Is the App Store Losing to Android Market?

Apple is celebrating the sale of its 25 billionth app. But is it too little, too late? Last July, Apple AAPL announced that it had sold its 15 billionth App Store download – just six months after the company crossed the 10 billion mark. That's very impressive, to say the least. At that rate, Apple is (presumably) selling somewhere around 1.5 billion apps per month. “We'd like to thank our customers and developers for helping us achieve this historic milestone of 25 billion apps downloaded,” Eddy Cue, Apple's senior VP of Internet Software and Services, said in a company release. “When we launched the App Store less than four years ago, we never imagined that mobile apps would become the phenomenon they have, or that developers would create such an incredible selection of apps for iOS users.” Apple has amassed a collection of more than 550,000 different apps for its various devices, including 170,000 for the iPad alone. According to Apple's own press release, these apps are currently sold to the users of more than 315 million iPhones, iPads and iPod Touches worldwide. This is a huge accomplishment, no doubt. But as the creator of the “app store” concept (maybe not officially, but Apple was surely the first to popularize the format), it took the iPhone maker a few years to achieve these groundbreaking numbers. Google GOOG, on the other hand, has had a nice time riding Apple's coattails. In December, it was revealed that Android Market had sold its 10 billionth app. We also learned that the company sells one billion apps per month. As a company that entered the app market long after Apple, Google's growth is potentially faster, scarier, and (on a sheer numbers basis) more impressive. But what does it mean for Apple's future? When people think of apps, they think of Apple. That isn't going to change anytime soon. And as Apple continues to sell more iDevices (and launch new venues for acquiring apps, such as TV sets), the company will not have any trouble maintaining its critical edge. But it might not be able to maintain its sales lead forever. In fact, the App Store may already be in the midst of losing to Android. At the rate that Android is growing, it won't be long before monthly App Store and Android Market sales are equal. This isn't Apple's fault, per se; with so many cheap Android phones available, it hasn't been difficult for Google's mobile OS to catch up. Even after the iPhone 4S arrived on Sprint S, consumers still continued to buy up new Android phones. And not just in Europe, where Android frequently leads the sales charts, but in other parts of the world as well. Even here in America, Android poses a serious threat to Apple's dominance. This puts Apple at a significant disadvantage. While anyone and their brother (and their brother's slimy Chinese factory) can make an Android phone or tablet, only Apple manufactures iOS devices. Based on Apple's own numbers, it would seem that the average iDevice user downloads four to five apps per month (10 billion App Store downloads in eight months, divided by 315 million iDevices, equals 4.7 monthly downloads per individual user). To increase its monthly sales numbers, what does apple have to do? Sell more iDevices? Release more enticing apps? Launch a better marketing campaign to get consumers to buy the apps that already exist? Each option poses a different challenge. But the first (increasing hardware sales) could be the most difficult of all. Some of the new iDevices that are sold are used to replace older iPhones and iPads. While Apple still has a huge, untapped market to reach with its tablet (a market I'd argue could be as large as 50 million users domestically and 100+ million internationally), there are limits to how far its other products can go. Most of the iPhone 4S buyers were returning iPhone users. Sprint and Verizon VZ may be able to help Apple expand the market, but that expansion can only go so far. What about Android's limitations? Aren't they the same as Apple's? Not quite. Android is extremely limited in its ability to compete in the tablet market. It may not ever be able to catch up to Apple in that regard. But in the smartphone market (which is quickly eating away at the generic phones of yesteryear), Android's growth is practically unlimited. This is partially due to the lower-cost smartphones that Android manufacturers can offer. In addition to providing value to consumers in developed nations, they have also proven to be successful in emerging markets. Long-term, however, this might not mean much to Apple. The Mac maker earns the majority of its profits from the sale of new hardware. If consumers repeatedly trade in their old iPhones for new iPhones, Apple will continue to post record-breaking profits. Thus, Apple might be perfectly content with the idea that the Android Market will one day sell more apps than the App Store. For now, however, Apple can brag that it has sold 25 billion apps – a number no other company has achieved. Expect those downloads to grow with the release of the iPad 3, which is scheduled to be unveiled this Wednesday (March 7) at 10:00 a.m. PST. Follow me @LouisBedigian