What is the App Store's true value?

Few questions are more awkward and inappropriate than "How much money do you make?" And yet it seems like everyone wants to know how much revenue the App Store generates for Apple--and since the computing giant isn't saying, it's up to analysts and the media to make educated guesses. The latest stab comes from The Wall Street Journal, which estimates Apple's profits from iPhone and iPod applications are "likely significant." Exhibit A: Direct revenues from premium application sales. Sanford C. Bernstein analyst Toni Sacconaghi estimates Apple's 30 percent commission on app downloads could yield $150 million a year, a number expected to continue growing.

As the Journal notes, $150 million is chump change compared to the $2.8 billion Apple earned in iPhone hardware sales between October 2008 and March 2009. But the real financial impact of the App Store is impossible to calculate--theoretically speaking, each new application expands the iPhone's intrinsic value and scope, increasing its usefulness to consumers by offering software optimized for any and all real-life scenarios. It's like a digital-age Swiss army knife with a potentially limitless number of tools.

No less significant, while Apple has some financial obligations in keeping the App Store up and running, the cost of creating new applications falls on its developer partners. The Journal points out that Apple is celebrated for its efficient research and development efforts, spending just 3.4 percent of its fiscal 2008 revenues on R&D--by comparison, rivals like Microsoft, Google and Palm dedicated between 12 and 15 percent of their 2008 earnings to R&D. Apple's narrow product focus and integration across devices no doubt play a huge role in trimming costs, but the benefits of offloading mobile app creation costs to third-party developers can't be discounted. So maybe the real question isn't how much money Apple makes thanks to the App Store, but how much money Apple saves thanks to the App Store. -Jason

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