App Store losing enormous amount to piracy, according to made-up analyst numbers

If you're like me, you're interested in how the economy of the App Store works, but don't want to wade through a bunch of blah-blah words and numbers to find out. Well, never fear: the good people at GigaOm have come up with a lovely diagram that explains it all succinctly for you. There are quite a few interesting nuggets there; one of the bits I found most interesting is that, despite the perception that the App Store approval process is a Kafka-esque nightmare, developers actually only have to wait 4.78 days on average for approval.

One factor that doesn't fit into GigaOm's pretty picture is piracy, and if you believe the staggering numbers spewed out by some analysts, that's a huge omission. The brains behind 24/7 Wall Street have declared that the App Store has lost $450 million to piracy since it was launched in July of 2008. That's a crazy big sum, but does it hold up to scrutiny?

The core of the logic authors' logic comes from talks with some game developers, who have "phone home" code in their apps and who report piracy rates upwards of 75 percent; based on that, the authors conclude that for every instance of an app sold, three more are pirated. Can this really be true? I have my suspicions because all of the cited oft-pirated apps are exactly the kind that you'd think would be pirated -- popular games, and very pricey applications like turn-by-turn GPSes. What do you suppose the percentage for the 99 cent utility apps that, according to GigaOm's handy chart, make up the bulk of sales?

At least the 24/7 Wall Street analysts didn't make the common mistake of calling the piracy of a 99 cent game a 99 cent loss; they estimate (based on what, who knows) that 10 percent of pirates would have paid money for an app if they couldn't get an illegal copy, so that $450 million figure is only 10 percent of the value of (their estimates of) all pirated apps. But still, a 75 percent piracy rate -- in an environment where even by their estimates only 10 percent of iPhone users have jailbroken their phones -- seems ludicrously high.

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