Apple App Store A $1.2 Billion Business In 2009

The upcoming Apple iPhone application store could swell into a $1.2 billion market by the end of 2009, according to an analyst from investment firm Piper Jaffray.

The projection is the best-case scenario from analyst Gene Munster, who told clients Wednesday that iPhone users tend to use more data and that will increase with the release of the iPhone 3G.

To get to his figure, Munster devised a neutral case scenario where he assumed 91% of the market would use the application store at least once during the course of the year. The analyst based adoption rates on figures Apple CEO Steve Jobs announced about existing services on the iPhone.

This estimate also included a global installed base of 62 million iPhones and 23 million iPod Touches. The installed base prediction may seem high, as Apple sold 6 million iPhone devices in about a year in six countries. But the latest version will be sold in 22 countries when it launches on July 11, and will eventually be available in 70 countries.

Apple confirmed this week that it will open its App Store for business on July 11. The iTunes-based software exchange will let developers set their own price for their iPhone and iPod Touch-compatible software, while paying Apple 30% of the revenue. Developers offering software at no charge wouldn't pay anything to Apple, beyond the cost of joining the developer program.

In the most aggressive estimate, Munster said 95% of the users will download two applications per year for an average combined cost of $15. In the neutral case, fewer people downloaded applications, and the market would be about $777 million.

In his conservative case, Munster estimated a total installed base of 56 million users. Of those, he said 75% would download applications worth $10, leading to a market of $416 million.

A major driver of sales will be games. According to data from analyst firm M:Metrics, 32% of iPhone users play a game at least once a month. This figure was depressed because third parties couldn't develop applications, Munster said.

But thanks to the software development environment that Apple has established, many video game makers are already on board. Developers like Sega, Pangea Software, and industry heavyweight Electronics Arts said they plan to release titles by the end of next year.

Piper Jaffray's estimates certainly paint a rosy picture for Apple, although other surveys suggest that the price of applications may be dramatically lower than Munster estimated.