How iTunes Will Conquer the Era of Apps

The iTunes Store and the revolution that came with it has now officially given way to the app era in sales, and it's not for nothing: Apple is poised to make a lot more money on you paying for apps than it ever did changing the way you listen to music.

Apple announced Monday that it has surpassed 40 billion downloads of apps, with almost 20 billion coming in 2012 — that's about a lot more than the 16 million songs downloaded the year before, and at an exponentially faster rate than the company has ever seen for music. If the iTunes Store and the revolution that came with it has now officially given way to the app era in everything but name, well, it's not for nothing — despite all the free apps, Apple is poised to make a lot more money on you paying for apps than it ever did changing the way you listen to music.

To see just how quickly apps have overtaken songs as the core of Apple's online retailing, check out these charts from Aysmco's Horace Dediu. First up, total downloads, with songs in blue and apps in red:

And there's an even more extreme comparison, with the rate of downloads per day:

So after five years of encroachment, not only are apps more popular than songs — apps are more popular than they've ever been. The 775,000 apps available from Apple also happen to have a much larger profit margin for Apple than the music industry would ever let it have for songs. Apple essentially has to buy songs in order to sell them on iTunes, and the wholesale price comes out to about $.80, according to a 2008 New York Times article. After that transaction, most songs sell for $0.99, 30 percent of which Apple takes. With its new booming product, Apple has the same 30-percent cut policy for app sales, except there's no wholesale part — there's just the 70 percent they give to developers, and that's it.

That transaction reality is enough to make up for all the free apps, which have contributed to the explosion in app download rates, but which also induce users into paying after a free trial (see: Draw Something). And contributing to the slower growth of the song market is straight-up competition: Apps overtook songs back around July 2011, when Apple announced both had reached the 15-million download mark — and apps getting there in half the time — but that's also when Spotify launched in the U.S., after a year of Rdio barking up the iTunes tree. Both offer more than the radio options of Pandora, with cheap or free libraries of on-demand music, but nothing has matched the instant satisfaction of apps for the iPhone and iPad, right there, all the time, for everything.