Must-know: How the mobile applications market is faring

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Apple isthe leader in the mobile applications market

During the last quarter’s earnings call, Apple’s (AAPL) management, quoting App Annie as the source, mentioned that its App Store generated 85% more revenues than Google (GOOGL) Play in 1Q14 despite a huge difference of market share between Android and iOS based devices. Apple also mentioned that its App Store is showing strong momentum with cumulative app downloads to date touching 70 billion. Apple specifically hailed Microsoft’s (MSFT) decision of launching the Office App on iPad, and also agreed that it is helping Apple in terms of its App Store revenue growth.

Apple Revenue Split_1

App Store and iTunes important businesses for Apple

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As shown in the chart above, iPhone is by far the most valuable business for Apple and contributes about 53% to its revenues. App Store and iTunes is also an important business for Apple and contributes about 9% to company’s overall revenues. More importantly, the app store’s abundance of apps creates a halo effect, which in turn helps Apple sell more devices such as iPhone, iPad, and Mac.

Between iTunes and the App Store, iTunes historically has contributed more in terms of revenues. However, according to a report by AppleInsider quoting Morgan Stanley as the source, Apple’s App Store revenues could surpass iTunes Store revenues before the end of this year. iTunes growth slowed down because of Apple’s reluctance in the past to enter into the music streaming service. They have largely relied on selling individual songs.

Music streaming market showing faster growth

According to a report by Kleiner Perkins Caufield Byers, overall physical music sales declined 13% and digital music sales declined 6%, while streaming music consumption increased 32%, which means Apple should have entered the music streaming market much sooner. Apple did enter this market in September last year when it introduced the iTunes Radio service, through which users can listen to free ad-supported music. However, these efforts didn’t materialize according to expectations, which is why Apple acquired Beats Music and Beats Electronics for $3 billion last month.

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This was the right move for Apple as it won’t only help Apple leverage the fast growth potential of music streaming market, but also compete more effectively with other popular services, such as Pandora (P) and Spotify. Amazon (AMZN) also recently entered the music streaming service, which will be free for Prime customers of Amazon. As a result, the competition in the music streaming market has intensified.

Google has started to monetize its Google Play store better

Although Google is the dominating player in the smartphone iOS market, surprisingly it lags behind Apple in the mobile applications market in terms of revenues. The main reason for this difference is that Apple users are usually high income people and purchase a lot more items from the Apple’s App Store. However, Google has started to take some concrete actions to monetize its app better. During the last quarter’s earnings call, Google’s management mentioned that over 75 million new users joined Google Play games in the last six months. The money it paid to developers in 2013 was four times as much it paid in 2012. The company also mentioned that it has added a few new features to Google Play as well, which should help it monetize its apps in a better way.

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