Why Apple iTunes App Store Has Double The Sales Of Google Play Store – Seeking Alpha

There are already 2 billion monthly active Android devices around the world. There are only 1 billion active iOS devices. However, I have an easy explanation why Apple (AAPL) is having an easy time beating Google (GOOG) (GOOGL) when it comes to app store sales.

Android’s inherent vulnerability is why developers make more money on the iOS platform. Security of monetization is just better in iOS than in Android.

There are less downloads on iOS but Apple made 2x more sales than Google Play Store did last year. App Annie estimates for 2016 is that iOS had sales of $34 billion on 29 billion downloads. Google Play Store had sales of $17 billion on 63 billion of downloads.

(Source: App Annie)

Both Apple and Google take a 30% cut on app store purchases. The battle for global app store sales is, therefore, very important for both of them. App store revenue is a large part of Apple’s fast-rising Services segment. In my view, the increase in app store sales is helping Services offset the declining sales of the iPad segment.

The Closed-Sourced Restriction Of iOS Benefits Developers

Apple’s walled-garden or strict restrictions on the iOS app store is why tampered or jailbroken iPhones and iPads cannot access the official iTunes store. On the contrary, Android developers had to endure Google’s lenient policy on tampered Android devices.

Rooted or jailbroken Android devices can still access Google Play Store. Rooted devices give users super-admin privileges. Super-admin access could often lead people to cheating app developers by hexing or memory-editing Android apps.

Like their iOS versions, freemium Android games often rely on in-app purchases to make money. Unfortunately, the existence of 1 Click Root apps has allowed many Android devices owners to quickly root their devices.

People often root their Android devices to cheat on in-app purchases. Instead of paying real money to buy $19.99 to purchase Barrel of Gems (in-game currency of Clash Royale), rooted Android device users can instead use CheatEngine or GameCIH to create unlimited supply of premium in-game currency.

Rooted Android devices enable one-click hack tools. Hacking software tools hurt the monetization potential of top-grossing Android games like Clash Royale.

Please study the chart below. The iOS version of Clash Royale makes much more money on fewer number of downloads. This is because Apple has never allowed rooted iOS device users to access and compromise the overall framework/integrity of the iTunes/iOS ecosystem.

(Source: SensorTower)

Unlike the Android platform, Apple does not allow side-loading or installations of apps on iOS devices. People who own iPhones and iPads had no choice but to use the official iTunes App Store to install apps or games. On the contrary, even non-rooted Android phone owners can side-load Android APK files without going through the Google Play Store.

Google is recently allowing developers the option to exclude or block support for rooted Android devices. However, Google (the owner of Android OS and operator of Google Play Store) is not yet blocking rooted/tampered Android devices.

Rampant Android Piracy

Google itself, therefore, is partly to blame why there’s rampant piracy of Android apps. On all versions of Android OS, users only need to go to System Settings of their device and click the “Allow installations from unknown sources” to allow them to install hacked/tampered Android apps.

Google’s lenient attitude toward side-loading (installing without the use of Google Play) APK files is detrimental to app developers. Most affected are those developers that sell Android apps/games on a straight, one-time purchase basis.

There are now thousands of websites which offer free downloads of tampered/cracked versions of premium, paid-only Android APK files. Google it yourself, there’s no website offering free download of cracked iOS version of Minecraft: Pocket Edition.

To illustrate, check out SensorTower’s April 2017 net monthly sales for the $6.99 Minecraft: Pocket Edition. The iOS platform generates double the revenue for Microsoft’s (MSFT) premium mobile game.

Source: SensorTower

Google’s relaxed attitude of allowing users to install from unknown sources, coupled with the open-source code of Android and how apps are packaged, means it is a cakewalk for hackers to pirate premium Android apps.

Final Thoughts

The closed-source, restrictive architecture of iOS and iTunes is why Apple will continue to beat Google on app sales. Less risk of piracy and cheating is why Apple attracted more developers to its iOS platform. Unless Google can enforce an Apple-like (absolute control and secure everything) approach to Android apps distribution, Apple will continue to dominate global apps sales.

The other reason why Apple will continue to outsell Google Play Store mobile is Google’s continued failure to launch its official Play Store for China. Sad but true, Google’s pride in 2010 allowed third-party store operators to profit from Android apps spenders in the Middle Kingdom.

This is really bad for Google because China is the biggest and fastest-growing market for mobile apps.

The other handicap of Google is that it also allowed third-party Android app stores to operate outside China. Apple never allowed anybody to run an alternative shop to iTunes. As per App Annie, third-party Android app stores did $10 billion in sales last year. Google never got a commission of that $10 billion.

Unlike Google (which left China after it disagreed with China’s censors), Apple was flexible enough to endure the censorship rules of China. In return for being pragmatic, Apple’s App Store is having a good time raking in $1.7 billion in iOS app sales per quarter.

China is important to iTunes’ long-term growth. App Annie’s chart below illustrates that Chinese iPhone users are the second-highest spending customers for app store purchases. Chinese iPhone users have an average monthly ARPU (Average Revenue Per User) of $25, beating Americans’ $13 monthly ARPU.

(Source: App Annie)

I rate AAPL as a Buy. As per App Annie’s chart (found at the beginning of this article), OS apps revenue will grow from $34 billion last year to $60 billion by year 2021.

Apple’s future 30% cut of that is $18 billion. Let us not forget that Tim Cook’s promise of forthcoming lower commission rate to 15% only applies to subscription-based apps. All the top-grossing iOS apps are freemium games. They are free to download but offers in-app purchases.

Apple never promised a reduction in commission fees on freemium or premium apps.

Disclosure: I am/we are long AAPL, GOOG, MSFT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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