Apple is overwhelmingly reliant on games for App Store revenue

Like taking candy from a baby.
Like taking candy from a baby.
Image: Reuters/Brendan McDermid
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Apple released its list (iTunes link) of the most popular apps of 2014 earlier this week. While much of the news revolved around Apple’s “curated” list of what it considers the highest-quality apps of the year, there is more insight to be gleaned from the “top grossing” list, or the apps that made the most money. Nine of out the top 10 are games.

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Indeed, games deliver the vast majority of Apple’s revenue from the App Store, accounting for an estimated 75% of income, reckons Macquarie, the investment bank. Games make up 90% of the top 20 apps, and 87% of the top 30 and top 40. Whichever way you slice it, the App Store is a de-facto gaming store—at least when it comes to consumers spending money.

This is important for Apple: “The App Store is the single fastest-growing revenue driver line item for AAPL, and generates an outsized share of overall profitability due to its margin profile,” according to a research note by Macquarie analysts. The bank forecasts that while app sales will continue to rise healthily over the coming years, the rate of growth will dip sharply from more than 40% in 2013 to under 15% in 2020.

This is all fine for a company content to quietly chug along. But there is a ceiling to the gaming market. Apple’s smartphones are priced too high for the mass-market, so the company cannot grow revenue through marketshare alone. Instead, if Apple is to grow its app-store revenue at the rates to which investors are accustomed, it must broaden the appeal of its apps, driving sales to other categories, such as healthcare, security, and automation. Little wonder the company has been stressing health and other app packages at recent press and industry events.