Over at Asymco, noted Apple analyst Horace Dediu takes a moment to look at the iTunes App Store from the perspective of a “break even” model, a perspective that Apple has only recently started to discuss as perhaps more than breaking-even. Dediu notes that with the quintupling of growth of the overall beast that is iTunes (including music, video, and iOS app software), an analysis of Apple’s business practices as well as the App Store’s economy of scale suggests that Apple is doing quite a bit better than “breaking even.”
In fact, Dediu’s analysis points to a potential $2 billion in annual revenue for the digital storefront, making it a significant profit powerhouse for the Cupertino-based tech company. He notes that Apple’s own software sales, combined with the 30% cut of all app sales, are the most profitable portion of the revenue generated by iTunes as a whole. Dediu believes that the music portion of the iTunes Store operates at about one percent profit margin, and sales of third-party apps generate about two percent profit for Apple.
Apple-created software, however, is assumed to have a 50 percent profit margin, if it compares with general industry standard margins, and Apple doesn’t have to pay itself the 30 percent cut, either. Dediu estimates that Apple-made software topped $3.6 billion last year, or about what it costs to run the iTunes Store in general. Added to the estimated $13.5 billion in reported revenue last year, these cost analysis is where Dediu gets his figue of $2 billion in profit. Not a bad chunk of change for such a small portion of Apple’s overall business, right?
It’s an interesting read, the more so as the iTunes app store usually gets its press via third party developers hitting it big, and rightly so. However, as Dediu expertly explains, the “infrastructure” of all that money is generating a tidy little profit for Apple, as well.
Enlightened self-interest, anyone?
Read more: http://www.macnn.com/articles/13/03/22/music.video.still.low.margin.growth.and.software.add.billions/#ixzz2OK3unRcH
Read more at http://www.macnn.com/articles/13/03/22/music.video.still.low.margin.growth.and.software.add.billions/#Y62GHbdCCJHKOZ6u.99