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.

Related Forum: iPhone

Top Rated Comments

iEdd Avatar
167 months ago
Just as I am stealing when I refuse to pay the guy who paints my house (no one argues that "he still can paint other houses, so you didn't take anything from him" but everyone argues "the copyright holder can make other copies, so it's not stealing." Intellectually dishonest or inconsistent.)

This falls down exactly the same way as the 'steal a car' analogy. A better analogy would be:

I watched him paint a house, then copied his techniques to paint my own house exactly the same way, thus not requiring his services.*

Your analogy would work, if and only if someone got a developer to make a game/app specifically for them, design it, gave them a quote, then they copied the code and refused to pay. I think everyone would agree that that is stealing and you have cost them money. Completely different to piracy.

*Still not perfect, I know, but better because you don't cost him any more time or money.
Score: 1 Votes (Like | Disagree)
paradox00 Avatar
168 months ago
I'm no pirate, but the numbers from this story seem highly unlikely. Don't get me wrong, I know very well HOW to pirate, but I think this sounds a bit too paranoid.

I also understand the justification pirates use (developers asking too much / I wasn't going to buy it anyways / you can't actually -steal- information)... and I completely disagree with them. Pirating IS stealing. You're stealing more than mere information. It doesn't matter if what you take continues to exist and be in possession of the creator. Pirates steal people's time and hard work. And the vast majority of developers aren't huge corporations - they are people JUST like you trying to make a living out of honest work.
Piracy can be:
Try before you buy - download software, test it. If you don't like it, delete it. If you like it, buy it. Some people actually do that.
Getting content you can't possibly buy - My most common example would be Japanese anime (of course you should buy it when you can)
Breaking DRM on purchased content - Ripping a DVD/Blu-ray to your computer for convenience would be one example
Downloading DRM free version of purchased content - Sometimes DRM is so bad but that it detracts from the user experience and the pirated version is better

The list above are some of what I would refer to as "non-malicious" forms of piracy. With these forms, the content creator has been compensated, or it isn't possible to compensate them yet. The blanket statement piracy is theft lumps those in with taking something off of a store shelf. Is that really fair? It should also be noted some of those form of piracy are the results of anti piracy practices themselves.

The common belief that piracy equals theft gives companies a blank check to do whatever they want with their content and the ironic thing is that the people engaging in piracy that are the least affected. DRM doesn't work because it only requires one person to break it and seed it to others. On the other hand, it can be used to lock paying customers into a companies line up. Buy a movie from Apple? Congratulations you can only watch it on Apple devices. Buy ebooks from Amazon? You better have a Kindle or at least a Kindle app. It can also be used to take away consumer freedom while maintaining the illusion of being generous. Some people will pay extra for a Blu-ray with a digital copy.... but why can't we just make our own? Or why can't iTunes have an import DVD button? Others just take away freedom: games with install limits. Some leads to frustration: ever get a game/software with a missing digit in the product key? These are only problems that paying customers face and I seriously question the effectiveness of any of these measures against piracy. People always talk about the rights of the content owners, but what about the rights of the consumer? Why can we be bent over backwards?

Yes there are malicious forms of piracy and yes, some piracy does lead to a loss of profit, but how long are we going to view it as nothing more than simple theft and allow companies to do whatever they want to "prevent" it? Here in Canada, we had a bill introduced to make it illegal to unlock cell phones due to "piracy". Luckily nothing came of it, but what did it have to do with piracy?Nothing. All you need to do is mention piracy and you get a free pass. I think it's time that society as a whole actually took the time to study what piracy is instead of just conjuring up an image of someone taking something off a (digital) store shelf.

I'd argue that DRM serves no purpose and should be eliminated, but if that doesn't fly, why not require a universal standard so that companies can't lock you in to their products? If people understood what was really going on, we could have these kinds of discussions, but for this to happen, the piracy is theft meme must die.
Score: 1 Votes (Like | Disagree)
powerbook911 Avatar
168 months ago
THis is just amazing to me.

The Apps are tied to your iTunes user account, so it makes no sense to me how they do it.

Furthermore, these Apps are cheap, I buy one whenever I want, and it doesn't hurt my wallet.
Score: 1 Votes (Like | Disagree)
fergwad Avatar
168 months ago
Based on our review of current information, paid applications have a piracy rate of around 75%.

I read that as "we made an arbitrary decision about this figure".

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%.

That may be a "fair" estimate, but it doesn't mean it is accurate.

Not making money, is not the same as being cost it.

A very important distinction. Thank you for making it!
Score: 1 Votes (Like | Disagree)
iEdd Avatar
146 months ago
Haha, finaly this piracy stuff reach the macrumors.

Nothing finally about it. Someone decided to necro a thread from January 2010. Look at the dates.
Score: 0 Votes (Like | Disagree)
a13x4nd3r Avatar
146 months ago
Haha, finaly this piracy stuff reach the macrumors. Honestly, all my paid apps are pirated one, i never spent a single penny on the appstore. In my country piracy are common. All my buddies use pirated game on their devices, in a big forum there was once a survey and 85% of them use the pirated apps on their ithings
Score: 0 Votes (Like | Disagree)

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