If you believe Apple’s advertising, there is an ‘app’ for almost everything on the iPhone, except figuring out the value of all those applications to Apple.
It is hard to quantify but likely significant. First, there is the direct revenue from apps. Sanford C. Bernstein analyst Toni Sacconaghi estimates Apple’s 30% commission on apps that cost money may be generating $150 million a year, a number he expects will increase quickly.
That is tiny compared with the iPhone’s hardware revenue, $2.8 billion in the six months to March. The more important value is intangible. By widening the variety of uses for the device, the apps make the iPhone more valuable to its owners. Moreover, the cost of creating apps is borne by outside developers, not Apple, notes former Alson Capital analyst Michael Bressler. Apple has some costs in operating the App Store.
And because Apple has such a lead, more than 50,000 apps versus 2,000 for Research In Motion’s BlackBerry, the app store helps the iPhone stand out from the crowd. That isn’t unusual in the tech industry, of course. Microsoft has armies of developers building on its technology. But it is a little different for Apple, both in its revenue share and its control of which apps get onto the device.
Apple is famously efficient in research and development, spending 3.4% of its fiscal 2008 revenue on R&D, compared with 6.2% spent by RIM and 12%-15% by Microsoft, Google, Motorola and Palm in their latest fiscal years. That is presumably mostly because of Apple’s narrow focus and the integration of its technology across its devices. But saving money on app development also helps.