Today is the 10th anniversary of the Apple App Store, one of the strongest, most profitable platforms that has propelled Apple to become a monopoly.

When the iPhone first launched in 2007, there was no App Store. There were a handful of key apps like Safari, Phone, Text Messages, Mail and Google Maps. Surprisingly, Steve Jobs was initially resistant to the idea of an App Store. With multiple key staff members urging him to consider it, Steve got on board and the App Store officially launched in July 2008. Here are a few stats that attempt to capture just how successful the App Store has been:

  • Within the first week, over 10 million apps were downloaded across 800 apps.
  • From 2016 to 2017, the App Store had a 35% increase in revenue from $28.6 billion to $38.5 billion
  • Apple's stock has increased from $25/share in 2008 to $185/share in 2018 with a market cap over $900 billion.

The App Store has not only been the key success factor for Apple, but also for many other mobile-first startups by enabling entirely new business models to come into existence. Uber, Instagram and Tinder, for example, have ushered in a wave of startups that wouldn't have been around before the iPhone.

So, What's Next?

With all this success, do the next ten years look brighter? Or, can Apple not keep up?

Apple's new App Store iterations are already in the works. The Apple Watch presents new app development opportunities and with the latest Apple Watch 3, users can now use the watch on its own without tethering it to the phone. Apple has been the leader in making a push for Augmented Reality apps. Siri still needs some improvement, but Apple can also pursue voice controlled apps. The car has been a stumbling point for Apple, but there are a lot of app store opportunities in that industry as well.

As for the original App Store, growth will continue and Apple predicts its gross margin to improve as App Store revenue and other services revenue increases in years to come. The profitability driven by the App Store is what excites many analysts as overall revenue growth starts to level off over the next few years.

App Store Pitfalls

Things haven't always rosy for the App Store. Apple has had a few stumbling blocks along the way and challenges continue to loom on the horizon.

In the early days of the App Store, developers were always seeking more transparency around Apple's approval process. Their guidelines weren't clear at times and the approval department became infamous for rejecting apps without much rationale. Having a "connect" who worked in the App Store approval department was a huge boon to startups striving for feedback before making large investments in development.

Apple has always believed in providing more curation for its users than rival platforms like Android. Apps that have content with too much nudity are not approved. Now, more recently, any apps related to Bitcoin mining or other cryptocurrency transactions which raise concerns for Apple. A recent lawsuit is being heard by the Supreme Court on this very issue.

Apple's competition with Spotify with its own Apple Music initiative is also a very fine tightrope that Apple must pay close attention. Platforms get into trouble by competing with their producers, app developers, in an unfair manner. Apple already has significant advantage over Spotify because it can let customers signup on their iPhone and not pay a 30% commission. Spotify already pays nearly all of its revenue to record labels so paying another 30% to Apple makes a big difference. Spotify sued Apple in 2016 accusing it of rejecting Spotify's app submissions due to bias.

Over the longer term, Apple also recognizes that every 10-20 years, there is another large technology upheaval. Just like the evolution from the desktop computer to the phone, the next big leap in consumer technology will present either an opportunity or a threat for Apple's dominant role to continue. Microsoft, for example, hasn't been as lucky in the most recent cycle from computers to phones and tablets despite making tens of billions of dollars in investments over many, many years. The fact that platforms have winner take all dynamics is what makes Apple's App Store so dominant and profitable and Microsoft's efforts to unseat iOS or Android futile.

Published on: Jul 6, 2018