Is Apple's App Store Really A Cash Cow?

It's no secret that Apple's App Store has been raking in the dough since it launched last summer, pushing mobile applications to the Apple iPhone and the iPod Touch.

Since the App Store's launch, one billion applications have been downloaded, which prompted some analysts to predict that the App Store would soon be a $1 billion business for Apple.

But it appears the App Store may not be the colossal cash grab Apple anticipated.

According to a recent examination by Lightspeed Venture Partners' Jeremy Liew, Apple may have raked in only between $20 million and $45 million from the store for its first billion downloads. While that's nothing to shake a stick at, it's nowhere near the $1 billion anticipated.

According to Liew's calculations, Apple's App Store take is hampered by the abundance of free applications it offers. Liew determined that for every one paid application downloaded from the App Store, between 15 and 40 free apps are scooped up, making the mean price for an application around $2.65.

So, Liew discovered, when Apple hit one billion applications served, only about 35 million to 50 million of those applications were paid for, producing an overall revenue between $70 million and $160 million. From there, Apple takes its 30 percent cut of that overall revenue, resulting in Apple taking home just $20 million to $45 million.

Liew continued that if the mean price for an application is lowered to around $1.50, Apple's estimated share of App Store sales falls to $12 million to $27 million.

If Liew's calculations are correct, that means App Store purchases represent less than 3 percent of Apple's 2009 revenue so far and a small fraction of its Apple iPhone revenue.

In Apple's defense, however, the company has said that it doesn't see the App Store as a strong profit generator. Instead, it sees the application marketplace as a vehicle to drive users to the iPhone and iPod Touch. As the popularity of the App Store grows, it generates iPhone sales. And whether the applications downloaded are paid for or free, Apple reaps the benefits with little hassle, allowing developers to build and design the applications while Apple sits back and waits for the money to roll in.