Cost of App Store Piracy Pegged at $450 Million
24/7 Wall St. reports that Apple and App Store developers appear to have lost approximately $450 million to piracy since the marketplace for iPhone and iPod touch application opened in July 2008. The rough number is based on several estimates regarding the proportion of downloads that are paid applications, the piracy rate for paid applications, and the proportion of pirated app users who would have paid for the applications had pirated versions not been available.
There have been over 3 billion downloads since the inception of the App Store. Assuming the proportion of those that are paid apps falls in the middle of the Bernstein estimate, 17% or 510 million of these were paid applications. Based on our review of current information, paid applications have a piracy rate of around 75%. That supports the figure that for every paid download, there have been 3 pirated downloads. That puts the number of pirate downloads at 1.53 billion. If the average price of a paid application is $3, that is $4.59 billion dollars in losses split between Apple and the application developers. That is, of course, assuming that all of those pirates would have made purchases had the application not been available to them for free. This is almost certainly not the case. A fair estimate of the proportion of people who would have used the App Store if they did not use pirated applications is about 10%. This estimate yields about $459 million in lost revenue for Apple and application developers.
Based on Apple's take of App Store sales of 30%, the report concludes that piracy has cost Apple itself in the neighborhood of $140 million over the past year and a half, a significant loss for the company, especially considering Apple's estimated total App Store revenue of $500-$700 million.
The report also notes that Apple has remained silent about the issue and taken no significant steps to address the issue beyond the initial security measures deployed in the App Store. Assuming Apple's true goal is to sell iPhones and iPods, then like the original iTunes Music Store, the App Store may very well be viewed as a means to that end. Consequently, the hit to Apple's bottom line may be considered somewhat acceptable to the company if it continues to drive device sales, leaving developers to bear the brunt of the revenue loss.
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