So, is 30% too much of a cut when the platform offers:
- Credit card processing
- The largest marketplace with the most paying customers
- Download hosting
- Promotion
- Highly available document and key/value store infrastructure
- Keeping junk and malware out of the store, which maintains user trust.
I'd argue that, like most emotionally influence business decisions, Apple sticking with the same percentage is a good thing - witness how the markets vary when things are up in the air politically.
Keeping the same policies for a long time allows businesses to plan appropriately as they know what they're going to get, even if it's not ideal.
Does anyone believe that the promotion that Apple offers on average is worth two cents?
And what good is a marketplace with some of the worst discovery ever? I mean, there are now hundreds of thousands of apps. Finding high quality apps on the app store is like finding a needle in a Utah sized haystack.
I much rather do my own marketing, have a user download the app off my website or heck, Amazon (which actually has a decent recommendation engine).
And keeping junk out? Have you seen most of the apps? I mean the number of them that haven't been updated in years is staggering. The number that are essentially clones churned out by some make-an-app framework is ridiculous. The signal-to-noise ratio on the app store is awful.
Credit card processing? Not having to do anything is worth 4-5%.
> Does anyone believe that the promotion that Apple offers on average is worth two cents?
I do. I made a couple small and quick apps. They have made several hundred dollars. I attribute that almost entirely to Apple's promotion of them, mostly by having them show up in iTunes search results which Apple promotes. Also having them show up as recent releases.
My promotion consisted of linking them on my websites. If that was all it was -- my website links and nothing else -- I think sales would be near zero.
For better apps, Apple's promotion is even more valuable. Definitely no where near 2 cents.
The value you get from Apple's promotion has a primarily multiplicative, not additive effect on your existing promotion. Charts, features, recommendations, etc.
Apple helps those who help themselves.
Releasing an app with no marketing plan in place, app store or not, is stupid. It's why there's an incredibly long tail on the 300k or so apps.
If you're an indie developer, you have to remember the actual developing is only half the job.
Not sure why you're being voted down. Distribution channels don't just spring out of the ground overnight. Apple's promotion of iTunes and the App Store created a critical mass of users willing and able to spend money, while Apple maintains that by creating mechanisms to satisfy their demand for apps and content.
Because if people are searching for a product, they probably already know about it and it is hard to call that "promotion" unless you squint really hard in which case, Google is offering free promotion to everyone!
> Does anyone believe that the promotion that Apple offers on average is worth two cents?
Ask some of the developers[1] of popular apps how much more money they make when the App Store features their app in front-page promotional material. It's a lot.
[1] I believe Marco Arment mentioned this in a Build & Analyse episode a few weeks ago, re: Instapaper.
Agreed. The problem with the app store is that it's generic. If you're not in the featured list you're just one more anonymous tile in a sea of hundreds of thousands of anonymous apps, many of which are throwaway. Marketing on the web might be more work but at least you have the flexibility to do something distinctive. I do appreciate not having to worry about payments & sales etc but I'm sure I've gotten a lot more mileage out of the work I've put into marketing my apps on forums, mailing lists, Twitter etc than I have out of just being another app in the store.
As a dev whose app has been featured once on the front page under "New and Noteworthy", I'd say that Apple's promotion is unquestionably more valuable than any other kind of promotion.
Being reviewed on some site is nice, but it's a negligible rounding error compared to being featured on any list on the App Store. I'm sure any dev who's ever been featured will agree that App Store placement is the biggest single factor in sales.
I don't think the 30% has ever been an issue. The exclusivity is. Doubly so as Apple keeps changing the rules which if you're caught on the wrong side of can destroy your business.
Not because of the percentage, but because of the exclusivity. 30% on in-app purchases/subscriptions was only a big deal because Apple required that you use it and match the lowest price anywhere else. (They since backed down on this, but they can change their minds again.)
You can't distribute an iOS app outside of the App Store (outside of the enterprise). So Apple's 30% fee is essentially a tax on iOS apps--there's not a way around it.
Apple can destroy your business by changing a rule that makes your app ineligible for the App Store (or at least unprofitable, most recently seen in the whole in-app fiasco). There's not a way to distribute outside of Apple, so if Apple doesn't want to distribute your app then you have no business.
That may be a very good deal for some... but what if it's not or the people just want an alternative? If Apple's platform is that good, then there is no reason to lock in people to use only that, devs will flock to it anyway, it can stand on it's own merits. Or Amazon or someone else may come in and offer all of the above + more at only 20% because of their efficiencies (AWS etc.). Not to mention the still ongoing forced 30% of subscriptions fiasco for which Apple does not provide hosting.
There is good reason to not offer alternatives. There will be platform fragmentation, and end up being a worse experience for both developers and users. Devs probably need to publish on all stores to cover their bases, otherwise users need to know which store to buy from or have to search for an app in every single store.
Actually, what Tim Cook said at the Apple's Financial Conference last quarter was that it runs "a little ahead of break even". Therefore, it is reasonable to say it runs at break even.
Even if you are cynical and assume a certain amount of money is moved from one department to another, he can't say something on the record like that, if it isn't basically the truth (these numbers are audited and are subject to Sarbanes–Oxley. So, even assuming a small amount of shifting money around between departments and his fudge factor "a little", I think you could at most say single digits, for example: 5% if you want (or whatever small % you choose), it is still close enough for normal conversation to say its break even.
It is quite a leap to assume it runs break even. I know Apple's people like to say it does, but numbers can be manipuated and I trust Apple is smart enough to optimize over the years to give themselves a small but healthy profit.
Let's say 300 million? That would still mean that iTunes costs a billiom to run for a year.
Saying that iTunes is run a bit over break even – which Apple did during their conference calls – while making something like 300 million is very likely illegal and not something Apple would do.
Apple are making money hand over fist overall. First of all, it would be astonishingly idiotic of them to break the law for such relatively little potential gain.
Secondly, it wouldn't make any sense of them to nickel and dime customers for such a tiny little part of their overall business. This is peanuts to them.
The AppStore's purpose is not to bring in a relatively tiny bit of profit to Apple, it purpose is providing reasons for developers to invest in their ecosystem, and for customers to buy their hardware, where their real money comes from.
In the filings, Apple (Cupertino, Calif.) acknowledged that the company faked documentation to indicate that a grant of 7.5 million options to CEO Steve Jobs was recorded at a special meeting of the board of directors on Oct. 19, 2001. Such a meeting, Apple said, did not occur.
Those stories are all about one incident many years ago. Posting several articles about the same thing doesn't turn it into a trend. And since that scandal, Apple has been fastidious about obeying the letter of the law. Sarbanes-Oxley is practically Apple's religion.
I was merely responding to the statement that 'illegal things are not something Apple would do' that was stated in a matter-of-fact manner.
>And since that scandal, Apple has been fastidious about obeying the letter of the law
And you would know this how? Just because there's nothing revealed right now doesn't mean there is nothing that is going on and might be revealed later. Of course this cuts both ways and I am certainly not implying that something shady is going on, but I am just curious about the free pass given to Apple on here on various things that other companies don't get.
Even if it costs 1.3 billion to run a year Apple's profit from quarter to quarter vastly dwarfs that. Sort of like how it used to cost microsoft to create their xbox platform. I think it is worth it.
As a gamer I was thinking about the exact same thing. When assessing this model do you think it matters that Microsoft has a monopoly on Xbox games, whereas Apple has a number of competitors in terms of App and Music services?
Who are the competitors to Apple for iOS apps and games?
Android and BlackBerry? On that metric,XBox has competitors in the form of PS3, Wii etc. Apple does have a monopoly on iOS games and apps.
If we add the content margins from music and apps ---> and assume the store runs at break even <--- we can get an idea of what it costs to operate the store.
Asymco's analysis always seems to have some completely unsupported claim at the center of its logic, thrown in almost as an aside. The portion marked with arrows is the questionable bit this time. While the numbers aren't broken out directly in their market filings, it is both obvious from their behavior, and support by quite a number of analysts that the App Store(s) return significant operating profit to Apple.
Cook suggests they run the service "just a bit ahead of break even" which would suggest that they're up instead of down, but even that presumably dubiously includes a large swath of media buys that are arguably more promotional for the ecosystem as a whole than simply getting iPhone users to go buy an album or app today. There's a reason that they don't break it out: pissing off their content partners.
Think about it. You don't fight tooth and nail for 30% on bringing content in house (ebooks, etc.) if you're somehow only going to break even on it or worse.
Just on the face of it, it's wildly improbable that you could spend over a billion dollars operating ITMS.
Just on the face of it, it's wildly improbable that you could spend over a billion dollars operating ITMS.
Surely it isn't that much of a stretch?
I'd be surprised if the music companies weren't taking a big chunk of that, and server/bandwidth costs the lion's share of whatever scraps are left.
Can someone help a poor liberal arts major? I see "costs $1.3 billion to run" and I think "Apple loses $1.3b a year on the iTunes store." But reading the article and the constant Apple talk about breaking even makes me think that what they're trying to get at is "the infrastructure for the store and payments to artists and app creators costs $1.3b a year, but Apple's 30 percent cut of everything produces about $1.3b a year in revenue, so it all works out," which is a very different proposition, yes?
Almost. The site quotes the money that Apple keeps "after paying content owners but before paying for other costs". The 1.3 billion doesn't include paying the record/movie labels, bands, or app developers, but does include everything else.
In other words, "the infrastructure for the store and payments to everyone other than artists and app creators costs $1.3b a year, but Apple's 30 percent cut of everything produces about $1.3b a year in revenue, so it all works out."
Apple's revenue is $1.3 billion and since they about break even their costs are about $1.3 billion. Your second thought is consequently not in line with how cost is usually defined. If you are using the usual definition of cost the title of the submission is not misleading.
Price is what you charge your customers, cost is what you have to pay to make the product, revenue is the number of sold products times the price, profit (or loss) is revenue minus number of sold products times the cost.
I would have called music the least likely one to be making money, actually. A common usage pattern is buying one or two songs in a sitting, at which point transaction charges really become significant, and it has always seemed that the record labels take the lion's share of the payment.
iTunes TV, on the other hand, is probably more profitable, due to higher unit cost. Books almost _must_ be profitable, because they're in the same range as Kindle books, and Amazon wouldn't be pushing ebooks (and thus damaging their traditional book market) so hard if they couldn't make a profit on them.
I just looked and Apple hires iOS reviewers as full-time US employees with a CS degree. No salary listed, but I would guess that's around $100/hr cost to Apple. So one hour spent on reviewing a free app and now Apple is losing money.
Also of note, according to the article they spend $2.5 B on developers (ops likely included in that stat).
Another data point to illustrate that to effect total cost of ownership on a given system, focusing on developer productivity can have a greater impact than operational efficiencies.
I think it's missing the point to even talk about the operational cost of running the iTunes store. It's a strategic play equivalent to the setting up of tollgates on rivers in medieval times. The one most consistent theme across all of Apple's decisions is to not let go of a vice like control of access by third parties to their platform. My personal belief is that they know the future value of owning the tollgate that everyone must pass through to get digital products and information to consumers is far greater than even their hardware business is today. It may not manifest in raw numbers directly (yet) but in terms of the position of power it puts them in its value is incalculable.
iTunes store is an integral part of iDevices, they couldn't sell the things without it. They're trying to separate out the cost to try to justify their fees but it doesn't make any sense because it should be built into the price of the devices. Before the app store existed Apple still provided the iTunes store service to customers for free with the purchase of the device.
- Credit card processing
- The largest marketplace with the most paying customers
- Download hosting
- Promotion
- Highly available document and key/value store infrastructure
- Keeping junk and malware out of the store, which maintains user trust.
I'd argue that, like most emotionally influence business decisions, Apple sticking with the same percentage is a good thing - witness how the markets vary when things are up in the air politically.
Keeping the same policies for a long time allows businesses to plan appropriately as they know what they're going to get, even if it's not ideal.