19% of software on Apple's App Store is paid, with $1.49 average price

2»

Comments

  • chronsterchronster Posts: 1,894member
    You know, I really want to get one of these iphones, but the thing doesn't even play fart sounds? That's why I'm sticking to windows mobile for now. I have about 3 different fart apps I use daily, but the app store doesn't have a single one! In my line of work, this is unacceptable.
  • mark2005mark2005 Posts: 1,158member
    Quote:
    Originally Posted by jragosta View Post


    Typically, transaction fees for business are in a charge per transaction PLUS a percentage of the transaction price. For example, the credit card company we use is $0.20 per transaction plus 1.8% of the transaction amount. For big transactions, it's the percentage that matters. For small transactions, the fixed fee becomes important (which is why so many stores have a minimum credit card charge).



    One would think that Apple could do better than my $0.20 plus 1.8%. I'm not so sure, though. The credit card company would assume that for most businesses, the transaction would be large enough to generate significant revenue. For the average iTunes transaction, the price is low enough that almost all of the revenue comes from the fixed 'per transaction' fee, so the credit card company may be less willing to budge than they would be if the average transaction is higher. I doubt if anyone outside of Apple or the credit card processor has any direct knowledge.



    I agree that no one outside likely knows.



    But we do know that Apple groups credit card transactions from a single account as much as possible. I''ve had a single receipt with purchases made as far as two days apart.



    I've also seen other analysts state that they think Apple has negotiated special micropayment rates with the credit card companies for iTunes/App Store purchases.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by RationalTroll View Post


    Good job: this thread made it through 16 posts before resorting to wanton personal attacks. This may be a record for the AI forums.



    That the AppStore is contributing 1% of total profit for a company that makes most of its money on hardware is not insignificant. The AppStore is far more profitable than many of the software products the company sells, definitely a strong ROI.



    Based on what? Where are the figures saying that the App Store generates 1% of Apple's PROFITS?



    Quote:
    Originally Posted by RationalTroll View Post


    Moreover, it's a scalable investment: it's a content machine, the code is already written, so from this point on it can handle an ever-growing number of transactions with minimal enhancement investment, making its already high ROI higher and higher every month.



    Don't be surprised if this software investment becomes 2% of gross profits by this time next year. And like I said, for a hardware company this is nothing to sneeze at.



    Gross margin is not all that big a deal. As I explained in the section you apparently ignored, you still have to subtract overheads. And don't assume that overheads are fixed. Just because the code has been written doesn't mean that you're done. There's always maintenance, support, upgrades, etc.
  • charlitunacharlituna Posts: 7,068member
    Quote:
    Originally Posted by jragosta View Post


    Yes, but this is the first time I've seen Apple's costs broken out. The one that most people forget is that Apple keeps 30% - but then has to pay the credit card processor. On these small transactions, that's a killer - HALF of Apple's revenue goes out to the credit card processor.



    the trouble with that figure is that we don't know that all of those folks are using standard credit cards. Some could be using paypal or even itunes gift cards. That skews the numbers.



    but yes it is likely that said fees is the actual reason behind the 30%, to cover costs. Not to make a profit. Because any analyst worth his weight knows that the app store is NOT about making money. It is about encouraging hardware sales and discouraging jailbreaking, which would be way way more common if there was no sanctioned apps store
  • rationaltrollrationaltroll Posts: 510member
    Quote:
    Originally Posted by chronster View Post


    You know, I really want to get one of these iphones, but the thing doesn't even play fart sounds? That's why I'm sticking to windows mobile for now. I have about 3 different fart apps I use daily, but the app store doesn't have a single one! In my line of work, this is unacceptable.



    Good news: Apple's maintaining the high quality of wares available in the App Store by offering more than 700 variants of iFart:



    http://www.uquery.com/search?q=fart
  • 801801 Posts: 271member
    The monitization of a cloud computer has not been done yet, but I am confident that Apple could pull it off, sort of like a ramped up Mobile Me, with video content, Itunes, applications that time out or need updating, protection services, etc.



    I am also intrigued by the amount of monies siphoned off by the credit card companies. It seems that a company sitting on a a few billion could reform this system to make a thinner profit, but driven by the horsepower of the cloud. Sort of like the next level of paypal.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by charlituna View Post


    the trouble with that figure is that we don't know that all of those folks are using standard credit cards. Some could be using paypal or even itunes gift cards. That skews the numbers.



    Absolutely. The whole analysis is dependent on how good the analyst's figures are. Given historical experience, that may not be something worth betting on.



    However, the figures presented would not be inconsistent with what we know - that the app store operates just a bit above break-even.
  • rationaltrollrationaltroll Posts: 510member
    Quote:
    Originally Posted by jragosta View Post


    Based on what? Where are the figures saying that the App Store generates 1% of Apple's PROFITS?



    Those who read the article before diving into this discussion may have noticed this:



    Quote:

    A contribution of $189 million amounts to just 1 percent of the $33.7 billion in gross profit the Cupertino, Calif., company has earned since the App Store launched.



  • ltcompuserltcompuser Posts: 219member
    > Apple receives roughly 29 cents for every application downloaded, Munster said. He said the data implies the App Store has a gross margin of 44 percent.



    I'm a bit confused by this. If Apple pays out 70% off the top to the Developer how does that leave them with a gross margin of 44%?



    I'm missing something.



    Or, is the gross margin 44% of the 30% they receive?
  • ellisbergellisberg Posts: 3member
    The fact that Apple as much as breaks even on the App Store is a strategic accomplishment that should be the envy of every competitor. Leveraging the existing iTunes store to create a meritocracy for developers was a stroke of genius. They put the world of developers to work on a new platform adding to the value of that platform. They also can control the quality of apps offered and ensure compliance with Apple's own development guidelines. The 30% take was probably based on break-even pricing models to just cover costs. No existing or threatening competitor (e.g., Google) had anything close to this kind of infrastructure in place, so they all now have to build these facilities just to compete with the Apple ecosystem. Imagine what competitors' net margins are going to be after their store development and incremental operational costs are considered. Chumping Apple's competitors for free is exceptional, but profiting from the effort is all icing on a delicious cake. This is yet another reason Apple enjoys higher capitalization than any of its competitors.
  • jfanningjfanning Posts: 3,324member
    Quote:
    Originally Posted by jragosta View Post


    Typically, transaction fees for business are in a charge per transaction PLUS a percentage of the transaction price. For example, the credit card company we use is $0.20 per transaction plus 1.8% of the transaction amount. For big transactions, it's the percentage that matters. For small transactions, the fixed fee becomes important (which is why so many stores have a minimum credit card charge).



    One would think that Apple could do better than my $0.20 plus 1.8%. I'm not so sure, though. The credit card company would assume that for most businesses, the transaction would be large enough to generate significant revenue. For the average iTunes transaction, the price is low enough that almost all of the revenue comes from the fixed 'per transaction' fee, so the credit card company may be less willing to budge than they would be if the average transaction is higher. I doubt if anyone outside of Apple or the credit card processor has any direct knowledge.



    Wow, you are getting ripped off, I have know people in small businesses that were only paying 1% on credit cards (as part of a business group), and in the UK there used to be ads giving general commission prices for CC transactions and they were around 1% for more than 1,000,000 STR per year. Unless the US has some pretty bad fee structures (and remember, not all Apples CC transactions go through the US) they will be paying less than 1%
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by jfanning View Post


    Wow, you are getting ripped off, I have know people in small businesses that were only paying 1% on credit cards (as part of a business group), and in the UK there used to be ads giving general commission prices for CC transactions and they were around 1% for more than 1,000,000 STR per year. Unless the US has some pretty bad fee structures (and remember, not all Apples CC transactions go through the US) they will be paying less than 1%



    Don't assume that fees are the same in the U.S. as in the UK. The fee I'm paying (1.8% plus $0.20 per transaction) is actually a pretty good fee in the U.S. Not the best, but better than average.



    Quote:
    Originally Posted by ltcompuser View Post


    > Apple receives roughly 29 cents for every application downloaded, Munster said. He said the data implies the App Store has a gross margin of 44 percent.



    I'm a bit confused by this. If Apple pays out 70% off the top to the Developer how does that leave them with a gross margin of 44%?



    I'm missing something.



    Or, is the gross margin 44% of the 30% they receive?



    Please read the explanation I gave above - or a basic economics text. Apple's revenue is the 30% take (technically, that's not entirely true, but that's the way it's being reported and is not completely unreasonable). They're claiming that Apple's gross margin is 40% _of Apple's revenues_ (which would be the 30% they keep).



    Note that the 44% figure is coming from an analyst. I have no way of knowing how Apple is actually reporting it. In normal reporting, Apple's revenues would be 100%. Cost of sales would be the 70% they pay the developer and the 16% that they pay for credit card fees and processing - leaving a 14% gross margin.



    Quote:
    Originally Posted by RationalTroll View Post


    Those who read the article before diving into this discussion may have noticed this: :A contribution of $189 million amounts to just 1 percent of the $33.7 billion in gross profit the Cupertino, Calif., company has earned since the App Store launched."



    Yep. As I thought - you aren't able to tell the difference between gross margin (contribution) and profit. Your original claim was that it contributed 1% of profit. Now you're saying it's 1% of gross margin (= gross profit). You really need to learn the difference between gross margin or gross profit and profit before embarrassing yourself further. I already gave you an explanation but you were too busy with your personal attacks to read it, I guess.
  • jfanningjfanning Posts: 3,324member
    Quote:
    Originally Posted by jragosta View Post


    Don't assume that fees are the same in the U.S. as in the UK. The fee I'm paying (1.8% plus $0.20 per transaction) is actually a pretty good fee in the U.S. Not the best, but better than average.



    Ok, couple of things to remember though,



    50% of Apples sales are outside the US, a lot of Apples CC transactions are handled in Ireland now.

    How many $million does Apple sell per year??? Are you saying that place you work for equals Apple for sales so they will be paying the same as you???
  • ltcompuserltcompuser Posts: 219member
    Quote:
    Originally Posted by jragosta View Post


    Note that the 44% figure is coming from an analyst. I have no way of knowing how Apple is actually reporting it. In normal reporting, Apple's revenues would be 100%. Cost of sales would be the 70% they pay the developer and the 16% that they pay for credit card fees and processing - leaving a 14% gross margin.



    These numbers are how I looked at it, hence the confusion over 44% gross margin. In all cases, I've seen gross margin was based on total revenue.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by jfanning View Post


    Ok, couple of things to remember though,



    50% of Apples sales are outside the US, a lot of Apples CC transactions are handled in Ireland now.

    How many $million does Apple sell per year??? Are you saying that place you work for equals Apple for sales so they will be paying the same as you???



    As I said:



    1. We don't know how much Apple is paying. All we have is an analyst's guess - and I don't put much faith in them.



    2. The credit card companies may be less likely to discount for Apple because there will be so many small transactions and so few large ones. On smaller transactions, the 'per transaction' piece of the fee becomes dominant.



    Quote:
    Originally Posted by ltcompuser View Post


    These numbers are how I looked at it, hence the confusion over 44% gross margin. In all cases, I've seen gross margin was based on total revenue.



    That is correct. Gross margin is always Revenues minus Cost of Sales. However, I haven't seen the contracts so I don't know how they're set up.



    If it's set up as Apple buying the software from the developer and then reselling it to you, then the revenue would be the total transaction value.



    OTOH, if it's set up such that the transaction is actually between you and the developer and Apple is keeping its 30% as a commission, then Apple's revenue will be the 30% figure.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by Stevie View Post


    I have the same question. ISTM that the gross margin is 30% maximum, due to the cost of goods sold being 70% of revenues.



    Read the last 2 sentences of post #36.
  • rulebreakerrulebreaker Posts: 32member
    gene's figures may be correct for 99c apps ... but i am sure apple is retaining a much higher cut of their 30% on more expensive apps. There is no way the cc company is taking over $1 per $10 app.



    apple is putting literally billions through their merchant account - you really think they haven't negotiated a good deal for themselves?



    plus apple amalgamates app purchases over a period of time per purchaser to lower the transaction fees.



    and finally when apple sells a gift card at an apple store the total credit card fee maybe pretty low - say between 1 and 3%.
  • rationaltrollrationaltroll Posts: 510member
    Quote:
    Originally Posted by jragosta View Post


    Quote:
    Originally Posted by RationalTroll View Post


    Those who read the article before diving into this discussion may have noticed this:

    Quote:

    A contribution of $189 million amounts to just 1 percent of the $33.7 billion in gross profit the Cupertino, Calif., company has earned since the App Store launched.]





    Yep. As I thought - you aren't able to tell the difference between gross margin (contribution) and profit. Your original claim was that it contributed 1% of profit. Now you're saying it's 1% of gross margin (= gross profit). You really need to learn the difference between gross margin or gross profit and profit before embarrassing yourself further. I already gave you an explanation but you were too busy with your personal attacks to read it, I guess.



    The irony of your lecturing me on personal attacks is not lost on the readers here, who are astute enough to note that I made no such claim of my own but merely quoted the article that most of them read before entering this discussion.



    If you feel the article is incorrect don't shoot the messenger. You can contact AppleInsider here:

    http://www.appleinsider.com/contact.php
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by RationalTroll View Post


    The irony of your lecturing me on personal attacks is not lost on the readers here, who are astute enough to note that I made no such claim of my own but merely quoted the article that most of them read before entering this discussion.



    Nice dodge.



    Let's go back through the thread.



    #1. You stated that 1% of Apple's PROFIT came from app sales.



    #2. I asked for evidence to support that claim



    #3. You quoted the article claiming that 0.6% of GROSS PROFIT came from app sales. The article specifically says 'gross profit', not 'profit'.



    #4. I pointed out to you that gross profit is not the same as profit-and give a detailed explanation of why you were incorrect in confusing profit and gross profit



    #5. Instead of learning from your mistake, you pretend that it was the article that was in error. Clearly, you STILL don't understand the difference between profit and gross profit.



    Some people are completely unwilling to learn anything. So sad.
  • rationaltrollrationaltroll Posts: 510member
    Quote:
    Originally Posted by jragosta View Post


    Nice dodge.



    Let's go back through the thread.



    #1. You stated that 1% of Apple's PROFIT came from app sales.



    #2. I asked for evidence to support that claim



    #3. You quoted the article claiming that 0.6% of GROSS PROFIT came from app sales. The article specifically says 'gross profit', not 'profit'.



    #4. I pointed out to you that gross profit is not the same as profit-and give a detailed explanation of why you were incorrect in confusing profit and gross profit



    #5. Instead of learning from your mistake, you pretend that it was the article that was in error. Clearly, you STILL don't understand the difference between profit and gross profit.



    Some people are completely unwilling to learn anything. So sad.



    Are you claiming that "gross profit" is not a form of profit?



    I've already given you a means of contacting Apple Insider.



    Enjoy your shovel...
Sign In or Register to comment.