Apple’s App Store, iTunes Popular, Not So Profitable

Although the App Store recently passed the 3 billion mark and iTunes has expanded vastly beyond its music-only roots, Apple said both or not generating great profit. “We are running those a bit over break even,” Apple’s finance chief, Peter Oppenheimer, told reporters Monday.

Apple said its App Store “dwarfs anybody we are competing against” – Google’s Android Market with 20,000 apps as of December still is far behind the company’s 100,000 apps as of November. Although he didn’t mention any hard numbers, Oppenheimer said iTunes experienced a “record” quarter.

The Cupertino, Calif. company appears to view two of its most well-known properties as loss-leaders. Indeed, with a company that has $30 billion in the bank, it seems more about getting new developers into the iPhone tent than scrounging around for the 30 percent cut of every sale.

“We are very excited to be providing our developers with a fabulous opportunity and we think that it is helping us a lot with the iPhone and iPod touch platform,” Oppenheimer said. A few numbers seem to support Oppenheimer’s suggestion about the importance of the iPhone.

Despite the impressive 3 billion download figure, the App Store made an estimated $20 billion to $45 billion in the first 10 months of its life, according to a 2009 study by Lightspeed Venture Partners. That figures the 30 cents Apple earned from each app sold and the increasing number of free apps downloaded. Monday, Apple said iPhone sales accounted for 35 percent of the $15.7 billion it earned during the quarter ended Dec. 31.

In the end, sales of apps, as well as developer licenses, is “a trickle compared with the profits that are flooding in every quarter from what really matter to Cupertino: the sale of iPhones and iPod touches,” Fortune said. That trickle could increase if Apple adds e-books to its growing list of products sold via iTunes.

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[Via AppleInsider and Fortune]

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About the author

Ed Sutherland is a veteran technology journalist who first heard of Apple when they grew on trees, Yahoo was run out of a Stanford dorm and Google was an unknown upstart. Since then, Sutherland has covered the whole technology landscape, concentrating on tracking the trends and figuring out the finances of large (and small) technology companies.

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scstsut
It’s not profitable because they always planned on it breaking even and they’ve done just that. Everyone’s reporting this as if they aren’t accomplishing exactly what they’re trying to accomplish: provide content with no loss to sell hardware at hugemongous profit.
BeauB
How can 30% of “an estimated $20 billion to $45 billion in the first 10 months of its life” (i.e., $6 to $13.5 BILLION DOLLARS!) be considered a trickle? I think there are either some faulty facts in this article, or Fortune’s misstated the reality. Also, you can’t tell me it costs Apple billions to run the AppStore, that’s ludicrous.
MouseWrestler
There is a “small” typo in the article: Its $20 to $45 MILLION dollars, not billion!
Mattzook
@ Ed Sutherland,
You know, and all Apple followers know, that this is old news. Just because Apple’s CFO reiterated it on Monday doesn’t make it breaking news. It was probably his legal obligation to remind the investors of this fact every year, just so he can cover his butt. I’m not saying you shouldn’t mention news like this… but I’d suggest that (in your commentary) that you should at least state something like “but this has been known for years”. Just sayin.
Daniel
Since I joined apps store, I find out the reason for the loss.
I sell my apps, around 20Mb of downloading data, worth 0.99c. However due to a huge number of apps, it’s too hard to sell a copy of this app.
In order to sell an app, I have to make a lite version which is also around 20Mb for free download. And the download ratio is 100 (lite):1 (full), which means 30cent for Apple cost it 2Gb download bandwidth.
When I made an update (of course it’s free), the same bandwidth cost for Apple, without any benefit.
Nowadays, some apps go free for some days which cause nearly a million free download, it just cost too much for bandwidth but generate no money for Apple yet. How can they make benefit from such huge free downloads?