Average iPhone User 94 Times More Likely to Download an App

For those of you who saw the Business Week post by Peter Burrows on the 16th, you saw part of an analysis I sent his way that showed the power of the iPhone/iPod Touch ecosystem that Apple has built over the last six months. Yes, only six months ago — the App Store opened in July, 2008 and there have already been over 500MM app downloads!

Doing the Math

If you’re interested in the more detailed math that led me to the conclusion that an iPhone owner is 94 times as likely to download an app than a non-iPhone owner, here it is:

• There are approximately 250MM non-iPhone owners in the U.S.
• Analyst estimates are that Apple sold 4 million iPhones in the last quarter. If this is true, that means there are approximately 17MM (13MM from Apple’s fiscal Q408 results + 4MM per analyst estimates). These are worldwide numbers — probably 13MM of those are in the U.S.
• 25% of non-iPhone smart phone owners have downloaded an app, and they download on average 2.5 apps per year. (M:Metrics, 1/31/08 survey of U.S. mobile subscribers, n=31,389). (Note that the 25% number is for smart phones; only 4% of feature phone owners download apps. In this analysis, we’re using the very conservative assumption that 25% of all non-iPhone owners have downloaded apps.)
• That’s 156MM non-iPhone app downloads per year (0.25 * 250MM * 2.5) or about 13MM / month.
• iPhone owners download 2.7MM apps / day (averaged across the lifetime of the App Store, but this is actually an accelerating curve) or 83MM apps per month. (Apple)
• So the group of 17MM iPhone owners is downloading apps at 6.4x the rate (83MM / 13MM) of the group of 250MM non-iPhone owners.

So, another way of stating this is that the *average* iPhone owner is (83MM / 13MM) * (250MM / 17MM) = 94x more likely to download an app than a non-iPhone owner. That is, to have the same “effective reach” (number of people who actually download a developer’s app), a developer needs a channel to 17MM * 94 = 1.6 billion non-iPhones.

Note that this assumes that all the downloads are by iPhone owners as opposed to iPod Touch owners. To my knowledge, Apple hasn’t broken out how many iPod Touches (vs. Nanos, Shuffles, etc.) have been sold and/or how download behavior differs on iPod Touches vs. iPhones, but for kicks, let’s assume that there are 30MM iPod Touches out there (about 1/2 of Apple’s reported iPod sales during their fiscal Q4) with exactly the same download behavior as the average iPhone owner. In this case, the math would change to:

47MM iPhone/Touch owners are downloading apps at 6.4x the rate of the group of 250MM non-iPhone owners.
Or the average iPhone/Touch owner is (83MM / 13MM) * (250MM / 47MM) = 34 times more likely to download an app than a non-iPhone owner.

Choosing the iPhone as Our Primary Device

In the end, it doesn’t really matter, because while the download likelihood factor has decreased, the number of actual Apple devices a developer can get to has increased proportionally, so you still need 1.6 billion non-iPhones to get the same effective reach as the 47MM iPhones and iPod Touches. I find this very helpful context for deciding how to focus our limited resources at Pelago: at this point in time, it’s a no-brainer for us to focus on the iPhone as our primary device.

I think it’s also very interesting to think a bit about what’s going to happen in the emerging platform wars. Is the story told by the math above going to persist or are things going to change radically in the coming months. Google’s Android OS and associated marketplace looks very likely to be another big application platform player, but I strongly suspect there won’t be many of them. Why? The combination of developer <-> consumer network effects and early-mover advantage.

If you look back to the 80’s, when Apple and Microsoft were duking it out to be the PC platform of choice with consumers, there is some very instructive history. Both platforms were completely nascent, so neither had an network-effects-based advantage yet. But Apple chose to charge developers a fee to write software for its platform while Microsoft charged nothing. At that point, developers thought “well, I guess I’ll build my application for the Microsoft platform first, since I don’t have to risk any cash.” The only differentiating factor, really, was that cost-to-build point. So developers flocked to the Microsoft platform.

Consumers, of course, looked at the two platforms and asked “which one is going to have the applications I need?” Since there were vastly more developers building software for the Microsoft platform than the Apple platform, more consumers chose Microsoft than Apple. This, of course, tipped the scales further toward Microsoft, since now developers could see a significant reach difference between the two platforms (just like we see now with the iPhone vs. other ecosystems). The rest is history — Windows took 90+ percent of the PC market share and Apple had single-digit market share for many years (a situation that is just starting to change now).

Apple did not repeat this mistake with the iPhone. They created an ecosystem in which:

• The target device is a powerful computer.
• Developers can easily build and submit an application for distribution using virtually all the interesting APIs on the phone (location, accelerometer, 2D and 3D graphics, advanced sound, etc.)
• Consumers can easily discover, download, pay for and use applications.
• Developers risk no cash up front and can make money.

Apple Amps First-Mover Advantage as an App Platform

Apple is leveraging every ounce of their marketing machine to train consumers that the phone is only as good as the applications available for it and to show off the amazing selection of offerings in the App Store. As such, Apple has garnered over 15 thousand applications and over 5 thousand developers and consumers are ravenously downloading applications.

For someone to come along and assail this ecosystem means building up a selection and/or quality of apps that rivals the set that Apple has (and which is a moving target, of course) so that consumers will see the competing device as better from the “apps are the device” perspective. That’s a very tall order, and the more time that passes before a player enters the game, the less likely it is that he will be successful in getting to critical mass and a thriving developer <-> consumer ecosystem.

Read the full post in Business Week