[aditya]

Interesting, as usual, but a lot of conjecture here.

I did find this odd:

But there’s no question that the App Store exists to sell iPhones and iPod Touches, not the other way around.

That turns the Razor/Razor blade and Printer/Ink cartridge analogies on it's head. I would think that even with a small (30%) cut, selling apps from a tightly controlled app store is immensely more profitable for apple than the actual hardware is, just like selling music? Does anyone know why Gruber thinks the actual hardware makes Apple more money?

[spicyj]

From the earnings report: Apple sold $12.25B worth of iPhones and Apple TVs in the last quarter.

http://www.apple.com/pr/library/2009/10/19results.html

In the first month of the App Store, (arguably not very close to now, but still) Apple sold about $30M in apps, of which it takes only a 30% cut. The difference between hardware and software sales is a few orders of magnitude.

http://online.wsj.com/article/SB121842341491928977.html

[aditya]

Ah, right. But which one is apple profiting more from? The hardware with it's high cost or the app store with it's virtually zero cost?

[spicyj]

Excuse me, I forgot to write: profit from the iPhones and Apple TVs is about $2.85B, if I understand the report correctly.

They'd need to sell $3.2B on the App Store each month to match the hardware profit figures.

[whalesalad]

I think this perspective might help a bit: Think about the average person purchasing a handful of applications for a couple of dollars each (My girlfriend has probably spent a maximum of $20 on apps for her iPhone), with a smaller portion of that money actually making it into Apple's pocket (costs for operating the app store service itself as well as the people who approve and manage apps, paying developers their portion, etc...) versus a couple of hundred dollars per device. An iPhone without a contract is even crazier, take the subsidized AT&T price and add $400. The app store is the biggest reason why people want the devices, but I can see how it's not the reason for the devices.

Just looking at my Android phone (I previously had an iPhone and got bored with it) I have three applications for Facebook and all of them don't even do 20% of what the iPhone one does. I get so frustrated with my device now that I'm considering dishing out cash money ($699) to buy a new one and stick with my T-Mobile plan.

[mattparcher]

The traditional analogy would be Apple's own iTunes Store for music downloads, where Apple makes money from iPods instead of 99¢/$1.29 downloads.

Granted, they probably make a bit more with the apps than with music, but it presumably costs more to manage and host them as well.