App Store wildly successful, but not hugely profitable for Apple

Posted:
in iPhone edited January 2014
Despite a record quarter for the largest mobile application store on the market and Apple taking a 30 percent cut of all sales, the App Store for the iPhone and iPod touch is still not a big revenue generator for the handset maker.



Apple Chief Financial Officer Peter Oppenheimer revealed Monday that neither the App Store or iTunes create much revenue for Apple. He said the focus is on adding to the user experience by providing easy access to new content.



"Regarding the App Store and iTunes stores, we are running those a bit over break even, and that hasn't changed," Oppenheimer said during a conference call following Monday's quarterly earnings report. "We are very excited to be providing our developers with a fabulous opportunity and we think that is helping us a lot with the iPhone and iPod touch platform."



Apple has long maintained that the App Store isn't meant to be a profit generator, as much as a means of attracting customers to the iPhone and iPod touch. But with more than 3 billion downloads from the App Store, Apple's near-break-even might come as a surprise to some.



Apple executives were also quizzed about the App Store approval process, which has come under fire for not being responsive enough to the needs of developers. Chief Operating Officer Tim Cook said over 90 percent of applications submitted are approved within 14 days.



Some of the rejections, he said, are applications that "degrade the core experience of the phone." Apple said last year that it did not accept the Google Voice application because it too closely mimicked the core functionality of the iPhone. Other rejections are due to objectionable content, such as pornography, but Cook said that doesn't apply to the bulk of software not seen fit for the App Store.



"Most of the rejections, however, are actually bugs in the code itself," Cook said. "This is protecting the customer and the devleoper to a great extent, because they don't want customers who are unhappy with the app."



Cook also revealed that Apple has not conducted any research on the App Store regarding customer satisfaction. The revelation came after analyst Charles Wolf with Needham & Co. asked him if iPhone owners are "comfortable and happy" with the App Store.



No new statistics on the App Store were revealed Monday, with Oppenheimer merely repeating the 3 billion download figure first revealed earlier this month. The App Store is available to iPhone and iPod touch users in 77 countries.



Oppenheimer said Apple is reluctant to provide any additional information for competitive reasons. The company noted that it was a "record" quarter for iTunes, but did not give specifics.



Apple's next-closest competitor in the mobile application space is Google's Android Market, which, in December, was said to have passed the 20,000 threshold. That total lags well behind the 100,000 apps announced by Apple in November.



"We are way ahead of our competitors with over 100,000 apps on our store," he said. "That dwarfs anybody we are competing with. We provided many, many great applications with our developers to customers. That is helping us with both iPhone and iPod touch. It was one of a few reasons why iTunes set a record in the quarter."
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Comments

  • Reply 1 of 41
    MacProMacPro Posts: 19,382member
    Even if this is accurate it has to be said if Apple made nothing it is a huge sales aid for the iPod / iPhone products and will also be for the iPad.
  • Reply 2 of 41
    I wonder how other stores would survive and provide quality service especially if they don't have

    any users and downloads (paid). I guess they would lose money in running it.
  • Reply 3 of 41
    Quote:
    Originally Posted by digitalclips View Post


    Even if this is accurate it has to be said if Apple made nothing it is a huge sales aid for the iPod / iPhone products and will also be for the iPad.



    Right, it's a huge differentiator for the iPhone and iPod Touch. The app store sells hardware because the consumer instead of having 14 apps to play with has 150,000. Without the app store, the iPhone looks a whole lot less compelling. (think back to the pre-app days). Even if the app store was run at a loss, it's still a win overall.





    Sheldon
  • Reply 4 of 41
    benroethigbenroethig Posts: 2,782member
    If the IPhone had been kept as is and Apple had done the app store, they'd be probably be selling about 5% of the units they're selling now. Without the success of the Iphone, they might not be selling as many Macs. So, it has been hugely profitable for them.
  • Reply 5 of 41
    irelandireland Posts: 17,751member
    Quote:
    Originally Posted by AppleInsider View Post


    Despite a record quarter for the largest mobile application store on the market and Apple taking a 30 percent cut of all sales, the App Store for the iPhone and iPod touch is still not a big revenue generator for the handset maker.



    I wouldn't be bothered sending traffic to Gruber but he had a story a long while back that when Apple says they aren't making much from iTunes they are sort-of lying. Well they are lying. I believe the app store is similar, they want to go under the radar with them so users can never say Apple's creaming them, and they'll just buy more hardware. It's more about them keep this reputation for basically giving content away, thus being good PR.
  • Reply 6 of 41
    quadra 610quadra 610 Posts: 6,756member
    It's a feature. A BIG one.
  • Reply 7 of 41
    In truth, I actually think it would be worth Apple making a loss on iTunes, since it brings people into the Apple ecosystem and helps them sell massively profitable hardware.



    That they make a small profit is a bonus.
  • Reply 8 of 41
    nceencee Posts: 856member
    it's ALL about the bottom line! No more, no less, well, with Apple there might be a few other things taken into effect, but even after that, it's still the bottom line.



    If not, the cube would still be here. I and many others feel Apple never gave the Cube a chance.



    Skip
  • Reply 9 of 41
    Quote:
    Originally Posted by Ireland View Post


    I wouldn't be bothered sending traffic to Gruber but he had a story a long while back that when Apple says they aren't making much from iTunes they are sort-of lying. Well they are lying. I believe the app store is similar, they want to go under the radar with them so users can never say Apple's creaming them, and they'll just buy more hardware. It's more about them keep this reputation for basically giving content away, thus being good PR.



    Lying to shareholders about your company's finances is very, very illegal. I doubt Apple is doing it.



    Note also that Oppenheimer says the stores are running "a bit over" break even - a small profit margin may add up to significant dollars on huge volume.
  • Reply 10 of 41
    daharderdaharder Posts: 1,580member
    [CENTER]For many, the apps store (and the added functionality apps give the device(s)), is the reason for buying an iPod Touch/iPhone, so it all works out.[/CENTER]
  • Reply 11 of 41
    I read it in a prior post, that it is a feature, a BIG feature.



    And I believe it's flexible nature will

    drive innovation,

    more adoption,

    more consumer/business/professional interest



    and these driven forces taken together from a holistic view of business, will drive more profits for Apple and more innovation and more interest in a circular reinforcing loop.
  • Reply 12 of 41
    mactrippermactripper Posts: 1,328member
    Cheap plentiful content often justifies buying a piece of expensive hardware.



    iTunes > iPod.



    App Store > iPhone



    ???? > iTablet





    ??? = possible newspaper, magazine content?



    See the front page for free and buy a full electronic copy for much less than the paper copy? Click "buy now" or click "subscribe"?



    Would explain Apple's purchase of a ad company and the rumors of a device to be "used by the whole family".



    And we all know how much Apple loves to sell hardware...



    hmmm....
  • Reply 13 of 41
    Got a question for people who have used one or more Android devices for awhile. When they say the Android Marketplace has 20,000 apps, do all of those apps run across all variations of Android handsets??? Android-based devices seem to come in all shapes and sizes, screen resolutions, and now multiple versions of the OS with some devices not able to upgrade to the latest version. So how does the marketplace work???



    Does each app list a series of requirements to run, like specific device or specific OS version?



    It should be obvious why I ask. Even at 20,000 apps, if not everyone can use them, then really for an individual user, they wouldn't really have access to 20,000 apps, only those that would actually function on their unit.



    Not unlike Apple app store where an iPod touch user who didn't pay to upgrade to OS 3 or an app that needs a camera or GPS wouldn't work either. But at least at 100,000+ apps, the total amount accessible to any user is much higher just by sheer volume.
  • Reply 14 of 41
    Quote:
    Originally Posted by ncee View Post


    If not, the cube would still be here. I and many others feel Apple never gave the Cube a chance.



    @Skip

    With all respect to the Cube, it is gone (for a while now). Why bring it up again?
  • Reply 15 of 41
    auxioauxio Posts: 2,329member
    The app store is mainly about Apple building a platform. So it's no surprise that they are trying to run it at break even. If they made the entry-point for iPhone OS development too high, it would severely limit it's growth as a platform.



    Consider that most "smart phones" (for lack of a better term) which came before the iPhone were closed systems. Typically running a custom-developed operating system with very limited support for 3rd parties to create software for them (only via a very expensive developer kit), and virtually no upgrade path. They were basically designed as "throw away" technology. If you want an upgrade, get a new phone. If you want more functionality, get a new phone.



    Apple realized that a portable device could be designed a lot more like a PC: upgradable, expandable -- a true "platform" to build upon and not just throw away technology. It's the very reason that the original iPhone (3 years old this year), is still a very usable device. How many previous "smart phones" had a 3+ year lifespan?



    Apple's gain out of all of this is that they can now use that nicely designed platform to build and profit from a multitude of portable devices with less upfront investment. And all of the applications written for one device will work on the new ones. So any new devices are immediately capable of doing everything the previous devices could (don't need to wait for people to support them).
  • Reply 16 of 41
    ezduzitezduzit Posts: 158member
    the simple answer is that when you go into the supermarket to buy a quart of milk, occasionally you will stop off for a steak unless you are a vegan.



    otherwise who wants to sell milk at break even, but the customers want it.
  • Reply 17 of 41
    MarvinMarvin Posts: 14,548moderator
    I'm not surprised by this at all. App store apps are poor so people don't expect to pay a lot of money for them and this has created a culture of very low pricing as well as a trend for developers to create throw-away apps vs substantial apps (think MGS Touch vs MGS on the PSP or Star Wars the Force Unleashed). Many users gravitate towards free equivalents, especially for the apps that do very basic functions (most of them).



    Some developers are making the effort like Gameloft and EA and now Rockstar porting their full GTA ChinaTown wars and pricing it at 1/3 the cost of the other consoles but the others need to wake up and stop treating the iphone like a mobile phone and more like a PDA and console. The first two are only half the speed of the PSP and the 3GS is faster.



    The App Store has so much potential but content providers keep holding it down and they are only doing themselves harm. If I could rent every movie from itunes and have it stream down instantly, I'd be spending tons of money that I'm currently not spending. I'd pick up a reasonable subscription plan in no time. But the content providers don't allow it.



    I'd be happy to spend £15 on the full Star Wars the Force Unleashed like the PSP version but I'm not buying the cut down one even at £3.50. Maybe over time it will develop into something better but I just wish there was a way to sift out the 90,000 or so junk apps that inevitably exist due to lazy developers trying to make a quick buck so that the real gems get seen.



    I just can't find anything outside of Apple's top lists any more, which is pointless because they just keep pushing Doodle Jump down my throat. Is it the ball-in-a-cup fanclub playing this game or what?



    If I can't find good content, I don't buy content, app store makes no profit. Simple.
  • Reply 18 of 41
    It's coming...along with the slew of non-computer computers they are bringing to the market. The iPad will herald the future of where Apple wants to go with their platform. As computing power of smaller devices increases, Apple will continue to drive traditional computers into niche groups (for professionals). Within 5-10 years, home users will not be offered a Mac computer but will have a variety of Apple smart products to choose from (extending out the iPhone, iTouch and iPad ecosystem). One will not be able to buy content for these consumer products via any other means than via the Apple App Store. This expansion of the ecosystem to more substantial applications will drive a tremendous amount of revenue for Apple.



    -Bloop
  • Reply 19 of 41
    igeniusigenius Posts: 1,240member
    Quote:
    Originally Posted by stokessd View Post


    Right, it's a huge differentiator for the iPhone and iPod Touch. The app store sells hardware because the consumer instead of having 14 apps to play with has 150,000. Without the app store, the iPhone looks a whole lot less compelling.



    Absolutely. That's the likely reason why Apple has fared so poorly on the desktop: lack of software.



    Back in the old days, when I was replacing my //c, I was tempted to get a Mac. But a stroll down the many aisles of windows and DOS software, compared with a glance at the paltry selection of Mac software, made my mind up for me immediately. I have no idea if the cool new software is now usually all available for a Mac, but back then, it certainly wasn't.



    So I agree that software selection for the iPhone is a huge plus.



    I also wonder, however, if other phone OSs have an adequate selection, and whether they will eventually have enough so that the iSore's "more" is rendered meaningless. I dunno.



    WebOS seems to have lost any critical mass it may have had. I don't quite understand the need or desirability of MAMEO. I'm sceptical as to whether either of these will attract a reasonable number of titles.



    But Android seems to be going gangbusters, and is accelerating rapidly. I'm very interested in it.
  • Reply 20 of 41
    igeniusigenius Posts: 1,240member
    Quote:
    Originally Posted by auxio View Post




    Consider that most "smart phones" (for lack of a better term) which came before the iPhone were closed systems. Typically running a custom-developed operating system with very limited support for 3rd parties to create software for them





    That doesn't accurately describe what was then and now the biggest smartphone OS, Symbian. Come to think of it, that is pretty much the opposite of another popular mobile OS of that era, the PalmOS. Oh, and then there's WinMo, another dominant OS which is pretty much the opposite of what you describe.



    Which pre-iPhone smartphone OS are you thinking about?
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