iTunes Music Store: $3,385,200,000 Yr. Profit

coscos
Posted:
in iPod + iTunes + AppleTV edited January 2014
In less than 18 hours of the music store's introduction, Apple sold 275,000 singles at $1 a piece. For each track sold, Apple makes $0.35. This translates to (roughly) $100,000 in less than a day.



Many analysts were astounded that Apple generated this much revenue from the company's relatively small 3 percent market share, but this isn't true. It's important to remember that Apple has (initially) limited the music store to Mac users residing solely in the United States. This means that Apple generated $100,000 in 18 hours from less than 1 percent of the personal computing market.



While some have suggested that usage will pick up, others believe that, after the hype dies down, so too will usage levels. Personally, I adopt the theory that a combination of the two scenarios will simply cause usage levels to maintain.



However, Apple said that the company will have a Windows version of the software by the end of the year. As we all know, Windows accounts for 90 percent of the world's personal computing market and the Macintosh accounts for three.



If you were to add the combined profits from both Mac and Windows market share, Apple's profit margin would be $9,300,000 (nine million, three-hundred thousand dollars) IN ONE DAY!



On a yearly basis, Apple will have earned 3,385,200,000 (Three-billion, three-hundred and eighty-five million, and two-hundred thousand dollars.)



These figures assume that the Windows population would download and use the software at the same levels that Mac users did.



Most would say this is unlikely, but I wouldn't be so quick to make that assumption.



It's important to recognize that the original sales figures ($100,000) were garnered within the first 18 hours and thus the product of Apple's early-adopter, United States usage base. (I.E. not the general Mac-using market.)



These figures will be relative to Windows market share if you factor in both the Window's early adopters and the users that adopt the software in... lets say... one-two month's time.
«1

Comments

  • Reply 1 of 21
    ast3r3xast3r3x Posts: 5,012member
    no way this will happen







    in a DREAM world
  • Reply 2 of 21
    chuckerchucker Posts: 5,089member
    Okay, so basically, what this author is saying is:



    - there've been 275,000 downloads - we knew that before

    - that makes for about 100,000 dollars - anyone can calculate that easily based off the data that Apple gets about a third. Remember that they have to give parts of that to their hosting companies and others. It isn't pure wins.



    Now,



    - Windows users can't use this yet.

    - non-US users can't either.

    - the hype will settle down in a few days.

    - at the same time, others will consider using it.



    We're stuck here, you know. With four uncertain factors, how can we know about anything? Estimates can only go in one direction: into the wrong one.
  • Reply 3 of 21
    Quote:

    Originally posted by Chucker

    Estimates can only go in one direction: into the wrong one.



    Then what's the point of estimating if, by your quote, it goes in the wrong direction?
  • Reply 4 of 21
    ghost_user_nameghost_user_name Posts: 22,667member
    What's the point of living if we're just going to die anyway?
  • Reply 5 of 21
    cyclecycle Posts: 187member
    Quote:

    Originally posted by Chucker

    Okay, so basically, what this author is saying is:



    - there've been 275,000 downloads - we knew that before

    - that makes for about 100,000 dollars - anyone can calculate that easily based off the data that Apple gets about a third. Remember that they have to give parts of that to their hosting companies and others. It isn't pure wins.



    Now,



    - Windows users can't use this yet.

    - non-US users can't either.

    - the hype will settle down in a few days.

    - at the same time, others will consider using it.



    We're stuck here, you know. With four uncertain factors, how can we know about anything? Estimates can only go in one direction: into the wrong one.




    nonono ---well the following numbers are JUST OPPINIONS..so dont flame...just get excited or post ur own



    275000 downloads means 272250 bucks... about 35percent is for apple...and they have to pay the traffic and stuff from it probably



    about 90percent of the mac users didnt use it...either because they wait...dont have access or dont know it yet



    now lets say 20percent mac users around the world use it...not just for 2 or 3 songs > the thing goes up around 5 times



    3 percent are mac users around the world..rite now about 0.3 percent of all computer users used the service



    now calculate the pc users...lets say 10 percent use it thats about 9 percent of the other world



    now its about 10 percent of all computer users...ok....



    0.6 percent mac users and 9percent pc users..30 times more..about...thats 825000 songs a day....and i think...they will do that for a long time...the numbers will stay...i predict...



    about 2.5 billion dollars a year doesnt sound bad...



    i cut the numbers with each step...so it could be much much more...



    now who knows what apple gets..if it is 35percent..we can expect price drops on macs...
  • Reply 6 of 21
    chuckerchucker Posts: 5,089member
    Quote:

    Originally posted by Mac OS X Addict

    Then what's the point of estimating if, by your quote, it goes in the wrong direction?



    You've taken it out of context. Estimating something based on many uncertain factors isn't of any use.



    Let's say that in the first 24 hours, they got 275,000, and in the first 48 hours, they got 500,000. I could interpret that either way, dependant on what I wanted to say:



    a ) even though the hype is slowly dying, downloads didn't decrease much, if at all



    b ) few hours after the release, downloads already decreased slightly



    You see?
  • Reply 7 of 21
    Quote:

    Originally posted by Chucker

    You've taken it out of context. Estimating something based on many uncertain factors isn't of any use.



    Let's say that in the first 24 hours, they got 275,000, and in the first 48 hours, they got 500,000. I could interpret that either way, dependant on what I wanted to say:



    a ) even though the hype is slowly dying, downloads didn't decrease much, if at all



    b ) few hours after the release, downloads already decreased slightly



    You see?




    It will be interesting to hear what Jobs has to say about the iTMS at WWDC, if he talks about it at all.
  • Reply 8 of 21
    mccrabmccrab Posts: 201member
    An alternative way or cross check of looking at AppleMusic's potential revenue pool is to take the existing market (according to RIAA, in 2001, total sales for CD's etc was around $13.7 billion in the US alone) and make an assumption on how much of this market Apple could capture.



    Let's say that the average number of downloads per day is 150,000. If we gross this up based on a total available Mac and Windows market and assume 300 'download days' per year, we would have a total number of downloads per year of 2.25 billion. This equates to a market share for AppleMusic of around 16%. This does not appear all that unreasonable given the price, library size etc. Hopefully these assumptions bear out - it would be good for Apple's share price.
  • Reply 9 of 21
    telomartelomar Posts: 1,804member
    Quote:

    Originally posted by Chucker

    We're stuck here, you know. With four uncertain factors, how can we know about anything? Estimates can only go in one direction: into the wrong one.



    I'm guessing you aren't an engineer or haven't worked in project management. At this point you just make a series of assumptions to model possible future scenarios. Personally I don't agree with the model constructed but modeling is fine and in fact are an essential part of business.
  • Reply 10 of 21
    alcimedesalcimedes Posts: 5,486member
    Quote:

    according to RIAA, in 2001, total sales for CD's etc was around $13.7 billion in the US alone



    i should also note i haven't bought more than 2 cd's in 5 years since the RIAA started down this "hate the consumer" road of theirs. i really wish 0 dollars of all this Apple stuff went to the RIAA. if that were the case i'd buy tons of music from them. however i refuse to send any of my hard earned money to an organization who's sole purpose in life is to make my life harder and assume i'm a criminal.
  • Reply 11 of 21
    cowerdcowerd Posts: 579member
    Quote:

    An alternative way or cross check of looking at AppleMusic's potential revenue pool is to take the existing market (according to RIAA, in 2001, total sales for CD's etc was around $13.7 billion in the US alone) and make an assumption on how much of this market Apple could capture.



    Let's say that the average number of downloads per day is 150,000. If we gross this up based on a total available Mac and Windows market and assume 300 'download days' per year, we would have a total number of downloads per year of 2.25 billion. This equates to a market share for AppleMusic of around 16%. This does not appear all that unreasonable given the price, library size etc. Hopefully these assumptions bear out - it would be good for Apple's share price.



    That assumes that there is no first week spike in sales. And to assume a 16% percent market share when Apple has a computer user market share of less than 5% and an OSX of less than 50% (charitably) of that 2.5% is ludicrous. Windows marketshare will be slow coming given the previous history of crapulous Apple software on that platform (Quicktime) and the preponderance of much better P2P apps o the Wintel side of things (you can call it stealingall you want,but the RIAA does a great job ofmaking everyone using P2P feel like Robin Hood).



    Apple has sold about 700,000 iPods. Since the iPod is the only portable player that can play iTMS AAC's right now use that as your baseline for sales. You're probably off by a factor of 10 for the first couple of years of the service.
  • Reply 12 of 21
    paulpaul Posts: 5,278member
    Quote:

    Originally posted by cowerd

    Apple has sold about 700,000 iPods. Since the iPod is the only portable player that can play iTMS AAC's right now use that as your baseline for sales. You're probably off by a factor of 10 for the first couple of years of the service.



    that and the million discmans and car stereos out there
  • Reply 13 of 21
    cowerdcowerd Posts: 579member
    Quote:

    that and the million discmans and car stereos out there



    Yeah thats right genius. All those millions of discman and car stereo owners still need access to iTunes 4 running on OSX10.2.4 on a Mac -- at least for the next 7-8 months. So do the math and tell me how Apple is going to pull multi-billions in sales for the first couple of years.
  • Reply 14 of 21
    mccrabmccrab Posts: 201member
    Quote:

    Originally posted by cowerd

    That assumes that there is no first week spike in sales. And to assume a 16% percent market share when Apple has a computer user market share of less than 5% and an OSX of less than 50% (charitably) of that 2.5% is ludicrous. Windows marketshare will be slow coming given the previous history of crapulous Apple software on that platform (Quicktime) and the preponderance of much better P2P apps o the Wintel side of things (you can call it stealingall you want,but the RIAA does a great job ofmaking everyone using P2P feel like Robin Hood).



    Apple has sold about 700,000 iPods. Since the iPod is the only portable player that can play iTMS AAC's right now use that as your baseline for sales. You're probably off by a factor of 10 for the first couple of years of the service.




    Apparently, there were 275,000 track downloads in the first 18 hours - I had assumed an average of 150,000 per day (a reduction of around 60%) in an effort to take some of the spike out of the first week's sales.



    Your point regarding the 16% is valid - I was thinking about Apple's service and others like it and assuming that electronic downloads as a distribution mechanism would capture around 16% of total track sales in USA - I erroneously attributed the entire 16% market share to Apple - it is probably more conservative to give Apple half of this share.



    I am not sure that the point made on the iPod's capacity to play AAC files is valid - this assumes that the only medium which people use to play this music is a portable unit and excludes CD's, home stereos, Macs, portable CD players etc. The 700,000 iPod sales may have some bearing on the numbers, but in my view, is rather minimal, particularly given that AppleMusic is a distribution channel designed to compete with traditional retail channels and other non-traditional channels (such as Rhapsody etc) and not a mechanism for delivery.



    The other major assumption involves the speed at which Apple brings iTunes to Windows. If this happens according to Jobs' plans and the software is as easy to use as the Mac version, there are two benefits - (1) it should underpin the number of downloads and market share in my earlier assumptions; (2) from what I understand (and I don't have any first hand experience), the jukebox software that is currently used with the Windows iPod is not as good - perhaps good quality Apple software for Windows could boost iPod sales to Windows customers.



    Finally, I don't believe that I'm out by a factor of 10 - perhaps more like a factor of two, assuming that Apple's market share is likely to be lower than in my earlier assumption.
  • Reply 15 of 21
    paulpaul Posts: 5,278member
    Quote:

    Originally posted by cowerd

    Yeah thats right genius. All those millions of discman and car stereo owners still need access to iTunes 4 running on OSX10.2.4 on a Mac -- at least for the next 7-8 months. So do the math and tell me how Apple is going to pull multi-billions in sales for the first couple of years.



    who said anything about sales...

    you said that the upper limit for Apple's DRMed AAC on portable devices was the 700,000 people on iPods... but this is incorrect... first off that # includes the people using iPods with OS 9 and Windows and secondly it does not account for burned CDs... thats all i was pointing out...

    if you want to take a sample of the iTMS's market cap you have to tally those who have access to iTunes 4 (like you did in this post)

    if you want to extrapolate #'s i see no reason why with the right selection apple couldn't pull a SIGNIFICANT amount of profits from this service even if it only comes from the current market... the point is that as it gets more successful, more people will use it...
  • Reply 16 of 21
    bill mbill m Posts: 324member
    I want to add something here. After showing the new iTMS to a few die-hard PC friends at work, 2 of them got hooked and both purchased entry level combo drive iBooks last night and one of them a new iPod. Both (a guy and a gal) said nothing like this exists in the PC world and finally had a reason to jump on the MacOS X wagon.



    Although I don't think this will be a huge trend, I certainly expect consumers in the Wintel camp taking a serious look at the Mac latest digital lifestyle offering due to the sudden popularity of the iTMS. I even expect a lot of Mac users with slower pre-Mac OS X systems upgrading to the latest models for the same reason stated above.



    My point is that, while the intial reports from the iTMS are surprisingly good, they can only get better. Apple should expect increased revenue/profits from new switchers due to iTMS. This without having to wait for windows version of the service.
  • Reply 17 of 21
    dirksdirks Posts: 16member
    At this stage, my view is that 'hard current numbers' are just not reliable to predict what may happen. The ongoing support of the 'Big Five' publishers is far more important for future development of this service. As far as recent press coverage is concerned, this seems to be case. This will be big, I'm sure!!!



    Why not simply be a proud Mac enthousiast; SJ did it again!!! Let's enjoy the fact that -for a limited period in time- this is only for our Macs. In Europe we are only a bit disappointed that this today is only available for you US folks.



    DirkS



    PS question: how do I create a link to my iTunes library? This is great too!



    Thanks and regards
  • Reply 18 of 21
    matsumatsu Posts: 6,558member
    What's the real potential of the store? I don't think any of the rationalizations here can be too accurate. No one here can really run any numbers, and certainly any degree of success will spawn at least two major competitors (say M$ and AOL?) to wean away some of that DL market we're all salivating over.



    Things to consider. Mac users pay for a much more software than the average PC user.



    While the PC/mac market may be 97 to 3 in favor of the PC, the paying home user market ratio is far smaller. Eliminate the huge instalment of business user seats from the PC marketshare -- the call center stations won't be part of the market. Now, since macs are more expensive, they also constitute less spendthrift audience, but the buyers of bargain basement PC, while a large portion of the PC marketshare, are not large buyers of software or media. They consume it, sure, but they don't buy it. Eliminate them from the pool of potential iTunes customers. They don't fit.



    In reality, the volume of potential paying customers that Apple can expect from the PC world is more like the market growth they expected from offering the iPod to Windows users, a multiplication of about 4-5X the sales. iPods are also a high-end player (with a high end price). They cost a little more than individual songs, but the markets are probably similar.
  • Reply 19 of 21
    satchmosatchmo Posts: 2,699member
    Quote:

    Windows marketshare will be slow coming given the previous history of crapulous Apple software on that platform (Quicktime) and the preponderance of much better P2P apps o the Wintel side of things (you can call it stealingall you want,but the RIAA does a great job ofmaking everyone using P2P feel like Robin Hood).



    I wonder. Is there difference between PC and Mac users when it comes to paying for music? Is one type of user more apt to steal? Sure there are more refined P2P programs for the PC, but isn't it's more of an ethical issue rather than a technical one?
  • Reply 20 of 21
    jante99jante99 Posts: 539member
    Quote:

    Originally posted by satchmo

    I wonder. Is there difference between PC and Mac users when it comes to paying for music? Is one type of user more apt to steal? Sure there are more refined P2P programs for the PC, but isn't it's more of an ethical issue rather than a technical one?



    PC's users are much more likely to steal. Most people who like Macs will buy any product sold by Apple simply because it is sold by Apple hence the million songs sold in one week. http://www.apple.com/pr/library/2003...usicstore.html



    Back on topic: If Apple can continue to sell 1 million songs a week that will turn out to 52 million songs a year. Of that Apple will get 18.2 million dollars in gross revenue. Probably much less in profit.



    After the initial buble of people buying tracks just to see if it works people will probably go down to buying one album a month or 12 a year. So basically they will spend around 120 dollars a year on the service. To bring in 52 million Apple will need to get around 433,000 people to buy monthly.



    A US Department of Commerce study found 51% of Americans use a computer regularly or about 150 million. 433,000 is about .3 percent of all computer users. This sound about right since most Macs and all PCs can not use the service right now.



    3 Billion is just absurd. Maybe Apple will sell 200 millions songs a year when the PC iTunes comes out but never 3 Billion (this would every computer users in America to buy twenty songs a year).



    My math may be off the basic principle stands.
Sign In or Register to comment.