A Global Perspective on the Apple App Store Ecosystem An exploration of small businesses within the App Store ecosystem June 2021 Jonathan Borck, Ph.D. Juliette Caminade, Ph.D. Markus von Wartburg, Ph.D. Support for this study was provided by Apple. The conclusions and opinions expressed are exclusively those of the authors. A Global Perspective on the Apple App Store Ecosystem Part 1 When the App Store launched in 2008, it offered approximately 500 apps for the iPhone How large is the App Store and iPod touch – an impressive number at the time but merely a fraction of what it offers ecosystem? An update for 2020 now. Since then, the App Store has grown to offer millions of apps to one billion App Store customers worldwide, who have downloaded hundreds of billions of apps over the years.i Part 2 The success of small businesses on the App Those apps are at the center of a massive ecosystem. Last year, we estimated that the Store App Store ecosystem facilitated more than half a trillion dollars in billings and sales Part 3 worldwide in 2019.ii The number was even larger in 2020, as the role played by apps grew How the App Store during the coronavirus pandemic. As many users reduced their in-person interactions, supports the success of small developers they turned to apps to make purchases and to stay connected, entertained, and healthy. Most businesses, organizations, schools, and universities had to shift at once to digital technologies, including mobile technologies, which enabled remote work and learning. As online shopping and food and grocery orders soared, many small businesses had to start or accelerate their digital transition. This report documents substantial growth in the App Store ecosystem: We estimate that billings and sales facilitated by the App Store increased by 24%, from $519 billion in 2019 to $643 billion in 2020. (See Part 1.) In January 2021, Apple launched the App Store Small Business Program, through which developers who earned less than $1 million per year on the App Store the prior year qualify for a reduced commission rate of 15%. Moreover, the App Store ecosystem facilitates the sales of a broader set of small businesses than those that monetize their apps directly through the App Store – for example, small developers who sell digital goods and services that are consumed on apps but purchased outside of the App Store; small developers who sell in-app advertising; and small businesses (not just developers) that sell physical goods and services through their own apps or through those of third-party platforms. In this report, we focus on small businesses and the ways in which the App Store supports their success. We look at small developers, those with less than $1 million in earnings and fewer than one million downloads across all their apps in a given year (those criteria are not the same as those of the Apple Small Business Program). Small developers represented more than 90% of all developers on the App Store between 2015 and 2020. Many of them have grown quickly, and some businesses for which iOS apps are central to their business models have become large enough to become public companies or be acquired by other companies. In addition, small businesses – even those without their own apps – have benefitted from the App Store ecosystem through digital platforms, which connect them with consumers around the world through their apps. (See Part 2.) The App Store aims to facilitate transactions between developers and users, and it becomes more valuable when developers create new and innovative apps. To encourage transactions and innovation, the App Store offers developers a global platform to distribute their apps to one billion App Store customers worldwide, with built-in support for various local payment methods. In addition, to help developers develop, distribute, and market their apps, Apple offers a large set of developer tools, resources, and educational and support programs. Through these tools and the platform it provides, the App Store opens up meaningful opportunities for small developers. (See Part 3.) 1 A Global Perspective on the Apple App Store Ecosystem Part 1: How large is the App Store ecosystem? An update for 2020 Apple reported in 2020 that earnings it paid to developers summed up to about $39 billion worldwide in 2019. Such direct monetization through the App Store occurs through paid downloads and through in-app purchases of digital content and services, using Apple’s in-app payment system. However, direct monetization of apps significantly underestimates the size of the App Store ecosystem. This is because developers can choose to monetize their apps in different ways, including several that do not involve transacting directly through the App Store. These other monetization strategies include selling digital goods and services outside of the App Store that can be used within apps on Apple devices (employed by, for example, multiplatform apps and reader apps such as streaming, education, and enterprise apps), selling physical goods and services (employed by, for example, grocery delivery apps), and offering ad-supported content (employed by, for example, social networking apps). Therefore, our study focuses on third-party iPhone and iPad apps, and account for billings generated through direct monetization via the App Store, and for sales generated through monetization outside of the App Store.1 We estimate that the App Store ecosystem facilitated $643 billion in billings and sales worldwide in 2020.2 $86 billion originated from billings and sales of digital goods and services (13% of the total), $511 billion from sales of physical goods and services through apps (80% of the total), and $46 billion from in-app advertising (7% of the total). About 90% of total billings and sales facilitated by the App Store ecosystem in 2020 occurred outside of the App Store, meaning that Apple collected no commission on those sales. (See Table 1.) Table 1: Estimated Billings and Sales Facilitated by the Apple App Store Ecosystem Worldwide, 2020* Billings and Sales Category ($ Billion) Annual Change Digital Goods and Services** $86 +41% Physical Goods and Services $511 +24% In-App Advertising*** $46 +4% Total $643 +24% * Totals may not sum due to rounding. ** Estimated billings and sales from digital goods and services are not the same as total App Store billings. Our estimate also includes the volume of sales from digital goods and services purchased elsewhere but used on apps on Apple devices, and, conversely, subtracts billings from in-app purchases made via the App Store but used elsewhere. The estimate is based on a combination of third-party sources and Apple data. See Appendix for methodology. *** Estimate of all in-app advertising sales for iOS apps. 1 Apps developed by Apple, such as Apple Music, and mobile browser apps, such as Google Chrome, are excluded from this analysis. Third-party apps featured within Apple TV are included in our analysis of video streaming. 2 We use the term “billings” to refer specifically to payments generated by paid downloads and in-app purchases, including subscriptions, that use the Apple in-app payment system, and the term “sales” to refer to money spent by customers purchasing goods and services in general. We use the term “facilitated” to include the various ways in which apps contribute to generating billings and sales. 2 A Global Perspective on the Apple App Store Ecosystem While our analysis captures the major app monetization strategies in 2020, we do not capture all of the ways in which the App Store ecosystem facilitates sales or all of the benefits created by apps. A description of our methodology is included in the Appendix. The App Store ecosystem facilitated $643 billion in billings and sales worldwide in 2020, a 24% increase compared to 2019. The App Store ecosystem across app categories and regions The three largest streams of sales from physical goods and services facilitated by the App Store ecosystem in 2020 originated from general retail ($383 billion), travel ($38 billion), and food delivery and pickup ($36 billion), all of which are part of the substantial mobile commerce (“m-commerce”) category. Out of total global billings and sales facilitated by the App Store ecosystem in 2020, China accounted for 47%, the US 27%, and Europe 12%. Compared to 2019, Europe’s fraction of the global total increased slightly (up from 10%), while those of China and the US stayed the same. Table 2 provides further country and regional breakdowns by app categories. Appendix Tables 1 and 2 provide a similar breakdown for select countries in Europe, and Japan, Korea, and Australia and New Zealand, respectively. Table 2: Estimated Billings and Sales Facilitated by the Apple App Store Ecosystem by Region and App Category, 2020* Rest of the Total US China Europe**** World ($ Billion) Digital Goods and Services** $33 $17 $9 $28 $86 Physical Goods and Services $115 $277 $60 $59 $511 M-Commerce General Retail $74 $228 $44 $36 $383 Travel $10 $12 $7 $9 $38 Food Delivery and Pickup $10 $17 $4 $5 $36 Ride Hailing $13 $6 $3 $4 $26 Grocery $5 $11 $2 $4 $22 Digital Payment $3 $3 - - $5 In-App Advertising*** $27 $6 $5 $8 $46 Total $175 $300 $74 $94 $643 * Totals may not sum due to rounding. ** Estimated billings and sales from digital goods and services are not the same as total App Store billings. *** Estimate of all in-app advertising sales for iOS apps. **** Europe includes countries in Western, Central, and Eastern Europe (including the UK and the Nordic Region). Russia is included in the Rest of the World category. 3 A Global Perspective on the Apple App Store Ecosystem Comparison with 2019: The impact of the coronavirus pandemic on the App Store ecosystem In 2020, billings and sales facilitated by the App Store ecosystem rose by $124 billion, a 24% increase from 2019.