[rahimnathwani]

For those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it?

As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs.

I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only on memberships.

[tonyedgecombe]

I assumed Apple's margin was 30%, the difference between what a user pays and what the developer receives. Am I missing something here?

[rahimnathwani]

  Am I missing something here?

You are assuming Apple is a reseller (whose revenue is the full price paid by the end buyer) rather than an agent (whose revenue is only their commission).

You are also ignoring the app store's advertising revenue.

And you're assuming that it costs zero to run the app store.

[tonyedgecombe]

>You are assuming Apple is a reseller (whose revenue is the full price paid by the end buyer) rather than an agent (whose revenue is only their commission).

This isn't an unreasonable assumption, especially considering the invoice for my last App Store purchase has an Apple address and tax identifier (VAT number). Apple is the merchant of record.

[seanmcdirmid]

Apple should have costs they have to pay to maintain the store, vet apps, credit card transaction fees, etc…

[andrewmcwatters]

Are you serious? What company doesn’t categorize labor and expenses, especially for capitalization and R&D purposes. There’s zero chance Apple doesn’t know. It’s 100% nonsense.

They know all the labor costs and revenue for each of their products. Every single one.

Zero chance Apple doesn’t categorize server allocation and assign those to budgets. Small companies do it.

So, the obvious answer is they’re lying. They’ve done it before, too. They’re doing it now.

[stouset]

The GP claims to be qualified as an accountant and gives a simple example of how this type of problem can have no clear answer.

Your rebuttal is simply “of course they know the answer”.

Is there any reason someone reading this thread should prefer your take over theirs?

[isthatafact]

Apple directly reported sales of "services" in the last reported quarter to be 24972M and cost of those sales to be 6485M. https://investor.apple.com/investor-relations/default.aspx

I am no expert, but that seems like a 74% margin on services, which would seem to include their "app store".

It is difficult for me to imagine that apple is somehow incapable of breaking those numbers down into smaller component categories.

[headhuntermdk]

Let's look at a few things that we know about Apple:

1. The first $1 trillion, $3 trillion and (soon to be) $4 trillion company. 2. Cancels or stops production of products that don't make money (VisionPro being the latest). 3. Spent over half a trillion dollars in stock buybacks.

No company gets to the height Apple is currently without knowing every dollar coming in and going out.

I'm reminded of "if it don't make dollars, it don't make sense" chorus from DJ Quik's "Dollaz + Sense".

When I apply that to Apple (let alone any successful company for that matter), the claim that they don't know if the AppStore is profitable or not *defies belief*.

Schiller might not know exactly how much profit is generated, but to suggest that he's clueless whether or not on the WHOLE if the AppStore is profitable... If people believe that, I got a bunch of bridges up for sale.

[andrewmcwatters]

Exactly. Considering how Schiller and other Apple executives straight up regularly lie to the engineering public, there's not a whole lot of mystery here.

Yeah, like Schiller isn't ever told about revenue and expenses at Apple. Please. What a joke.

[RhysU]

Exactly. If they can't calculate it how do they know they're not losing money? If they know they're not losing money how do they know that?

[mcphage]

> If they can't calculate it how do they know they're not losing money?

If they were losing money, what would they do? They probably can't raise their rates, since people are already very unhappy with their current rates, so it would be a hard sell given how much the company as a whole makes. They can't close the App Store, since it would flush their entire iPhone line down the toilet. Could they lower costs? Probably—cut back on reviewers, get rid of the promotional pages they create. I dunno.

[andrewmcwatters]

Well, I claim to be a dog on the Internet, so there’s that.

But seriously, this ignores too many simple truths. Companies with even under $100 million in revenue categorize labor and other general expenses. Even full-time employees who don’t log their hours have them tracked by entry-level management all over the U.S.

Why would one do this? To capitalize on software costs, apart from even hardware costs. Something Apple does regularly, and they have a history of sharing that information with shareholders.

So, the GP is talking out of his rear end. The obvious reason Apple doesn't want to share their margins is because every closed software ecosystem is absolutely screwing their developers. That’s why.

There isn’t a single company I’ve worked for in nearly 20 years that doesn’t assign department and project costs to employees, contractors, and ancillary workers. Each department and project also has its own materials expenditure reports.

All of them. Even the smallest companies do this. It’s such a naive claim to think otherwise. I have no idea why people here think the “integrated” argument holds up at Apple, either. Staff there absolutely have "App Store and related work" assigned to their employee profiles. Without a doubt. Even their hiring roles don’t hire general software engineers; each role is preassigned to a specific department or project.

[headhuntermdk]

They wouldn't be a very good dragon if they couldn't account for each gold piece they were hoarding

[xhkkffbf]

I agree. It's not possible to do.

But that being said, if the AppStore were somehow spun off into a separate company, I think their costs would be less than 10% or even 5% of the cut that Apple takes from the AppStore sales. I'm sure I could run it at those costs.

Still, it's fair for Apple to want the cut they take from the App store revenues. I totally get their position. They built a great product and platform. They deserve to reap the rewards.

[amluto]

> I'm sure I could run it at those costs.

Are you counting the surely enormous amount you would have to pay Apple for the privilege of being the App Store?

[rahimnathwani]

  But that being said, if the AppStore were somehow spun off into a separate company

The 'somehow' assumes we have some way of deciding which costs should be borne by this separate entity. But we've already agreed that's not possible!