The Great iPhone App Store Profit Debate

Venture Partners guestimated, based on a survey from O'Reilly, that Apple has made "only" $20-$45 million from their 30% cut of App Store revenue since the service launched in July 2008.

To quickly recap, App Store developers can charge whatever they'd like for apps -- including free as in $0 -- and Apple will take 30% off the top, from which they pay storage, bandwidth, infrastructure, transactional processing fees, etc. Obviously 30% of free is nothing, but for $9.99 apps, they'd gross almost $3, and net... well, that's anyone's guess. (see above).

Techcrunch (via Daring Fireball) provides some interesting analysis on that point, and the larger point on just what Apple may be netting in total:

I think Liew’s numbers are well below the actual revenue numbers, but no matter if its $50 million, $100 million or $200 million, that’s not a huge amount of money for a company that has nearly $30 billion in cash in the bank. But going forward, that number is only going to increase both as the platform expands and as in-app purchases come into play. That’s not bad for a company that just wanted to make enough money to keep the App Store running.

Parallels to the iTunes Music Store, and what it did for iPod sales, are thus as plentiful as they are well founded.

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Rene Ritchie

EiC of iMore, EP of Mobile Nations, Apple analyst, co-host of Debug, Iterate, Vector, Review, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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Reader comments

The Great iPhone App Store Profit Debate


$45 mil is no small potatoes when you consider the fact that Apple is getting this money essentially for doing nothing. It's a great business model because they put this app store out there and now developers are working to make money for Apple (as well as themselves). Apple can sit back and watch the app store bank money for them. Brilliant!

If it were 20 million:
Since the estimates are for REVENUE, and do not factor in COSTS, 20 million would still represent a significant profit.
Factor in the cost of App review, presumably done by some automated code scan, followed by a cursory review by fairly ignorant Soccer Moms who can't distinguish web content from app content.
You have to pay these people. Even low paid employees cost 40 or 50 thousand a year (salary, benefits, office space, equipment).
Given the volume of app review and approval I'm guessing there must be at least 40 people involved, reviewers, managers, staff, gofers.
2 million in round bald numbers, more likely 3 mil.
Then you have to manage the App Store, equip it, keep the web site up and running. Even if this is mostly automated and database driven there must have been new-hiring above and beyond what iTunes store required, so factor in another 20 high paid tech types.
Another 2 Million.
Sure they get computers at a discount, but still, there is a cost. Assume a (modest) farm of at least 250 machines to handle app store alone, above and beyond what iTunes store already used, Plus rack space, power, cooling, repairs, networking, etc.
Another 2 or 4 million.
Add in Billing, and customer service. Mostly Automated, for sure, but still there has to be a staff of 10 handling the odd complaints, credit card fraud issues, etc.
Another 1 million.
That leaves 10 million profit.
I'm sure I underestimate costs of the corporate world, but I think the app store could lose money and still make money in phone sales.

this report forgot to include a few things, but especially the yearly developer fee and the upcoming increase with the new subscription model... Also the App Store has lead to more iPhone sales which is indirect sales for Apple also.. I hate incomplete studies....

I didn’t think Rene was doing a “complete” study. Did I miss something?

Yeah, you missed the part where Rene was simply reporting on a study by Venture Partners, not doing a study himself.

Of course there is also the added "profit" of having developers buying Macs & writing code for the Apple universe instead of having them write for other platforms.

Well, if you want to use Visual Studio, you have to run Windows, so having to run OS X to use Xcode is no different, but the iPhone gives Apple a second bite at the developer... um... apple, so to speak ;)

Tipping of developers here ... there are other ways to make money with your knowledge of iphone programming. Basically, its risky currently to develop and put up your app on the appstore unless your app/game is unique. A quick way to get the cash flow coming in, is to join and bid on project bidding sites like Elance and RentaCoder. The number of iPhone apps there is mushrooming by the day... and you can make a good packet if you bid and win projects there.