Steve Jobs on the App Store: 30 Days In

Well, Monday is the one month anniversary, right? 30 days. 30 days. So how's it doing? It's doing great. Could I start off by giving you a little bit of a conceptual framework? Yeah. The way we think about this is that the App Store is to iPhone like iTunes is to iPod. So just like with the iPod where we enhanced it with an internet service to bring content to it, we're doing the same thing with the iPhone. We're enhancing it with an internet service to deliver content right to the phone.

In this case, since we already bring the iTunes music content to the phone, we're bringing applications. And we think that the result, it's the same exact strategy as the iPod. Enhance the device with internet delivered content. And beyond iTunes, we can wirelessly deliver the content right onto the device without a PC and we can automatically update the apps. So it's kind of standing on the shoulders of iTunes. It's built on the same iTunes infrastructure, including all the storage and all the billing and getting email receipts and all that kind of stuff. The downloads are fast and reliable because it's the same system as iTunes.

Customer reviews, buying with one tap, just like one click on music and stuff. And no one's ever duplicated iTunes in over five years. And this will be even harder because it's built on top of it. So we think strategically it's a pretty big deal. So how's it done? We have over 1,500 applications in the App Store today. We thought that the input would start to slow down from developers, but it's accelerating. How many new ones a day?

I could find out for you. My gut is that we're seeing around 50 new apps a day coming in. And those are all through some sort of vetting process, right? Well, they're submitted electronically. We set up this whole electronic submission process for music and TV shows and other things and we're just using it with the developers to submit their apps. And we do look at them. We're in the early stages of that. We have put up some apps that we've pulled down. The I Am Rich app. The I Am Rich app. We pulled one down today, which was the Knife app. What was that called?

Stalk? No. There was one that put up anyway. But there's like taste issues. There's a few taste issues. We don't put up porn, obviously. But there's also copyright issues. I mean, there was one nice movie app that put up Rotten Tomatoes scores. And Fox, who owns Rotten Tomatoes, called us up and said they don't have the rights to do that. I see. So we have to go back to them and say, hey, we've got to take your app down. Copyright owners have given some inputs here. And we have to take the apps down until they work it out with the copyright owner. And have you had any malware issues at all? No. But, you know. It could happen.

There was this other separate issue that came up this week about the iPhone, quote unquote, calling home to some URL that might contain a blacklist. So is that just for deactivating something that's been installed on iPhones out there? We've taken a multi-layered approach to try to keep the iPhone reliable and secure for our customers. And so if an app was ever to get out there that we didn't catch on the App Store, that, you know, did something malicious with your private data, as an example, we could stop selling it. But we'd also like a way to have it stop working on the current phones.

Hopefully we never have to pull that lever. So it never hasn't happened yet? No. Hopefully it never will. But we would be irresponsible not to have a lever like that to pull. So as I mentioned, over 1,500 apps. 27% of them are free. And leaving 73% paid. Of the paid apps, over 90% are under $10. Nick asked me earlier if that was tracking to what we saw early on. Yes. 27 free, 73 paid. And of the paid, over 90% under $10.

But what you really want to know is how many apps have been downloaded. I'm going to put everything in terms of next Monday. Because we can project very accurately. Over 60 million apps. Users have downloaded over 60 million apps from the App Store in the first 30 days. And what's the install base of iPhones? I can't tell you that. The last publicly released figure was six. But this is iPod Touches as well, right? This is iPod Touches. But not necessarily all of those six have upgraded to iPhone 2.0 software, which lets you get the App Store. So I can't give you a number because we're in the middle of the quarter.

And you couldn't tell me how many apps per iPhone. I can't do that either. But I can tell you an interesting fact in just a second. So users have downloaded over 60 million apps from the App Store in the first 30 days. Let's say we're talking a month. That is 30% as big as iTunes for music downloads. Yeah, let me say that again. App downloads equal 30% of all iTunes song downloads during the last 30 days. But on a unit basis, so 30%...

Unit basis, yes. So there were 180 plus million... No, 200 million. 200 million. Yeah. 200 million, okay, for the last 30 days. Roughly. What does that number say to you? It says the App Store is much larger than we ever imagined. See, iTunes has been out for over five years. And in 30 days, users downloaded a third or 30% as many apps as everybody in the world downloaded songs from iTunes.

What did you expect? What was your internal... We didn't expect it to be this big. I mean, this is like the mobile industry has never seen anything like this. To be honest, neither has the computer industry. 60 million downloaded applications in the first 30 days, 30% as big as iTunes song downloads during the last 30 days. No. This is off the charts. The 60 million downloaded is the percentage of those... I'm sure the percentage of free apps downloaded is quite high. Is that a safe assumption to make? Yes. Can you tell me what percentage of them were free versus paid?

I don't know off the top of my head, but, you know, the majority. The majority, right. Which is great. Right. I mean, our purpose in the App Store is to add value to the iPhone. And free apps do that just as well as paid apps sometimes. So we love free apps. So you, as you said the last time we talked, don't expect to make... And by the way, some free apps have back-end service components they charge for. So a perfect example is like Hippocrates. The Hippocrates app is a free app. And they'll give you a free database when you go to their website and register. But then they have all of these other products that they will sell you us or else's for.

We should talk to your medic, because his wife is a doctor. Yeah. Do you... On Hippocrates, you should go visit them. Yeah, I've talked to the... You should talk to Kirk. They exceeded their whole year forecast for iPhone downloads in the first two weeks. So he could probably give you some pretty interesting... Do you know how it compares to their other platforms that they're on? Because they're a pretty mature product. You should ask Kirk. I mean, he's told me some things. I don't know how much I'm free to say. Okay. They're very happy. The service fees, the advertising that appears, you guys don't participate in that. No, we don't. So the 70-30 split, are the economics of this working out the way that you had said when we last spoke, which is that you might make some money, but you don't expect it to be a big source of profits?

Yeah, it's just like iTunes. So even with the huge popularity of this, you don't... No, it costs money to run it. It costs money to run it. Those free apps cost money to store and to deliver wirelessly, and the paid apps cost money too, and they help pay for some of the free apps. No, we don't expect this to be a big profit generator, but we expect it to add value to the iPhone, and we'll sell more iPhones because of it. Do you think that's started to happen? I think the App Store's gotten a lot of attention, and it takes it into a whole new category that no mobile device has ever been in before.

Every time I write about the amount of developer support that you have on iPhone, I hear from a bunch of other people who have been doing brew applications for years, and people say, you know, this is nothing new. There is a whole ecosystem around Windows Mobile, around Java, you know, Brew for other types of phones. How do you think these apps compare to those? Well, two or three things. Number one, if you talk to developers that are developing for the iPhone, what you'll hear from them unanimously is there's never been two things. There's never been a mobile platform that's been this powerful before.

As an example, when we were working with some of the first developers under the radar before we launched, they first sent their mobile teams here. But when they realized how powerful the platform was, they sent their desktop teams here, or their console teams here. They realized that the quality of the graphics and the animation and the processing and the memory really made this much more capable as a platform than any other mobile platform. So we're hearing that from every developer. You heard Carmack's comments, right? The second thing we're hearing is that the development environment is the likes of... The development environment is far more advanced than they've ever seen on a mobile platform before.

So, you know, the APIs are in another league. The whole development cycle, the debug tools, et cetera. Now, that's just to develop the app. Once your app is developed, to be able to submit it to Apple and have us take care of all of the marketing and wireless distribution and billing and all the transactional stuff for you, and deliver it right on the handset, that doesn't exist today. And, you know, there are some websites that will do some of that for you.

Yeah, they'll put it to your PC and you can sideload it and this and that. But they charge a lot more than we do for doing a fraction of what we do. Do you know what the revenue split is on these other sites? Oh, the minimum is 50-50 and generally it can go into the 70% or more. On the other side of the equation, 70 to the distributor and 30 to the developer. It's at least 50 and we've heard it goes up to 70. But they do a lot less than we do. They don't get it in front of every user. You have to go to a website, you have to buy it on your PC, you know, blah, blah, blah. How does this feel in comparison with the Macintosh, the early days of the Macintosh? Do you think that third-party apps for iPhone will be as important to driving the appeal of the platform as third-party apps were for Mac?

Well, take Hippocrates. I mean, if you go talk to those guys, Hippocrates has been huge. And that allows medical professionals to use the iPhone for something that has nothing to do with making phone calls and nothing to do with browsing the web and nothing to do with an iPod, you know, the core things that we've put in there. So, yeah, I think it's taking the iPhone into territory that, you know, most mobile devices have never gone into before. And I think that the developers are sensing something really different here than has ever existed.

How much money has been made? How much money for whom? For Apple or for developers? I'll tell you. So the total revenues has been $30 million in the first 30 days. And developers get 70% of that, so developers get $21 million. Nine of that $21 million is going to the top 10 developers. And a lot of small developers are making a lot of money. This is just in the first month. And that's exceeded your forecast. Oh, yeah. Oh, yeah. I mean, look, just take 30. I mean, remember, we're on a ramp. There's going to be even a lot more iPhones out there in the future and a lot more iPod touches.

But we're already at, you know, a $360 million-a-year run rate. So this thing's going to crest a half a billion soon. And who knows? Maybe it'll be a billion-dollar marketplace at some point in time. This doesn't happen very often. A whole new billion-dollar market opens up. So $360 million in the first 30 days. I've never seen anything like this in my career for software. So... You can't tell me how many iPhones you have out there buying these, but...

I can't. I wish I could, but I can't. What... Is it a lot of... Is it concentrated to a percentage of your user base, would you say? It appears to be very wide. It's across the board. It appears to be very wide. Yeah. I mean, I've met a few people that have bought, you know, 30 apps. But everybody I know that has an iPhone has bought, you know, a handful. And enjoys it. So, looking at iTunes, if you sold $200 million in the past 30 days, that's $200 million or so. Do you think that you will exceed the number of...

Exceed the revenue for iTunes pretty soon? Well... On the music and movie side? If one is $30 million and the other is $200 million for music, that's a ways to go. Right. Well, I don't know what the trajectory is for music. I'm assuming this is growing more quickly. It is, off of a smaller base. It's starting from zero, obviously. Again, music's, you know, a $2.5 billion business a year for us. I'm thrilled at $360 million a year run rate. We'll be dancing on the ceiling if we cross a half a billion. Maybe someday we'll get to a billion.

So, I think, you know, we're not in the... We're not quite in the same league as music. But I think this is really significant. Who knows in the fullness of time? I don't know. What are the top three? I mean, I can see the bestseller list, but what are the top three paid apps? You can see right on your iPhone. Look right now. We're very open. Well, it fluctuates, I'm sure, some, right? Yeah. Oh, you mean like who got the money? Yeah, for the first 30 days. I would say, because they don't actually... Some of them don't want people to know. We actually were putting the number of downloads on every app initially. If you went and looked.

But we were asked to take that down. By the developers? Yeah. Okay, let's see. I'm sure Sega's one of the happy bunch, right? I would say Sega's very happy, yes. So here, you know, here's the top 25. You've got the paid and free. We separate it out, because free would always be... If there was just one list, it would always be free. Right. But, you know... Mostly games. Yeah, I don't know what Ambience does. Recorder's not a game. Something you might find useful. Place that someday. Ibeer. Ibeer, yeah.

Units is not a game. Units is actually useful. A converter. But yes, a lot of games. I think there was a story I read a couple days ago about... Some developers bring the price down on the apps. Have you noticed that? Yes. Oh yeah? There was an article written in CNET. I believe it was CNET. No, it was on Mac Daily News where somebody was saying this was a terrible thing for developers and they cited this one company, Jerbo. And I just copied down. Did you see Jerbo's reply? No. I copied it down. I thought you might want to take a look at this. I found this really fun. You'll see why in a minute.

Here's the founder. Replied and said, We couldn't agree more with your take. Jerbo sees the App Store because the magazine said this is ridiculous. Or the website. App Store is the biggest boon in mobile history and we love Apple for it. Our experience is actually the exact opposite. That is, the iPhone halo effect actually has reached us and in fact exceeded any of our wildest expectations. Our highest grossing app is actually our most expensive paper football at $4.99. The App Store has revolutionized mobile. We have close to 2 million downloads in about 3 weeks. About 60,000 of them are paid. I'm hoping you can set the record straight that the App Store is providing companies with never before imagined distribution and revenue.

That would be one to call up. So the prices that have come down, what do you make of that? So people just testing the waters initially with prices that were too high? It's competition. I think, you know, who knew what to price things at? Right. You know, who knew? And so I think some of the folks have come down from $10 to $5 and see their sales go up more than 2x. Right. So I think, you know, these guys are trying to maximize revenue and they're experimenting. And, you know, they could ask us, What should we do? We're going to say, We don't know. Our opinion is no better than yours. So, because this is so new. How do you think that if this isn't a direct source of profits, are you counting on, you know, people getting to the point where the apps in some way are selling the device?

I mean, do you... We love that idea. Yeah. Music sells the iPod. Right, but music is a little bit different in that there are lots of different sources of music and iTunes is just one of them. I mean, there's piracy, there's... Well, iTunes is now the largest legal one. Right, but how does it compare to the music? I mean, you yourself have said, in comparison with the... I mean, if you were to look at the average iPod, there's probably a lot more pirated and stuff written from personal collections. In this case, you are the sole distributor of apps. So, I'm wondering if there is... So, the question is... Well, so the question is, you got multiple channels, multiple places to go to get music, and music really is selling the devices.

Can it ever reach that level when you're trying to do it all yourself on the apps? Well, remember, most mobile devices don't have apps. Of the ones that do, the apps are typically really... What's the right word? Lame. And it's not very easy to find them or buy them. And so, the iPhone experience is quite unique, both for customers... For users, sorry. For users and for developers.

And I don't know that the user is... The user requires, you know, 23 distribution channels. I think what they would like is more... As many great apps as they can get. And what we've tried to do is to construct a distribution... A frictionless marketing distribution and transaction system for both the developer and the user so that the user can get what they want. And it's a lot of work. I don't know if other people will try to do it, but I don't think it's about how many of the distribution systems you have.

I think it's about how many great apps you have. And we think we'll attract great developers to write great apps because our platform is so advanced. They can write way better apps on an iPhone than any other mobile device. And when they get done, we have this frictionless marketing distribution transaction engine where they can get them right in front of the customer's eyes. How important is exclusivity when it comes to these apps? We don't have exclusivity with any developer. But the... We haven't asked for exclusivity. No, I realize that, but do you think at any point the appeal of iPhone will be you can get apps that you can't get anywhere else?

Well, I think that's true right now. But just because the platform is more powerful? Yeah, I think that's true today. That's what's attracting the developers. They can develop apps for iPhone that they could never develop on another platform. Again, developers are saying this. You've heard this. So, our job is to stay ahead. What do you think this is going to mean for developers if you're out there building software today? Not necessarily mobile software. But is this... Should you look at this as a pure market for the PC and Mac market in terms of the revenue opportunity? Well, you know, let me characterize what I've seen with my own eyes that's happened in the last 90 days.

I've seen one or two person teams develop amazing applications that are ready to go in less than 90 days and that are up on the app store. We're running an average of 48 hours after submission. They're up on the store. So, 48 hours after they submit, they are in front of millions and millions of customers. How automated is that process?

It's reasonably automated. We do look at the apps, though. There are humans involved. There are humans that can tell if there's something funky code-wise, if it's going to do a bad thing. We run tools on them, and we also look at them. We're not... I think we'll be getting better at that over time. Are there people who can't get their apps up and are frustrated by that, do you think? We've had a few apps submitted that I don't think will ever be on the store anymore. Why? Well, we're not putting porn up. We're not putting apps that...

We have some editorial limits. We think we're really reasonable, but there are certain places we don't want to go. So, you're saying that... You're describing what you've seen with your own eyes. So, we've seen teams of one, two people in 90 days make a great app that you could never make on a mobile device before, submit it in 48 hours. It's up in front of millions and millions of customers with a full, robust digital wireless delivery system and transaction system and everything all done for them, and they're collecting checks 30 days later. By the way, we give them really good reporting, too, unlike anything they've gotten before because we develop extremely good reporting for the music industry in Hollywood and things like that.

How quickly do they get reports? Is it weekly? They get reports, I believe, weekly. Actually, no, it's a website that they can log into. They might be able to log into it daily. I don't know. Hold on, I'll find out real quick. Hi, Eddie. How often can developers check in to get their reports daily? Got it. Thanks. All right, bye-bye. They can check into it whenever they want. It updates once a day. Updates once a day. Can you tell me a little bit... That's every developer, not just the big ones. Can you tell me a little bit about how you've had, since this has blown away your expectations off the charts, success, have you had to do things differently internally to keep up with this demand?

Oh, sure. Like what, for instance? Well, as an example, Apple's worked with developers for over 30 years, so we think we understand some of the things that we can do to help. And we've got a developer relations group that's been working with developers for... on Mac OS X for many years, that's hundreds of people. And we created a special group to work with developers on these new iPhone apps. And we created a special team also to vet the apps once they're submitted. And we've been able to staff up those teams to greater levels than we originally anticipated, like that, just by moving people over here.

Moving them from Mac? Yeah, as an example. Are those permanent moves? Well, we'll backfill. Obviously, I'll hire them. But for the time being, we can just move lots of people. And can you say what percentage of the staffing you're at in the iPhone group compared to Mac? I don't know. Ballpark, I mean, are we talking hundreds of people also for iPhone, or is it dozens? No, I think you're talking probably on the order of, well, to do which job? Well, you said there's the vetting, and then there's the actual helping. Developer relations is, for iPhone, we've been building that for a while. And that's somewhere between one and 200 people. And the vetting process is dozens.

I don't know how many exactly, but it's dozens. But it's not an insignificant number of people compared to Mac. Correct. Correct. This is a really big deal. I mean, this is a really big deal. 60 helping the developers. What's that? They're helping the developers. Yeah, of course. A lot of times, the developer will sit in, and they'll have a problem, and they'll help them through it, and they get it on the screen faster. And we help put processes together for them that are developer-friendly and stuff. And we understand developers pretty well and want to help them be successful. Do you know roughly what the number of Mac applications sold or downloaded is compared to? I mean, I'm just wondering if there is some comparison.

There's no central place, so I don't know. But I know compared to the mobile industry, we're probably, of the apps downloaded in the last 30 days, I would imagine we're 95% of them. And you're a relatively small installed base compared to some of these other platforms. Well, most of these other platforms, you can't really run apps on. Windows Mobile, you can. There's a lot of Windows Mobile phones, right? Yeah. Nokia phones, aren't they? Not most of them, no. I mean, you can run these little Java games, but they're so bad that nobody really does. Do you think that the competition is responding to your success on the outside in some visible way?

Well, our theory on iPhone is that phone differentiation used to be about radios and antennas and things like that. But we think going forward, the phone of the future will be differentiated by software. And that was our theory going into this market, that we were reasonably good at creating innovative software, and that we could leverage a tremendous amount of software that we've been working on for the last decade and actually put it in a mobile device, the core OS X, a Unix operating system, all the graphics know-how, all the communications know-how, all the email know-how, and all the user interface know-how.

We could bring that to bear on a phone. And the App Store is just one more example of software. It's just like the iPod. It's software on the device. It's software in the cloud, in the back-end service. And so to compete with it, one needs a platform that's capable of writing really good software on. And then one needs to be able to put together a whole system with a back-end cloud App Store and the client, but then also sell developers that the phone itself has good enough software that's worth writing apps on.

Isn't that the vision Google has as well, though, with Android? Well, we'll see. I, there, we'll see what kind of apps they get. Syndian, I mean, Nokia has now made some moves with respect to Syndian. Do you think that people are recognizing the increased importance of software as you put it for mobile devices? Oh, clearly, clearly. But recognizing it and delivering it are two different things. Are there any other statistics that you think I should ask you about right now that I haven't asked you? You know, there's only one other thing that's interesting to me, which is that, as you mentioned, the largest category of apps, by no means the majority, but the largest category of apps is games.

You've got everything from games to medical software to business analytics software to all sorts of stuff on here. But games is the single biggest category. And so I did dig up some information on the mobile gaming market for myself and also to share with you is 20 million handheld gaming players are expected to be sold this holiday season for about $3 billion in revenues. 20 million handheld gaming device players, mobile phones. No. The number one and two are the Nintendo DS and the Sony PSP. And we've got two contenders for that.

We've got the iPhone, which costs zero if you have it as a phone. Zero incremental to have it as a game player. And then we've got the iPod Touch, which currently sells for $299, but who knows what could happen over time there. And on the Nintendo and Sony, the average game title at the street level costs $30. And our average game title's less than $10. Some are free. And it's delivered instantly right onto your device, which of course is not the case with these other guys. So I actually think there's a, I think the iPhone and the iPod Touch may emerge as really viable devices in this mobile gaming market this holiday season.

Is there anything that you're doing to market those capabilities more? Not yet. Not yet. I'm not going to start seeing you at E3, or do you think we should look for advertising that stresses the message? I don't know. I just find it very interesting. Is gaming something that Apple has a lot of experience with, do you think? No, I don't. Except that we sure delivered a lot of games in the last 30 days. Nintendo's a company that's firing on all cylinders. Yeah, they're doing great. You guys are the upstarts in the games market here. We're not even in the game.

Noting this is an interesting thing. So was this even something that you thought when you were building this iPhone app business, the infrastructure for it, that shoot, games is going to be the killer third-party app? No. We thought games would be a part of it. But we were really, I mean, I've always been excited about Hippocrates and some of the medical apps. And there's people that are excited about this category, that category. I think you guys have said that you see the iPod, this sort of standalone MP3 player, evolving into a wireless-enabled device. I think there's going to be two kinds of devices in the music space.

One is going to be just the pure, evolved music device. People want it for music, maybe music videos, maybe occasional movie. But they really want it for music. And that will be a device that just keeps evolving, getting better. Certain apps drain the battery life quickly. Do you have any reaction to that? It's not that certain apps drain the battery life. It's that if you sit around playing apps all day, you will use up the battery. So if you want to use apps all day, the battery life on here is over five hours of talk time, and browse time, and everything else.

But if you want to use it for 10 hours a day, then you're going to burn through the battery after about five. So you'll have to recharge it during the day or use it. There's been some discussion with the iPod, the fact that you invest all this money in music from iTunes. It only works on, the only mobile device it works on is. is your iPod or your iPhone, and that somehow might keep people locked into your platform. I'm sure you would dispute that that's part of Apple's goal, but would you agree that when you invest in these apps as a consumer for iPhone, that the switching costs are increased, that you retain people?

Well, it's just like if you buy a Windows computer and you buy a suite of apps for Windows, it's harder for us to switch you to a Mac because you have to change your software. So we run across that all the time as a switching cost. Can you talk at all about what you see for the coming year in terms of new apps? I mean, do you have a number of apps that you expect to be up on the App Store by a particular date? I would not trust any of our predictions because reality has so far exceeded them by such a great degree that we've been reduced to spectators just like you, watching this amazing phenomenon and just doing our best to try to help everybody get their apps done and get them on the store.

What apps are you using on your iPhone, third-party apps? You know, I bought some games, Yelp, I like Yelp. I bought Mandarin, you know Mandarin Phrase, have you seen that? No, no. This one's cool. That's a Mandarin audio phrase book. This would be great if you were at the Olympics, say. I've got the New York Times app, Wall Street Journal doesn't have an app. I've got Hippocrates, I've got Anatomy, you've seen the Netter's Anatomy, right? Yeah, that's the one with all the colorful illustrations. I've had their book forever and I love the anatomical drawings. I've got Facebook, I've got Units, I've got a great Sudoku game, which I'm actually getting pretty good at.

I've got Bloomberg and the Facebook app's pretty cool and a lot of people are using it. But I mean, Facebook is doing an app for Blackberry. Yeah, but if you go talk to them, they'll tell you the best one by far is on the iPhone. So, I'll take that. How much of the traffic to a site like Facebook might come from iPhone? I mean, have any of these guys, because I know Google I think has talked about iPhone being the number one by far mobile search product. By far. Have you... Well, and spot mobile maps and everything. I mean, Facebook would tell you... I believe if you talk to Facebook, they would also tell you some statistics that are similar to that on the iPhone.

On the iPhone. But if you look at... Mobile's serious. If you looked at overall traffic... How serious will mobile be relative to desktop, is your question? Yeah. I think there are a lot of people, and I'm one of them, who believe that mobile's going to get quite serious. Because there are things you can do, obviously mobile's with you all the time, but there's services you can provide with mobile that obviously are not relevant on a desktop, such as location-based services integrated in to your application. And they can be might useful. And just at the tip of that, that's going to be huge.