the present sales at 75 million the site figures 7.5 million devices are jailbroken.

This is already where it seems unreasonable, to figure the percentage is still 10% seems high because late-adapters are hardly known as being technophiles. Regardless, they also take into account analytics reporting only 40% of jailbroken devices use pirated software.

When it comes to piracy rates, developers say 75-95% so they go for the lower figure and for every paid app sold, 3 more are pirated. So first 17% of paid apps from 3 billion downloads equals 510 million. Multiplying that by 75% for the paid app piracy rate means 1.53 billion pirate downloads, times $3 for the average paid app price, $4.59 billion in losses between Apple and app developers.

Also there is the question of how many of those pirates would have bought the application if they didn’t pirate it, so they sliced the number to 10% of people who would have bought the apps and came up with $459 million in lost revenue. So according to them Apple (who takes 30% commission on revenues) has lost about $140 million from piracy, compared to $500-700 million made since launch.

From those that dissected the report methodology their main complaints come from the piracy rate of 75% as the only examples were coming from games. For instance, ArsTechnica wrote an article on an app for a Full Screen Web Browser and the developer reported only 9.75% of users that were running the cracked version of it were “pirates”.

This also adds to the logic that many “pirates” download an obscene amount of apps but rarely use them. Also many figured the 10% ‘would-be paying customers’ rate is too optimistic. This is a problem that has plagued music industry analysts for years. Anytime a number is estimated for piracy loss to the industry, many dismiss any suggestions because it’s impossible to predict just how many would have bought an album if it weren’t available on P2P networks in comparison to others.

Silicon Alley Insider also makes the point that “by expanding the user-base of a product, piracy greatly increase apps’ exposure. These estimates make no attempt to correct for the additional sales this brings in”. This easily coincides with the theory that many “pirates” download cracked versions simply to test the app before paying for it.

Surely this is another understandable grievance for app developers, the lack of a way to offer demos. Although ArsTechnica states some developers have managed to convert pirate downloaders into paid users “by turning the cracked versions into trial versions of an app, which seems like a user-positive approach to dealing with the piracy problem”.

Another report issued today remarked on just how much Apple completely owns the mobile app market, grabbing almost every one of the 4.2 billion dollars spent on mobile apps in 2009 (99.4% of it to be exact). Based on the UK group Gartner’s estimates, even with upcoming competition Apple could hold on to at least two-thirds of the market if current sales trends hold for 2010.
If Apple can merely maintain its current rate of about a quarter billion app sales per month, it stands to be responsible for 3 billion apps sales—67 percent—good for $4.5 billion in revenue. Apple’s cut would be $1.35 billion, with developers taking the remainder…and that’s without gaining any more users from any new iPhone models!

Whether or not Apple takes the piracy report seriously has yet to be seen, but at the same time Apple’s business hardly revolves around the sale of apps, but of the devices themselves…just as the iTunes music store isn’t Apple’s bread and butter, because they make so much more money off the sale of iPods. It seems that to Apple any extra profits are simply icing on the cake, and with Gartner suggesting $1.35 billion in revenues, that’s quite a decent gain.

However what about the developers? As much as everyone feels the situation is indeed grim throwing out such a number usually doesn’t make any headway in amending the issue and also there were no suggestions included as how to fix the problem. Developers who bear the brunt of losses are quite powerless because it’s the manufacturer’s responsibility to make the devices harder to jailbreak.

Looking to the music industry it’s been interesting to see the lack of enthusiasm in music apps aside from games. Starting out strong with apps for music, the number of artist-centric apps has seemed to drop off significantly the last few months…mainly because they’re not worth the effort.

Piracy has been a sizable problem in the iTunes app store since Cydia opened its proper store in March 2009 but no solutions have been suggested. Are they turning a blind eye like ISPs? Silicon Alley made a good point that, “if the ability to pirate software makes the iPhone more attractive to potential buyers, that matters far more than any hypothetical lost app sales”. App developers are in quite a difficult place, having to put trust into a company that doesn’t take their wellbeing as their first priority, although the music industry learned that the hard way years ago.

Other readers also read:

Apple Devices are Sexy: But are They Reliable?

Ten For 2010. Yep, It’s Prediction Time

Show Me The Money

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2. Piracy: The Pirate Bay Verdict (Will Piracy Ever Lose?)
3. EU Study Calls Out Content Industry On Piracy Claims
4. Apple Moves Toward Music As Service
5. TMV Video Interview – Ged Day, CEO & Founder, People’s Music Store

Posted by Cassandra Callais on Jan 19 2010. Filed under featured, Gadget & Services. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry