Josh Ong
Asymco blogger Horace Dediu crunched the numbers using data published by Apple at last week's Worldwide Developers Conference. Dediu assumes that Apple continues to run the stores at "just above break even."
The company has said for years that the iTunes Store and App Store do not generate much profit, as most of the it is invested back into supporting the stores.
According to Apple, the digital storefronts have reached 15 billion song downloads, 130 million book downloads and 14 billion app downloads. There are now 225 million iTunes accounts and 50 million Game Center accounts. The App Store offers 425,000 apps, including 90,000 apps developed specifically for the iPad.
Dediu combined Apple's download estimates with the average price of songs and apps and the split between developers or music labels and Apple to arrive at his estimate. After adding together the content margin for songs and apps, Dediu estimates that operation costs reach approximately $113 million per month, from a total income of $313 million month.
"Much of that cost does go into serving the content (traffic and payment processing). Some of it goes to curation and support. But it’s very likely that there is much left over to be invested in capacity increases," Dediu said.
Apple's most significant investment toward capacity increases likely came in the form of a $500 million data center in Maiden, N.C. The company said this spring that the facility, which is nearly five times the size of its existing Newark facility, would support the iTunes and MobileMe services. Given that MobileMe is due to be phased out in June 2012, the server farm will support the just-announced iCloud service.
iTunes has become the largest music and movie store in the world. In April, reports emerged that Apple had ordered 12 petabytes, or 12,000 terabytes, of additional storage for hosting video content on iTunes.
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The costs associated with maintaining the iTunes Store and App Store have grown to more than $1.3 billion a year, according to one estimate.
[ View this article at AppleInsider.com ]
I read the Asymco post and forgive me, but I'm not sure that Horace's tongue wasn't in his cheek. Certainly, some Apple execs in the past have said that the store barely runs above break even, but we don't know that that is still true today, right? If the store's revenues are growing exponentially but the costs are linear, isn't it possible that the profit is becoming substantial and that Horace, of all people, understands this pretty well?
I read the Asymco post and forgive me, but I'm not sure that Horace's tongue wasn't in his cheek. Certainly, some Apple execs in the past have said that the store barely runs above break even, but we don't know that that is still true today, right? If the store's revenues are growing exponentially but the costs are linear, isn't it possible that the profit is becoming substantial and that Horace, of all people, understands this pretty well?
Horace sufficiently covered all that. My question to you is why do you think the costs are linear if the growth rate is exponential and the file size to be downloaded is not likely to decrease. I'd wager there costs have also increased on a curve, including but limited to the new data centers they've invested in.
Horace sufficiently covered all that. My question to you is why do you think the costs are linear if the growth rate is exponential and the file size to be downloaded is not likely to decrease. I'd wager there costs have also increased on a curve, including but limited to the new data centers they've invested in.
Maybe you're right. I guess I'm assuming that a significant percentage of the costs are non-recurring engineering and maintenance costs as opposed to costs correlated with data traffic. So do you guys figure the number of personnel required to run the store is going up exponentially? My thoughts were that the personnel count is not going up exponentially and their salaries are a significant fraction of the total. But I'm only speculating and I think I may trust you and Horace more than I trust my speculations
If the iTunes/App Store was generating significant profit, Apple would need to divulge this to shareholders in their SEC filings, as any incident that affects the online content stores' operation would have a significant detrimental impact to Apple's profitability. So far, the numbers don't show a large revenue stream apart from hardware sales.
Because Apple does not break out iTunes/App Store revenue as a separate line item, it is likely that those operations are not significantly contributing much to the bottom line, i.e., they aren't P&L centers.
So Apple tosses iTunes/App Store revenue in to the "misc" bucket and assigns the operating costs to SG&A, leaving it a wash.
By contrast, Apple provides significantly more data about their retail sales operations as that business unit is a significant contributor to Apple's bottom line.
Who do they have running these numbers ... Dr. Evil?