Apple has proven its ability to sell high-end mobile devices to a surprisingly large segment of the Chinese population. iPhones and iPads are recognized status symbols among students and young and middle-aged white-collar workers and entrepreneurs in cities like Shanghai, Beijing and Guangzhou. More than one in ten people in these cities now own an iOS device.¹

Perhaps even more impressive, iOS device penetration rates approaching 10% in provinces such as Jiangsu and Zhejiang – provinces bordering Shanghai with populations of 78.7 million and 54.4 million respectively – is a clear indication that sales of Apple’s iOS devices are spreading beyond China’s largest cities. This is way beyond most people’s expectations.²

As a consequence of Apple’s hardware success, China has become the second largest App Store market in terms of number of downloads with around 18% percent of global App Store downloads.³

The next challenge for Apple is to get its Chinese users to pay for apps. This is also a key issue for developers of iOS apps targeting Chinese consumers who capture 70% of all revenues on the App Store, with Apple getting the remaining 30%.

So far iOS app developers are struggling to make money in China. One reason is that a large amount of iOS devices in China are ‘jailbroken’, allowing users to download apps for free from alternative ‘app stores’.4 Another challenge is the fact that Chinese users tend to be reluctant to pay for apps, resulting in low revenue per user.

But exactly how big is the Chinese iOS app market? Since Apple does not release App Store revenue data, we used data from various app analytics firms, in addition to data released by Apple, to estimate the total revenue of Apple’s App Store in China (see Chart 1).

China Apple App Store Market Size Revenue Q2 2012

Based on newly released data from Apple’s Q3 earnings report, we estimate global App Store gross revenues at 1.2 billion for Q2 2012. Despite representing 18% of all downloads, Chinese users just contributed to 3.1% of global App Store revenue. Resulting in total iOS App Store revenue of 37 million USD in China for the quarter.

The low contribution is a result of a revenue per download  just over USD 3 cents in China, compared with revenues per download of USD 28 cents in the US and USD 19 cents globally.

This does not mean that App developers should give up on China. The Chinese iOS app market looks set for strong growth in the next couple of year. Using a back-of-the-envelope calculation we arrived at a scenario that sees the China App Store market growing by 98% in 2012 and 88% in 2013, with 2013 sales reaching 321m USD (See Chart 2).

Apple China App Store Market Size Growth Forecast

Other interesting observations include:

  • Average revenue per download in China down from 4 cents at the end of 2011 to 3 cents in June 2012. This is an indication that the many new iPhone owners are not yet willing to spend money on apps. Our discussion with consumers indicate that paying for digital products such as apps or e-books is a threshold  that takes some time to overcome.
  • Global average revenue per download down from 24 cents at the end of 2011 to 19 cents in Q2 2012 according to our internal estimation.  Asymco found similar results in their analysis. This is a natural consequence of countries with lower average revenue per download making up a larger percentage of total downloads.
  • For the Top 10 Worldwide publishers in China, 90% of their revenue still comes from outside of China.
  1. http://www.stenvall-skoeld.com/1579/china-iphone-ipad-analysis
  2. Only two years ago it was not hard to find industry observers who threw serious doubt on Apple’s ability to make it in China. Here is one example: Forbes: How Apple And IPhone Blew It In China
  3. According to analytics firm App Annie http://www.appannie.com/blog/game-of-phones/#.UBn2ZWHB9ho
  4. http://unleashthephones.com/2012/07/16/infographic-smartphone-users-in-china-iphone-vs-android
  5. It should be noted that this is basic scenario based on the growth in number of iPhones. Other iOS devices have been assumed to grow at the same rate, with revenue per device to remain constant.
 

6 Responses to Apple’s China App Store: 18% of downloads, but only 3% of revenue

  1. [...] Stenvall-Skoeld and Company via TheNextWeb Image Source: TheNextWeb /* Tweet !function(d,s,id){var [...]

  2. [...] 市场分析公司Stenvall Skoeld发布报告称,中国区 App Store 占其全球第二季度下载总量的18%,但所创收入仅占总量的3%。而美国市场在第二季度就用全球28%的下载量换来了总收入的42%。 [...]

  3. Junde says:

    Hi Carl,

    I’m Junde from App Annie, thanks very much for referencing us in your report. I’ve been involved in the Chinese mobile industry for a while, so besides our stats, so I’d just add a few more comments to this excellent report.

    1. Low revenue per download distorted by large amount of free apps without in-app purchases
    Several of the huge internet companies like Tencent, Baidu, Sina, Netease, Sohu have released many free apps which do not monetize through the App Store. These apps have generated a bulk of free downloads. It is possible that these giants currently see the mobile apps space as a Daily Active User(DAU) land-grab. Hence, this figure slightly distorts the (App Store)revenue per download. If we were to restrict this metric to only count apps that have app store monetization, the revenue per download figure in June is about $0.06.

    2. The lack of ease of payment
    When the App Store launched in China, there was no collaboration with Union Pay, the ubiquitous payment solution in China. Hence, even if users wanted to pay, they couldn’t. It was easier instead to engage a jawbreaking expert, and henceforth freely download apps. Even when Apple started working with Chinese banks late 2011, ease of payment was not really improved. Users could not top up their accounts via the iPhone, rather, they still had to top up via archaic internet browsers, or at the banks.

    3. Profitable gamer demographic
    Games has always been the biggest revenue driver in most countries. In China, there is a huge gaming industry, but it’s noteworthy that most of the paying gamers, are high school students and blue collars in the tier two cities. This gamer demographic is not a match with the current iPhone owner demographic in China. Perhaps, when RMB 1000 Android phones surface on the market, we will see a boom in mobile game revenues.

    4. Revenue from 3rd party iOS stores
    This is an area that we’re not yet tracking, but there’s plenty of industry hearsay, that the top apps on the 91(NetDragon) and Tencent 3rd party stores, are earning as much, if not more than the top apps on the Apple.

    Cheers,
    Junde

  4. Jesper says:

    Great insights, Junde! Thanks for sharing. Jesper

  5. [...] China Makes Up 18% Of App Downloads, But Only 3% Of Sales (Stenvall Skoeld)According to Shanghai-based analyst firm Stenvall Skoeld, the Chinese version of the iOS App Store accounted for 18% of total downloads in the second quarter, but only 3% of revenue. So far iOS app developers are struggling to make money in China. One reason is that a large amount of iOS devices in China are ‘jailbroken’, allowing users to download apps for free from alternative ‘app stores’. Another challenge is the fact that Chinese users tend to be reluctant to pay for apps, resulting in low revenue per user. Apple is expected to grow its app revenues in the country this year by 98% to $171 million. See the skyrocketing Chinese smartphone market at Business Insider Intelligence. [...]

  6. [...] Via:stenvall-skoeld & 雷锋网 作者:Sgot [...]