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Comment by valuearb | Hacker News Reader

Apple doesn’t make $50B a year from the App Store. That’s roughly it’s entire services revenues. It’s estimated that developers had gross sales of $50B from the AppStore last year, of which $15B is Apples share before expenses.

Apples audited financials tell us gross margins on services is 68%, and $9B of those services are from an annual payment from Google for search placement in Safari with a gross margin approaching 100%. So you can make up whatever numbers you want given your limited understanding of what services the App Store provides, but App Store gross margins are clearly likely to be in the 50-65% range, making its break even somewhere between 10-15% of developer revenues.

And lastly, gross margins aren’t net margins. Apple still has to pay for marketing, sales, admin, support, etc out of iPhone gross margins, and the App Store still needs to contribute to some if these as well.

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Apple Music and anything that has content rights are where low margins are going to be. Services margin will include new areas they are investing in and losing money as well.

There's zero percent chance the App Store is running at 50% margin. It's got to be closer to 80% than 50%, or they are doing something wrong.

You are correct Apple Music has low margins (Less than 30%), but it also only has 40M subscribers, which is likely less than $5B in annualized revenues, or roughly 10% of total services revenues.

So $50B in services at 68% margins equals $16B in expenses, deduct $4B in Apple Music expense and you have $12B left. Deduct $9B from revenues for Googles search engine placement, $5B more in revenues from Apple Music, and you have $36B in revenues left. That makes gross margins for the remaining services, which the App Store is 40%, 67%.

You are correct in that 67% is closer to 80% than 50%, but still a long way from it.

I've not done the research, but following your #s, there remains 60% of the $36b unaccounted for. Where's that coming from, and what are those margins?

I’m honestly not sure. There is iCloud, News, Arcade, but those three combined shouldn’t even get to $5B, let alone $22B.

>but App Store gross margins are clearly likely to be in the 50-65% range, making its break even somewhere between 10-15% of developer revenues.

Apple dont booked their customer's revenue, only their receiving ( i.e ~30% ) end. So those are close to 100% Margin as well.

There are additional $10 per Mac, iPhone, iPad, Apple TV per unit to Services for their OS, Cloud, Siri and Map Usage. That is close to $3B revenue, and again Gross is close to 100% margin.

The only thing that aren't 100% Gross is Apple Music. Where it has a clear unit cost and margin are likely to be Sub 20%. ( You can take a look at Spotify for margins, and Apple also pay labels a little more than competitors because it isn't part of their profit making branches ) And Apple TV+ which is Apple giving away their Services Profits for something given out for "Free". ( Which is one reason I hate Apple TV+ )

Apple are now basically subtracting all of their Software and Cloud Services Cost from Services Segment. Apple could argue part of the reason why you get 5 years worth of iOS update are from those revenue stream.

And yes, none of these Gross Margin takes into account R&D, marketing, operation and other expenses.

Personally I have no problem with Apple charging 30% for Games like Fornite. Which is the industry Standard across all gaming platform. I just wish they lowered the Apps section in the App Store ( Gaming being already in a separate section ) to 15% rather than 30%. And 10% for Subscription.

Considering the cost of running the App Store, and Apple's promotion of App Store credit. I felt 15% is a much fairer deal.

The audited accounting is clear. Apple s gross margins on services are 68% on roughly $50B in service revenues. That’s roughly $16B in expenses.

Subtract $9B for Google safari payment, and you have $16B in expenses on $41B in remaining service revenues, or 60% gross margins.

Hosting and distribution of terabytes of data every hour costs money. Building and maintains hundreds of localized app stores costs money. Customer service costs money. App Review costs money. Developer support costs money. Maintaining Developer tools and store APIs costs money. Payment processing costs money, esp. on 99 cent purchases.

And why should Apple price these devices at a “fair price”? When you build a business from scratch that be ones far more successful than anyone thought possible, aren’t you allowed to keep the money people freely pay you?

Apple set the pricing at 30% day 1, and it hasn’t stopped a single developer from running to jump into the App Store goldmine. There has never been a more profitable software market for developers. I’d say Jobs clearly got the pricing right.

No one is saying the App Store isn’t allowed to be profitable for Apple. Just countering the misinformation from the post and the wrong assumption that the App Stores only make 60% margin.

Developers pay to advertise their apps (some of it goes to Apple) Apple pays to market Apple TV, Apple Music. Apple doesn't need to take in revenue to market other people's apps, advertising them is a money maker for them.

Also, you are talking about the margins on all Apple's services, some of which are much more expensive than others. The margins that other digital software stores can charge suggest to me that they can be very profitable without the 30% cut.

Full disclosure: I am a longtime Apple shareholder.

No one is saying the App Store isn’t very profitable for Apple. Just countering the misinformation from n the original post and the blatantly wrong assumption that the App Stores only costs are payment processing.

Disclosure: I’m a long tine App Store developer.

On the wild assumption that the plist for macOS Safari at https://discussions.apple.com/thread/2813786 is used on iOS and it's derivatives, and that the <key>Default</key><true/> pair implements this on all platforms, given the $9 billion placement payment for Google, would that code section not be a contender for the most expensive lines of code in existence, and at $360 million per letter?

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