iPhone App Sales A Tiny Business For Apple, As Planned

Apple’s (AAPL) iPhone App Store is a huge success, with more than 1 billion apps downloaded so far and thousands of developers in the program. (Including many important companies that never bothered to do anything good for the Mac.) But how much money is Apple making from all those app downloads?

Not that much, Lightspeed Venture Partners’ Jeremy Liew calculates. By estimating how many app downloads are paid vs. free — 1:15 to 1:40 range — and how much the average paid app sells for — about $2.65, consistent with our analysis — he calculates that Apple has made about $20 million to $45 million in net revenue from the 30% cut it takes from paid app downloads. Compared to Apple’s overall business, that’s tiny.

But that’s the point!

Big picture: Apple has said publicly that its plan is to run the App Store near breakeven. The main idea is to make money by selling iPhones and iPods, which Apple is doing nicely. Just last quarter, for example, Apple sold almost $3 billion worth of iPhones and iPod touch devices. The App Store played a big role in that. (And it’s making a lot of money for developers, in the process.)

Smaller picture: Apple doesn’t just collect revenue from its 30% cut on app sales. Apple also collects $100 per year from developers who participate in the store.

And just as many of Apple’s iPod touch owners paid to upgrade to their gadgets to the iPhone 2.0 software last summer, many of its current 16 million iPod touch owners will spend money this summer to upgrade to the iPhone 3.0 software — more revenue there, too. (Not to mention the extra revenue Apple will get from new subscription and in-app virtual item sales that iTunes will power in iPhone 3.0 apps.)

But again, that’s not the point — the point is to sell gadgets, and that’s where the App Store has helped Apple. (And has sent its competitors into a fury to build their own app stores.)

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