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iTunes estimated to rake in $2B per year, thanks to Apple's software division

post #1 of 19
Thread Starter 
Once a break-even business used to drive sales of Apple's high-margin hardware, the iTunes Store is now estimated to be raking in more than $2 billion per year, due largely to the inclusion of its in-house software development teams.

Asymco
Apple's iTunes revenue over the years. Chart by Asymco.


Ahead of the 10th anniversary of the iTunes Store in April, Horace Dediu of Asymco offered an analysis on Friday highlighting how successful the digital storefront has become. Apple's iTunes business has evolved over the years, beginning with music, and eventually adding movies, TV shows, applications, books and more.

Dediu calculates that the break-even cost for the iTunes Store would be $3.75 billion, but he believes it's "hard to imagine this level of operational expenses for digital content."

His calculations suggest the App Store earns about 2 percent margins on software, while the iTunes Music Store likely earns Apple about 1 percent margins, leading to only $150 million.

But a key factor is Apple's Software group, which is now a part of the company's iTunes division. Dediu referred to Apple's software team as "one of the forgotten heroes of Apple."

With products like OS X upgrades, the consumer-oriented iWork and iLife suites, and professional-grade software like Final Cut Pro and Aperture, his analysis concludes that Apple's own software earned $3.6 billion last year. His figures are based on a presumed operating margin of around 50 percent, which would be comparable to software giant Microsoft.

In the holiday quarter, Apple's iTunes business saw sales grow 25 percent year over year to $1.8 billion. Apple also continues to expand the iTunes Store globally, nearly doubling it to 119 countries by adding 56 new nations in that one three-month span.

The iTunes Store also reached a milestone in early February, when the 25 billionth song was sold, and the pace of downloads has steadily increased year over year.

Within just the App Store side of the iTunes business, Apple has announced that it has paid $7 billion to developers. Apple takes a 30 percent cut of all iOS software sales, which means it has earned $3 billion from the App Store since its debut in 2008.
post #2 of 19

Didn't Apple already say they break even on iTunes stuff? His guesses must be somewhat wrong in that regard.

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post #3 of 19
Quote:
Originally Posted by Tallest Skil View Post

Didn't Apple already say they break even on iTunes stuff? His guesses must be somewhat wrong in that regard.

I'm sure they did say that a few years ago.

Things do change, you know.

post #4 of 19
Quote:
Originally Posted by GQB View Post

I'm sure they did say that a few years ago.
Things do change, you know.

I think it's been more than a few years since I last heard that. Since then we've not only seen the iTS grow at an incredible rate, but many other services added, including the app stores. I think it's highly likely they are making more profit from the iTS than most of their competitors make from all their products combined.

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

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"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

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post #5 of 19

Fascinating curve, which can be observed in other Apple products lines : each item is growing + new items are added over time, which result in a very dynamic growth ratio

post #6 of 19
Yeah they said it was just above break-even about 3 years ago:

http://news.cnet.com/8301-13579_3-20071022-37/report-itunes-costs-apple-$1.3-billion-a-year-to-run/
http://news.cnet.com/8301-13579_3-20008540-37.html
http://allthingsd.com/20100225/apple-billions-of-songs-billions-of-apps-not-much-profit/

To service 500 million users, they must have at least 50,000-100,000 servers. Even between staff, the centre costs and the servers, it doesn't seem like it would cost over $3b but without knowing all the costs involved, it's hard to say. They might purposely run it close to break-even to be competitive.
post #7 of 19
Quote:
Originally Posted by Tallest Skil View Post

Didn't Apple already say they break even on iTunes stuff? His guesses must be somewhat wrong in that regard.


They used to say they broke even, before they changed how they counted revenues from different categories.

post #8 of 19

Horace Dediu produces thought-provoking, informative graphs. But they are NOT curves, people!!

 

Also, Horace needs someone else to pick colors for him. Sometimes, his graphs are nearly impossible to decipher clearly because of his choice of colors (and repeated use of blue).

post #9 of 19

I would really, really like to buy music from iTunes. I really would. But almost 100% of the time, it's cheaper to buy the physical CD online.

 

How does this make sense to ship and sell... ship multiple times to Amazon or wherever, then to me, and it comes out cheaper than ones and zeros?
 
 
 
 
post #10 of 19
Quote:
Originally Posted by AppleZilla View Post

I would really, really like to buy music from iTunes. I really would. But almost 100% of the time, it's cheaper to buy the physical CD online.

How does this make sense to ship and sell... ship multiple times to Amazon or wherever, then to me, and it comes out cheaper than ones and zeros?

1) Your CD also contains 1's and 0's.

2) You're buying a whole album, not a single song. On top of that there are licensing differences. Do you not remember the issues with Apple first trying to sell digital music in the first place?

"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 #11 of 19
"... rake in in..."

It's your headline, FFS. Proofread!
post #12 of 19
Interesting.

Net Sales by Product for Fiscal year 2012:

Other music related products and services (d) USD $ 8,534 m

d. Includes revenue from sales from the iTunes Store, App Store, and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories
post #13 of 19
What's the gray part?
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"Few things are harder to put up with than the annoyance of a good example" Mark Twain
"Just because something is deemed the law doesn't make it just" - SolipsismX
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post #14 of 19

What's difference between software and apps?

post #15 of 19
Quote:
Originally Posted by matrix07 View Post

What's difference between software and apps?

Apps, as in applications, are software, but not all software are apps. Operating systems are not considered apps. Really, anything that can't be labeled as HW is considered SW. This means kernels and drivers, too. Now why is the Software section so large when Apple surely doesn't make that much from Mac OS X and why the grey area has no label, I couldn't tell you that. I'm not much of a fan of asymco's charts. They tend to lack the detail I want with no legend to make up the difference and he doesn't post a large image which can make many of them difficult to read.

"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 #16 of 19
Quote:
Originally Posted by SolipsismX View Post

1) Your CD also contains 1's and 0's.

2) You're buying a whole album, not a single song. On top of that there are licensing differences. Do you not remember the issues with Apple first trying to sell digital music in the first place?
The difference comes with the availability and legal use. They store every song you have ever purchased and a record of it. If someone steals every piece of equipment and CD you have the cost of replacement will be the same as before. With iTunes you can redownload at no additional cost. Some at a higher quality than before.
post #17 of 19

I have always wondered why Apple today leaves so much money on the table by not allowing its users to "gift" content easily to others. I would surmise that in addition to $ 2 B it makes today, Apple can easily make another $ 2-6 B. Often, users want to gift apps and music and books on special occasions (birthdays, anniversaries, graduation, etc.) or just on a whim (e.g., my close friend likes books by Richard Dawkins, so I gift it to him). 

 

Do you folks know why Apple does not allow for easy gifting of content? I am not talking about gifting iTunes cards because there is no thought in giving proxy cash. 

post #18 of 19
Quote:
Originally Posted by sprabhakar View Post

I have always wondered why Apple today leaves so much money on the table by not allowing its users to "gift" content easily to others. I would surmise that in addition to $ 2 B it makes today, Apple can easily make another $ 2-6 B. Often, users want to gift apps and music and books on special occasions (birthdays, anniversaries, graduation, etc.) or just on a whim (e.g., my close friend likes books by Richard Dawkins, so I gift it to him). 

Do you folks know why Apple does not allow for easy gifting of content? I am not talking about gifting iTunes cards because there is no thought in giving proxy cash. 

I've gifted many apps and gift cards over the years. I can't imagine it being any easier. Care to elucidate your point?

"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 #19 of 19

lol.. For Apple's insane yearly revenues, $2B is pretty much "breaking even" as it's so easily missed. 

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