or Connect
AppleInsider › Forums › Mobile › iPod + iTunes + AppleTV › Apple now collecting twice as much from iTunes, software & services as from iPod sales
New Posts  All Forums:Forum Nav:

Apple now collecting twice as much from iTunes, software & services as from iPod sales

post #1 of 37
Thread Starter 
Apple's reclassification of its revenues to isolate iTunes' software, media and services separately from its hardware products has revealed the hidden billions of dollars in revenues the company has been earning on top of its hardware sales of computers and gadgets, revenues that now dwarf the company's iPod sales.

iTunes


Apple previously reported its revenue from its apps and accessories spread across several different buckets. "Other music related products and services" included revenue from sales in the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. iPhone and iPad revenues historically included "related products and services" revenue, which included Apple-branded and third-party accessories as well as the company's iOS-oriented services and licensing revenue.

Conversely, the company's "Software, service and other sales" category historically only included revenue from sales of Apple-branded and third-party software for the Mac platform. However, as AppleInsider recently outlined, that has changed in the most recent quarter's reporting.

As Apple's chief financial officer made clear in the company's earnings call last week, beginning in the fiscal Q1, "all revenue from iTunes, standalone Apple and third-party software and services is presented as a single line item and revenue from all Apple and third-party accessory sales is presented as a [seperate] single line item.

"We believe this presentation provides a logical grouping of revenue sources and also provides greater transparency into our results," he added.

Apple Revised Revenues 2011

Apple Revised Revenues 2012


Books rejiggered to reflect change



Apple's reclassified statements of its quarterly earnings (shown above) over the past two years sheds light on just how much of what the company had been calling, for example "iPhone revenue" was actually attributable to iTunes' ecosystem sales of apps and services or accessories.

With the change, Apple's reported revenues expressly attributed to its "software and services" have jumped from $891 million for the quarter ending in June 2012 to $2.5 billion in software and an additional $1 billion in accessory revenue. This isn't retroactive growth; it's just a clarification of where Apple's revenues were actually coming from in that quarter.

For all of fiscal 2011, Apple is now noting that it actually collected $9.37 billion from "iTunes Software and Services" (including iTunes Store media sales, App Store downloads, iBooks, iCloud, licensing programs such as the "Made for iPod" and AppleCare) and another $4.47 billion from accessory sales. That was almost $2 billion more than the company earned from selling iPods.

For the most recent fiscal year that ended last September, Apple collected a staggering $12.89 billion from software and services and $5.15 billion from accessories. The software number is over twice as much as Apple earned from iPod sales, while accessories revenue was just 10 percent less than the company's iPod revenues.

In the winter quarter (Apple's fiscal Q1), the company reported "iTunes Software and Services" revenues of $3.69 billion and accessory sales of $1.83 billion. Those figures represented year over year growth of 22 and 25 percent over the year ago quarter (despite that previous quarter having an extra week). That growth matched the net revenue growth of the company's blockbuster year-over-year iPad performance.

On a quarterly basis, Apple's $5.5 billion in combined software and accessory revenues amounted to more than twice what the company made from selling iPods in the holiday quarter. That revenue was also about equal to the company's quarterly revenues from selling Macs (although Mac sales were down significantly due to the late introduction of new iMac models).

iTunes is as big as Windows, Office



Even more shocking, Apple's iTunes software and accessory revenues for the quarter were roughly equal to Microsoft's revenues from its Windows or Business (Office, SharePoint and Exchange) Divisions, and more than a billion dollars greater than Microsoft's Entertainment and Devices Division (which sells the Xbox, Windows Phone and related products and accessories).

Just five years ago, pundits were predicting that Apple's iPod business would overwhelm its Mac platform to the point where it would be best to just get rid of selling Macs entirely to focus on iPod sales. Apple didn't do that of course, but more more importantly, it also focused on peripheral sales to its new hardware line, turning iTunes into a digital software marketplace and erecting an ecosystem of accessories and services around it.

While Apple's new product introductions (particularly the iPhone and iPad) have gotten the most attention, iTunes has expanded dramatically over the past half decade. Efforts to rival iTunes, by Amazon, Google, Microsoft, Nokia, Sony, Samsung and others, have all done nothing to stop Apple's software and services growth and relatively very little to establish viable, competitive alternatives.
post #2 of 37

Apple IDs as credit accounts.

 

and this is why the endgame isn't selling more hardware at ever increasing margins.

 

The end game is making the 'apple ecosystem' an 'all-inclusive' experience, selling  music, movies, books....

 

and tickets to music and movies

 

and tickets to airplanes

 

and hotels

 

and starbucks coffee

 

and gasoline

 

and electricity

 

and food

 

 

Even if apple doesn't sell it themselves, if they make it at a 5-30% on each sale  for say $20-50 a month of sales for say.... 1 BILLION people...

 

That's VISA money opportunities.  

 

BTW, Visa sells at a P/E of 83. and a market cap of 100B.

post #3 of 37

Apple is becoming really big and powerful. I just hope they keep behaving correctly, not like MS did, and they (Apple) are much more powerful now.

post #4 of 37
Quote:
Originally Posted by TheOtherGeoff View Post

Apple IDs as credit accounts.

 


 

Even if apple doesn't sell it themselves, if they make it at a 5-30% on each sale  for say $20-50 a month of sales for say.... 1 BILLION people...

 

That's VISA money opportunities.  

 

BTW, Visa sells at a P/E of 83. and a market cap of 100B.

 

Forward PE on Visa is just 18.  Also technology disruption would bet it is more likely that Visa is around and much larger in 10 years while Apple could potentially be a RIMM, Microsoft or Nokia in 10 years.  One would think Visa would get an even higher forward multiple than 18 for this confidence in future cash flows

post #5 of 37
Impressive. Impressive that these reports are coming out now.
post #6 of 37
Quote:
Originally Posted by pedromartins View Post

Apple is becoming really big and powerful. I just hope they keep behaving correctly, not like MS did, and they (Apple) are much more powerful now.

Have they done something to you that makes you worried?

 

If it gets bothersome enough, the market will speak.

post #7 of 37

These numbers are quite phenomenal. This segment has grown >35% between 2011-12.

 

The only thing I wonder about: Is all of iTunes sales included as 'revenue,' or only 30%?

post #8 of 37
Good Piece, Mr. Dilger.
post #9 of 37
Quote:
Originally Posted by anantksundaram View Post

The only thing I wonder about: Is all of iTunes sales included as 'revenue,' or only 30%?

 

I would guess it's the full amount. And the fees paid to the record companies or app developers or book publishers is considered COGS (cost of goods sold). In other words, when you buy a track from iTunes, Apple records that as 99 cents of revenue. Then they pay the record company about 70 cents and call that COGS (there are other costs in there too...storage...bandwidth, etc.)

The state is nothing more than a criminal gang writ large.

Reply

The state is nothing more than a criminal gang writ large.

Reply
post #10 of 37

Is there a similarly broken out profit table?

The state is nothing more than a criminal gang writ large.

Reply

The state is nothing more than a criminal gang writ large.

Reply
post #11 of 37
Quote:
Originally Posted by mvigod View Post

 

Forward PE on Visa is just 18.  Also technology disruption would bet it is more likely that Visa is around and much larger in 10 years while Apple could potentially be a RIMM, Microsoft or Nokia in 10 years.  One would think Visa would get an even higher forward multiple than 18 for this confidence in future cash flows

 

Visa disrupted conventional checking and store's own revolving credit lines. But, Visa (like MasterCard) doesn't actually extend credit or print cards or charge fees. It just licenses out its brand to other financial institutions. 

 

If there is a "technical disruption" in payments, it will far more likely disrupt the old dinosaurs of plastic. And the most likely beneficiary will be whoever figures out how to best facilitate payments between buyers and sellers, not the plastic credit card brand introduced to your parent's generation.

 

Sure, Apple could conceivably lose its current position ten years from now, but the company is far more broad, vertically integrated and competent than the one trick RIM (messaging devices tied to a central server), the three trick Microsoft (Windows, Office/Server and Xbox) and the Finnish wood pulp and rubber outfit that happened upon telephony in the 1970s before imploding this decade. None of those companies have ever generated the revenues or profits of today's Apple, nor have they been able to successfully create or enter new lines of business, one right after the other, with the batting average of Apple. 

 

Anyone who is not very impressed with Apple's performance over the past five years is simply ignorant and foolish. One doesn't even have to like the company or its products to understand and appreciate that it has transformed industries and shifted the global culture.

 

You might as well suggest the USA is going to collapse in a decade just because you can come up with examples of other governments that have in the last century. Spain, Italy, Germany, Prussia, France, Japan.

post #12 of 37
Quote:
Originally Posted by mvigod View Post

 

Forward PE on Visa is just 18.  Also technology disruption would bet it is more likely that Visa is around and much larger in 10 years while Apple could potentially be a RIMM, Microsoft or Nokia in 10 years.  One would think Visa would get an even higher forward multiple than 18 for this confidence in future cash flows

 

because all markets recognize risk: the concept of a 16 digit number and a signature being a fungible financial instrument is up for technology disruption, just like the bank check.  Everyone is a Potential RIMM or CarteBlanche.  or Even a GE for that matter, and GE wasn't fundementally disrupted.  Risk is everywhere.

 

Apple itself disrupts it's technology.  Self annealing so to speak.

 

The comparison stands... And for that matter, it really brings in Apple's (and Visa's) true competitor, Amazon.  

 

Although my hypothesis for the 130Billion in the bank is that Apple actually become a Bank. (a pretty large one at that).   Given Apple's current model of creating an amazing  personal computing experience, my guess owning the financial transaction experience(given under the current bank card model, Apple holds all the risk anyway) is in Apple's best interest to move that way as well.

post #13 of 37

This article takes a pretty straight-forward presentation from Apple that restates sources of revenue -- and tries to conflate that with the premise that Apple earnings from software is greater than Apple earnings from the iPad:

 

Quote:
Apple collected a staggering $12.89 billion from software and services and $5.15 billion from accessories. The software number is over twice as much as Apple earned from iPod sales

 

Or Microsoft earnings from Windows or Office:

 

Quote:
Even more shocking, Apple's iTunes software and accessory revenues for the quarter were roughly equal to Microsoft's revenues from its Windows or Business (Office, SharePoint and Exchange) Divisions, and more than a billion dollars greater than Microsoft's Entertainment and Devices Division (which sells the Xbox, Windows Phone and related products and accessories). 

 

 

Apple does not break down earnings or profit by category -- but have stated on repeated occasions that the iTunes ecosystem is break-even, or:

 

Revenue -- Expenses ~=  0  

 

earnings (profit) ~=  0

 

 

It is bullocks to suggest that any because any profitable Apple or Microsoft category is exceeded by iTunes Revenue -- that the iTunes store earnings are better...  

"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
post #14 of 37
What are earnings from iTunes/iBooks/AppStore?
post #15 of 37
Quote:
Originally Posted by Rogifan View Post

What are earnings from iTunes/iBooks/AppStore?

 

According to Apple, break even or ~= $0

"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
post #16 of 37
Quote:
Originally Posted by pedromartins View Post

Apple is becoming really big and powerful. I just hope they keep behaving correctly, not like MS did, and they (Apple) are much more powerful now.

 

 

Well lets just look at some of there ethical behavior,   They pledged to both the DOJ in this country and the EU Commission not to use frand patents to get injunctions like there competitors have(google, erickson, samsung, nokia, htc  just to name a few), and did so in writing to both the DOJ and The EU commission.  They have policed themselves and were the first to join organizations for ethical treatment of workers, and also have now been forcing there manufacturing partners to adopt there policies world wide for workers.  They are going to run all of there data centers by the end of this year on 100% renewable energy.  The list goes on and on.

 

 

I think there way ahead of microsoft on every account of ethical behavior and looks like they will continue to do so.

post #17 of 37
Can we go back to all those posts commenting that apple makes no money on iTunes, as its just "covering its overheads"
Household: MacBook, iPad 16gb wifi, iPad 64gb wifi, iPad Mini 32gb, coming iPhone 5S, iPhone 4S 32gb, iPhone 32gb, iPod Touch 4th gen x1, iPod nano 16gb gen 5 x2, iPod nano gen 3 8gb, iPod classic...
Reply
Household: MacBook, iPad 16gb wifi, iPad 64gb wifi, iPad Mini 32gb, coming iPhone 5S, iPhone 4S 32gb, iPhone 32gb, iPod Touch 4th gen x1, iPod nano 16gb gen 5 x2, iPod nano gen 3 8gb, iPod classic...
Reply
post #18 of 37
Quote:
Originally Posted by TheOtherGeoff View Post

 

because all markets recognize risk: the concept of a 16 digit number and a signature being a fungible financial instrument is up for technology disruption, just like the bank check.  Everyone is a Potential RIMM or CarteBlanche.  or Even a GE for that matter, and GE wasn't fundementally disrupted.  Risk is everywhere.

 

Apple itself disrupts it's technology.  Self annealing so to speak.

 

The comparison stands... And for that matter, it really brings in Apple's (and Visa's) true competitor, Amazon.  

 

Although my hypothesis for the 130Billion in the bank is that Apple actually become a Bank. (a pretty large one at that).   Given Apple's current model of creating an amazing  personal computing experience, my guess owning the financial transaction experience(given under the current bank card model, Apple holds all the risk anyway) is in Apple's best interest to move that way as well.

Interesting, I was thinking about what Apple could do with that money and banking came to mind.  I dont know anything about it, but it doesnt seem that far fetched.

post #19 of 37
Quote:
Originally Posted by cycomiko View Post

Can we go back to all those posts commenting that apple makes no money on iTunes, as its just "covering its overheads"

 

Not just yet. See posts 13 and 15 above. This article is only speaking of revenues, not profits.

The state is nothing more than a criminal gang writ large.

Reply

The state is nothing more than a criminal gang writ large.

Reply
post #20 of 37
Quote:
Originally Posted by cycomiko View Post

Can we go back to all those posts commenting that apple makes no money on iTunes, as its just "covering its overheads"

1) iTunes ≠ iTunes Store or rather the iTunes Music Store when Apple made that statement. iTunes is an app they give away for free.

2) The chart clearly shows it's from the iTunes Store, App Store, Mac App Store, iBookstore, Applecare, Applecare+, licensing and other services. They very well could still be operating their music portion of the iTunes Store slightly in the black. I doubt it due to the economics of scale in a digital world but we don't actually know.

3) This chart lists revenue, not profit. There are plenty of companies that have made more revenue and had higher expenses thus putting them in the red for that quarter. I doubt it's the case here but, again, we don't actually know.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply
post #21 of 37
Quote:
Originally Posted by tkell31 View Post

Quote:
Originally Posted by TheOtherGeoff View Post

 

because all markets recognize risk: the concept of a 16 digit number and a signature being a fungible financial instrument is up for technology disruption, just like the bank check.  Everyone is a Potential RIMM or CarteBlanche.  or Even a GE for that matter, and GE wasn't fundementally disrupted.  Risk is everywhere.

 

Apple itself disrupts it's technology.  Self annealing so to speak.

 

The comparison stands... And for that matter, it really brings in Apple's (and Visa's) true competitor, Amazon.  

 

Although my hypothesis for the 130Billion in the bank is that Apple actually become a Bank. (a pretty large one at that).   Given Apple's current model of creating an amazing  personal computing experience, my guess owning the financial transaction experience(given under the current bank card model, Apple holds all the risk anyway) is in Apple's best interest to move that way as well.

Interesting, I was thinking about what Apple could do with that money and banking came to mind.  I dont know anything about it, but it doesnt seem that far fetched.

 

The last time I looked (about 7 years ago), Apple was paying about 2%-5% on each cc transaction.  Some of that is a fixed transaction processing fee and the rest is based on the amount of the transaction.

 

Apple does not necessarily post a transaction as each sale occurs -- rather they try to accumulate several sales into a single transaction -- to minimize transaction fees.

 

So, it does not appear that elimination of cc charges would be a big profit or cost savings opportunity for Apple.

 

However, if Apple were to expand their store to:

  • sell hard goods
  • finance sales of computers and phones
  • sell services, e.g. mobile phone services

 

Things like the above could be a significant financial opportunity.

"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
post #22 of 37
Quote:
Originally Posted by SolipsismX View Post

Quote:
Originally Posted by cycomiko View Post

Can we go back to all those posts commenting that apple makes no money on iTunes, as its just "covering its overheads"

1) iTunes ≠ iTunes Store or rather the iTunes Music Store when Apple made that statement. iTunes is an app they give away for free.

2) The chart clearly shows it's from the iTunes Store, App Store, Mac App Store, iBookstore, Applecare, Applecare+, licensing and other services. They very well could still be operating their music portion of the iTunes Store slightly in the black. I doubt it due to the economics of scale in a digital world but we don't actually know.

3) This chart lists revenue, not profit. There are plenty of companies that have made more revenue and had higher expenses thus putting them in the red for that quarter. I doubt it's the case here but, again, we don't actually know.

 

Yes!  From the way Apple continuously refers to the iTunes Store(s) as break-even -- it signifies that they are not attempting to make a profit form these sates... at this point in time!

 

I suspect that could change if a significant opportunity presents itself.

 

However, a better use of the iTunes Store  might be to offer low-cost financing for iPhones, and/or low cost monthly iPhone MVNO services. They could do either or both of these at break even.

"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
post #23 of 37
Quote:
Originally Posted by Dick Applebaum View Post

This article takes a pretty straight-forward presentation from Apple that restates sources of revenue -- and tries to conflate that with the premise that Apple earnings from software is greater than Apple earnings from the iPad:


Or Microsoft earnings from Windows or Office:



Apple does not break down earnings or profit by category -- but have stated on repeated occasions that the iTunes ecosystem is break-even, or:

Revenue -- Expenses ~=  0  

earnings (profit) ~=  0


It is bullocks to suggest that any because any profitable Apple or Microsoft category is exceeded by iTunes Revenue -- that the iTunes store earnings are better...  
,

Dick: incorrect. Revenue is being compared to revenue. Check the chart. Check Microsoft's quarterly revenue. Nothing is being "conflated."

Apple saying it runs iTunes at "break even" applies to some content/software revenue, but Apple does not promise not to earn any money on licensing, services, AppleCare, or even iTunes.

Ask Microsoft how much money it makes from online services and Xbox/Windows Phone.
post #24 of 37
Quote:
Originally Posted by SolipsismX View Post


1) iTunes ≠ iTunes Store or rather the iTunes Music Store when Apple made that statement. iTunes is an app they give away for free.

2) The chart clearly shows it's from the iTunes Store, App Store, Mac App Store, iBookstore, Applecare, Applecare+, licensing and other services. They very well could still be operating their music portion of the iTunes Store slightly in the black. I doubt it due to the economics of scale in a digital world but we don't actually know.

3) This chart lists revenue, not profit. There are plenty of companies that have made more revenue and had higher expenses thus putting them in the red for that quarter. I doubt it's the case here but, again, we don't actually know.

1) irrelevant

2) nss

3) nss

Household: MacBook, iPad 16gb wifi, iPad 64gb wifi, iPad Mini 32gb, coming iPhone 5S, iPhone 4S 32gb, iPhone 32gb, iPod Touch 4th gen x1, iPod nano 16gb gen 5 x2, iPod nano gen 3 8gb, iPod classic...
Reply
Household: MacBook, iPad 16gb wifi, iPad 64gb wifi, iPad Mini 32gb, coming iPhone 5S, iPhone 4S 32gb, iPhone 32gb, iPod Touch 4th gen x1, iPod nano 16gb gen 5 x2, iPod nano gen 3 8gb, iPod classic...
Reply
post #25 of 37
Quote:
Originally Posted by Corrections View Post

Quote:
Originally Posted by Dick Applebaum View Post

This article takes a pretty straight-forward presentation from Apple that restates sources of revenue -- and tries to conflate that with the premise that Apple earnings from software is greater than Apple earnings from the iPad:


Or Microsoft earnings from Windows or Office:



Apple does not break down earnings or profit by category -- but have stated on repeated occasions that the iTunes ecosystem is break-even, or:

Revenue -- Expenses ~=  0  

earnings (profit) ~=  0


It is bullocks to suggest that any because any profitable Apple or Microsoft category is exceeded by iTunes Revenue -- that the iTunes store earnings are better...  
,

Dick: incorrect. Revenue is being compared to revenue. Check the chart. Check Microsoft's quarterly revenue. Nothing is being "conflated."

Apple saying it runs iTunes at "break even" applies to some content/software revenue, but Apple does not promise not to earn any money on licensing, services, AppleCare, or even iTunes.

Ask Microsoft how much money it makes from online services and Xbox/Windows Phone.

 

Comparing Revenue of entities not making a profit serves what purpose exactly?

 

Nowever, you go further:

 

 

 

Quote:

iTunes is as big as Windows, Office

 


Even more shocking, Apple's iTunes software and accessory revenues for the quarter were roughly equal to Microsoft's revenues from its Windows or Business (Office, SharePoint and Exchange) Divisions, and more than a billion dollars greater than Microsoft's Entertainment and Devices Division (which sells the Xbox, Windows Phone and related products and accessories). 

 

 

What use does the above comparison serve?   The only thing I can think of is misinformation that implies that the iTunes Store is as viable a profit making enterprise as Windows or Office... clearly, it is not!

 

edit: FWIW, Lichtenstein has almost double the area in square miles as Manhattan Island.


Edited by Dick Applebaum - 1/28/13 at 8:13pm
"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
"Swift generally gets you to the right way much quicker." - auxio -
"He who laughs, lasts!" - Mary Pettibone Poole -
Reply
post #26 of 37
Quote:
Originally Posted by MJ1970 View Post

Is there a similarly broken out profit table?

No.
post #27 of 37
Although iPod sales is declining, don't forget they have morphed into another form: there's an iPod inside every iPhone and iPad sold.

We also need Apple to morph the "phone" in iPhone and make telephone calling a feature in every 3G/4G device. Of course, if phone calling is built into the iPads, people should use the Apple earphones or a Bluetooth headset, not hold the huge thing to their ear. As shown by large sales of "phablets", consumers prefer to carry one device and be able to make phone calls on it.
post #28 of 37
Quote:
Originally Posted by KDMeister View Post

Although iPod sales is declining, don't forget they have morphed into another form: there's an iPod inside every iPhone and iPad sold.

We also need Apple to morph the "phone" in iPhone and make telephone calling a feature in every 3G/4G device. Of course, if phone calling is built into the iPads, people should use the Apple earphones or a Bluetooth headset, not hold the huge thing to their ear. As shown by large sales of "phablets", consumers prefer to carry one device and be able to make phone calls on it.

The iPod is a lot like the mitochondrion in a cell.

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply

"The real haunted empire?  It's the New York Times." ~SockRolid

"There is no rule that says the best phones must have the largest screen." ~RoundaboutNow

Reply
post #29 of 37

Separating out software and hardware is more than just an accounting change, it's a philosophical change too. Because Steve always regarded the software and hardware as an indivisible Product, and the Product was what everyone was to focus on and what the company was organised around.

post #30 of 37
Quote:
Originally Posted by Dick Applebaum View Post

<...>

 

 

 

Apple does not break down earnings or profit by category -- but have stated on repeated occasions that the iTunes ecosystem is break-even, or:

 

Revenue -- Expenses ~=  0  

 

earnings (profit) ~=  0

 

 

<...>

 

 

I have heard this argument before, and, although I have of course no Apple figures to substantiate my point of view, I am not convinced. I think the Apple immaterial content business is more or less similar to network services business, where, after you made the huge required investments needed, the marginal cost of a new customer is more or less close to zero. I believe that Apple has passed the break even point, due to the massive growth of its installed base.

 

I suppose Apple is happy with this smoke curtain around this, because this encourage analysts in their misperception of Apple business model, but some day, people will realize that.

post #31 of 37

If you have competitors that are trying to make all their money from content, it makes sense to run your content business at break even, to put pressure on them, and then happily rake in the dough from your hardware, while they struggle (e.g. Amazon losing money)

post #32 of 37
Quote:
Originally Posted by ascii View Post

If you have competitors that are trying to make all their money from content, it makes sense to run your content business at break even, to put pressure on them, and then happily rake in the dough from your hardware, while they struggle (e.g. Amazon losing money)

 

Given the fact that, (according to my reasoning), the costs remain more or less stable, whereas the revenues are proportional to the installed base, that would mean a downwards price readjustment which is not observed, at the moment.

 

In the immaterial content business, Apple does not have total freedom to fix the price (see ongoing trials ...) ....

 

If you look at the long term tendency in consumer electronics business, prices (or better, "margins", to be less provocative) tend to go down to zero (this is what Stock exchange is worrying about). But Stock exchange knows nothing about Apple business model, this is my thesis ...


Edited by umrk_lab - 1/29/13 at 12:58am
post #33 of 37
Quote:
Originally Posted by umrk_lab View Post

 

Given the fact that, (according to my reasoning), the costs remain more or less stable, whereas the revenues are proportional to the installed base, that would mean a downwards price readjustment which is not observed, at the moment.

 

In the immaterial content business, Apple does not have total freedom to fix the price (see ongoing trials ...) ....

 

If you look at the long term tendency in consumer electronics business, prices (or better, "margins", to be less provocative) tend to go down to zero (this is what Stock exchange is worrying about). But Stock exchange knows nothing about Apple business model, this is my thesis ...

 

Yes, the marginal cost of software/content is nearly zero, the secret of Microsoft's success.
 
But talking about hardware, I don't think hardware margins tend to zero. What happens is the price stays roughly the same, but you get more for your money at the same price each year (faster CPU, more RAM). Then eventually the lowest spec hardware is enough for anyone, and then yes the price starts to drop. But that is just one device, it is not hardware as-such, there is always a new shiny device with a high price (hopefully an Apple device).
 
And software is not much different. A lot of apps that used to be standalone products like Web browsers, email programs, media library app, now come free with the OS. But you would not say software margins are tending to 0, you would say certain apps are tending to 0, but there are always new apps.
post #34 of 37
Quote:
Originally Posted by ascii View Post

 

<...>
 
But talking about hardware, I don't think hardware margins tend to zero. What happens is the price stays roughly the same, but you get more for your money at the same price each year (faster CPU, more RAM). Then eventually the lowest spec hardware is enough for anyone, and then yes the price starts to drop. But that is just one device, it is not hardware as-such, there is always a new shiny device with a high price (hopefully an Apple device).
 
<...>

 

 

This is the ambiguity about "consumer electronics". In areas where technical progress continues (computers, indeed ..), you are right. But in other areas (TV sets, notably), all players (including the largest ones) suffer. The issue is whether some products will some day (or not, at least in the foreseable future)  get mature, in that respect.

 

NB : Indeed you are right about Microsoft, who enjoys a marginal cost close to zero (not very hard to make profit, in this case .....).

post #35 of 37
Quote:
Originally Posted by umrk_lab View Post

This is the ambiguity about "consumer electronics". In areas where technical progress continues (computers, indeed ..), you are right. But in other areas (TV sets, notably), all players (including the largest ones) suffer. The issue is whether some products will some day (or not, at least in the foreseable future)  get mature, in that respect.

Yes, Wall Street clearly think the smartphone is about to get mature and they haven't seen Apple's New Shiny to replace it. But I think Apple has time, the iPad is still quite new...

post #36 of 37
Interesting point. Last figure I saw: 450-million credit cards on file. That's about $20 per customer in the last quarter -- so Apple is scoring on huge volume of small transactions. I wonder if online store revenue per customer would go down a lot if devices were a lot cheaper. That's the calculation Apple really needs to make. You need to think through what the core business really is. Google's is advertising. Is selling i-content really Appe's core (oh no, unintended pun) business vs. the other stuff that drives customers there? Not quite yet, but it could get there soon.
Quote:
Originally Posted by TheOtherGeoff View Post

Apple IDs as credit accounts.

and this is why the endgame isn't selling more hardware at ever increasing margins.

The end game is making the 'apple ecosystem' an 'all-inclusive' experience, selling  music, movies, books....

and tickets to music and movies

and tickets to airplanes

and hotels

and starbucks coffee

and gasoline

and electricity

and food


Even if apple doesn't sell it themselves, if they make it at a 5-30% on each sale  for say $20-50 a month of sales for say.... 1 BILLION people...

That's VISA money opportunities.  

BTW, Visa sells at a P/E of 83. and a market cap of 100B.

Philip Machanick creator of Opinionations and Green Grahamstown
Department of Computer Science, Rhodes University, South Africa

Reply

Philip Machanick creator of Opinionations and Green Grahamstown
Department of Computer Science, Rhodes University, South Africa

Reply
post #37 of 37
Quote:
Originally Posted by philipm View Post

Interesting point. Last figure I saw: 450-million credit cards on file. That's about $20 per customer in the last quarter -- so Apple is scoring on huge volume of small transactions. I wonder if online store revenue per customer would go down a lot if devices were a lot cheaper. That's the calculation Apple really needs to make. <...>

 

 

I think Apple consciously manages the transition from "product" revenues to "i-content" revenues, which will be gradual, due to various reasons, including the fact that immaterial content has still some way to go before it replaces physical content , for some products.

 

I do not think there is a direct link in between the revenue per customer on one hand, and the i-devices price, on the other hand, except that at the end it will be a question of giant fight in between installed bases, but I mean ACTIVE installed bases, or better, indeed , active credit cards accounts ...

New Posts  All Forums:Forum Nav:
  Return Home
  Back to Forum: iPod + iTunes + AppleTV
AppleInsider › Forums › Mobile › iPod + iTunes + AppleTV › Apple now collecting twice as much from iTunes, software & services as from iPod sales