Apple's Own Apps Turn iTunes Store into a Profit Powerhouse
Apple analyst Horace Dediu over at Asymco recently took the time 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 noted that the five category growth aspect (including of music, video, and iOS app software) and 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.”
Dediu’s analysis points to a potential $2 billion in annual revenue for the digital storefront, making it a significant profit powerhouse for Apple. He continues by noting that the company’s 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 1% profit margin and sales of third-party apps generate about 2% profit for Apple. Apple-created software though is assumed to have a 50% margin on top of which, the company doesn’t have to pay itself the 30% cut either.
It is estimated 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 figure of $2 billion in profit. Overall, it’s actually the quite chunk of change which just happens to be a small part of Apple’s overall business. According to Dediu, the “infrastructure” of all that money is generating a tidy little profit for Apple.