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Apple's iTunes Store, App Store now cost roughly $1.3 billion a year to operate

post #1 of 16
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The costs associated with maintaining the iTunes Store and App Store have grown to more than $1.3 billion a year, according to one estimate.

Asymco blogger Horace Dediu crunched the numbers using data published by Apple at last week's Worldwide Developers Conference. Dediu assumes that Apple continues to run the stores at "just above break even."

The company has said for years that the iTunes Store and App Store do not generate much profit, as most of the it is invested back into supporting the stores.

According to Apple, the digital storefronts have reached 15 billion song downloads, 130 million book downloads and 14 billion app downloads. There are now 225 million iTunes accounts and 50 million Game Center accounts. The App Store offers 425,000 apps, including 90,000 apps developed specifically for the iPad.

Dediu combined Apple's download estimates with the average price of songs and apps and the split between developers or music labels and Apple to arrive at his estimate. After adding together the content margin for songs and apps, Dediu estimates that operation costs reach approximately $113 million per month, from a total income of $313 million month.



"Much of that cost does go into serving the content (traffic and payment processing). Some of it goes to curation and support. But its very likely that there is much left over to be invested in capacity increases," Dediu said.



Apple's most significant investment toward capacity increases likely came in the form of a $500 million data center in Maiden, N.C. The company said this spring that the facility, which is nearly five times the size of its existing Newark facility, would support the iTunes and MobileMe services. Given that MobileMe is due to be phased out in June 2012, the server farm will support the just-announced iCloud service.

iTunes has become the largest music and movie store in the world. In April, reports emerged that Apple had ordered 12 petabytes, or 12,000 terabytes, of additional storage for hosting video content on iTunes.
post #2 of 16
Quote:
Originally Posted by AppleInsider View Post

The costs associated with maintaining the iTunes Store and App Store have grown to more than $1.3 billion a year, according to one estimate.


I read the Asymco post and forgive me, but I'm not sure that Horace's tongue wasn't in his cheek. Certainly, some Apple execs in the past have said that the store barely runs above break even, but we don't know that that is still true today, right? If the store's revenues are growing exponentially but the costs are linear, isn't it possible that the profit is becoming substantial and that Horace, of all people, understands this pretty well?
post #3 of 16
Quote:
Originally Posted by delreyjones View Post

I read the Asymco post and forgive me, but I'm not sure that Horace's tongue wasn't in his cheek. Certainly, some Apple execs in the past have said that the store barely runs above break even, but we don't know that that is still true today, right? If the store's revenues are growing exponentially but the costs are linear, isn't it possible that the profit is becoming substantial and that Horace, of all people, understands this pretty well?

Horace sufficiently covered all that. My question to you is why do you think the costs are linear if the growth rate is exponential and the file size to be downloaded is not likely to decrease. I'd wager there costs have also increased on a curve, including but limited to the new data centers they've invested in.
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post #4 of 16
Quote:
Originally Posted by solipsism View Post

Horace sufficiently covered all that. My question to you is why do you think the costs are linear if the growth rate is exponential and the file size to be downloaded is not likely to decrease. I'd wager there costs have also increased on a curve, including but limited to the new data centers they've invested in.

Maybe you're right. I guess I'm assuming that a significant percentage of the costs are non-recurring engineering and maintenance costs as opposed to costs correlated with data traffic. So do you guys figure the number of personnel required to run the store is going up exponentially? My thoughts were that the personnel count is not going up exponentially and their salaries are a significant fraction of the total. But I'm only speculating and I think I may trust you and Horace more than I trust my speculations
post #5 of 16
If the iTunes/App Store was generating significant profit, Apple would need to divulge this to shareholders in their SEC filings, as any incident that affects the online content stores' operation would have a significant detrimental impact to Apple's profitability. So far, the numbers don't show a large revenue stream apart from hardware sales.

Because Apple does not break out iTunes/App Store revenue as a separate line item, it is likely that those operations are not significantly contributing much to the bottom line, i.e., they aren't P&L centers.

So Apple tosses iTunes/App Store revenue in to the "misc" bucket and assigns the operating costs to SG&A, leaving it a wash.

By contrast, Apple provides significantly more data about their retail sales operations as that business unit is a significant contributor to Apple's bottom line.
post #6 of 16
Who do they have running these numbers ... Dr. Evil?
post #7 of 16
Quote:
Originally Posted by solipsism View Post

Horace sufficiently covered all that. My question to you is why do you think the costs are linear if the growth rate is exponential and the file size to be downloaded is not likely to decrease. I'd wager there costs have also increased on a curve, including but limited to the new data centers they've invested in.

I don't think the transfer/storage of data is a large part of the cost of the App store. The people who review all those apps seems more likely to be the largest part of the cost. Do those costs increase exponentially? Maybe, but maybe not. Seems like monthly submissions to the App store may not have increased exponentially, so the staff devoted to reviewing the apps may be relatively steady.
post #8 of 16
Quote:
Originally Posted by delreyjones View Post

Maybe you're right. I guess I'm assuming that a significant percentage of the costs are non-recurring engineering and maintenance costs as opposed to costs correlated with data traffic.

I agree with that point and some of that can be a huge investment they aren't likely to lose money on (i.e., land purchase) but I would think Apple would pull from that pool from their iTunes related funds first and foremost for these investments.

Now we have Apple offering iCloud for free which has 10 major services attached to it, included iTunes Match service. i'd say a good argument can be made for Apple doing well enough to warrant this expense. It's not only that these services reinforce their HW sales and profits because they did all that before iCloud and after iTools became the paid for service known as .Mac.
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post #9 of 16
Quote:
Originally Posted by cameronj View Post

Seems like monthly submissions to the App store may not have increased exponentially, so the staff devoted to reviewing the apps may be relatively steady.

With nearing a half-billion active apps in the store I agree that it's costly to be judge, jury and executioner over such a large store.

Don't forget that app updates also have to get reviewed. It might not be as stringent once you're already in, but it's still a process.
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post #10 of 16
Quote:
Originally Posted by delreyjones View Post

Maybe you're right. I guess I'm assuming that a significant percentage of the costs are non-recurring engineering and maintenance costs as opposed to costs correlated with data traffic. So do you guys figure the number of personnel required to run the store is going up exponentially? M

You have equipment, data traffic, personnel costs and licensing for content as well as power etc. All of which are recurring (some yearly, some daily).

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

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post #11 of 16
Quote:
Originally Posted by charlituna View Post

You have equipment, data traffic, personnel costs and licensing for content as well as power etc. All of which are recurring (some yearly, some daily).

Recurring is not the same as exponentially growing
post #12 of 16
One thing is for sure, it sets the bar pretty high for anyone to compete. This is the heart and soul of the eco system that sets Apple apart.
Enjoying the new Mac Pro ... it's smokin'
Been using Apple since Apple ][ - Long on AAPL so biased
nMac Pro 6 Core, MacBookPro i7, MacBookPro i5, iPhones 5 and 5s, iPad Air, 2013 Mac mini.
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Enjoying the new Mac Pro ... it's smokin'
Been using Apple since Apple ][ - Long on AAPL so biased
nMac Pro 6 Core, MacBookPro i7, MacBookPro i5, iPhones 5 and 5s, iPad Air, 2013 Mac mini.
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post #13 of 16
12petabytes
post #14 of 16
No, no, no, this is all wrong, it doesn't cost Apple anything, iTunes and Apps are pure profit which is why Adobe Flash is blocked.

This is the real truth a million Android fans told me so on fora across the web.

Better than my Bose, better than my Skullcandy's, listening to Mozart through my LeBron James limited edition PowerBeats by Dre is almost as good as my Sennheisers.
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Better than my Bose, better than my Skullcandy's, listening to Mozart through my LeBron James limited edition PowerBeats by Dre is almost as good as my Sennheisers.
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post #15 of 16
Bullsh**!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Period. End of!
post #16 of 16
Quote:
Originally Posted by maccherry View Post

Period. End of!

Uh, what? That it costs so much to operate? The number of songs/movies/tv shows/apps?

That Apple exists?

Originally posted by Relic

...those little naked weirdos are going to get me investigated.
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Originally posted by Relic

...those little naked weirdos are going to get me investigated.
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