Analysts Estimate: App Store Lost $450 Million

Despite the App Store’s huge number of applications and the even larger number of downloads, according to an analysis by 24/7 Wall St. piracy is responsible for an enormous amount of lost revenue. As much as $450 million, the site claims. That’s a big chunk of change.

But where do they get these numbers from?

Guesstimation is our guess. A trip through the article in question reveals much that is speculative without any concrete evidence to back up the overheated wonderment that seems to be the article’s default position. Numbers are thrown around with dazzling effect, and the effect is truly dazzling.

However, if you read the article with a skeptical eye, a few things begin to leap out at you. The first comes in the article’s third paragraph where the authors write: “Anyone who is familiar with the iPhone is likely to know that these phones can be ‘jailbroken’ or, to use the more common term ‘unlocked.’” There is a world of difference between jailbreaking, which subverts Apple’s security and allows for the installation of non-App Store applications, and unlocking, which unshackles the iPhone from AT&T as the carrier. This elementary error early on in the article doesn’t instill a great deal of faith about other supposed factual statements within.

The Insidious Cydia App Store

Consider the welter of caveat statements that surround the article’s calculations. “It is difficult to get precise figures,” the authors write, then later in the same paragraph “and if that figure is still
about 10%.” Later down the paragraph, “the total number … is approximately 7.5 million assuming that total worldwide sales…” The paragraph then winds up with a citation to another study, no link provided, naturally, that quotes Pinch Media as saying only 40% of jailbroken iPhones use pirated apps.

This is the closest the article comes to landing on something solid, but they immediately follow it up with “While it is difficult to get a firm grasp on exact piracy rates” and “A conservative estimate of the average piracy rate is that for every paid application developed and sold at the App Store 3 more are pirated.” Do tell where this conservative estimate comes from, because it looks a lot like a guess based on what a few developers have said about their apps specifically.

Then with starting figures already admitted to being guesses and estimates and assumptions, the authors then hit the back of the envelope, and it’s calculatin’ time. What with carrying the one, adding in the current outdoor temperature, dividing by the weight of their third cousin twice removed, 24/7 Wall St. comes up with the dire sounding number of $4.59 billion in lost revenue.

No, you read that right. Billion. With a B.

But, of course, this is ridiculous, so that truly eyebrow-raising figure is whittled down to $459 million thanks to the inclusion of this humdinger of a qualification:

Those numbers are accurate if all the pirates allegedly made the purchases in the scenario of not finding the apps free of charge. Probably, that is not what happened. It’s only around 10% of people who would have made a legal purchase through the App Store if there were no free stuff. Such assumption leads to nearly $459 million in lost revenue for app makers and Apple.

A fair estimate? So with difficulty getting firm grasps or precise figures, with conservative estimates and “if”s and “assuming that”s, our authors arrive at the truly speculative figure of $459 million.

Why, it’s enough to make headlines.