It's the Software, Stupid
On July 11, Apple released the iPhone 3G, and with it, iPhone software v. 2.0. It also launched the App Store. The software upgrade runs on first-generation iPhones as well, enabling all iPhone users to download and use over 1800 programs in the store, ranging from Encyclopedia Britannica to Chimps Ahoy! Over 1500 of those programs are also compatible with the iPod Touch.
In the ensuing weeks, the App Store earned its share of detractors–many of them software developers whose products were pulled from the store without warning, most notably the “I Am Rich” app, which sold (briefly) for $999.99. Last week an independent programmer discovered a line in the iPhone OS that looked suspiciously like a “kill switch” Apple (AAPL) could use to cripple programs remotely. Jobs confirmed the “kill switch” in a story by Nick Wingfield earlier today in The Wall Street Journal, and explained that it serves as a last line of defense against malicious applications.
Jobs goes on to happily announce to Wingfield that in 30 days, users have downloaded more than 60 million programs. Though most are free, sales averaged $1 million a day, totaling about $30 million for the month.
“I’ve never seen anything like this in my career for software,” Jobs said. “Who knows, maybe it will be a $1 billion marketplace at some point in time,” he told Wingfield. If sales continue to grow, that is. But Apple keeps only 30 percent of the proceeds for the stuff that isn’t free. This covers costs for now, but isn’t a long-term revenue strategy.
Certainly the company aims to use the software to sell more iPhones and iPod Touch devices, in much the same way iTunes fuels sales to all of Apple’s iPod-related devices.
It’s not clear where the whole game lies yet. Platform-driven phones are a new market. “We think, going forward, the phone of the future will be differentiated by software,” says Jobs. If there’s a way to make the software pay on an ongoing basis, and at a better rate than 30 percent, the App Store could definitely become a $1 billion marketplace.