[nabla9]

Apple’s App Store profits on commissions from digital sales

    Revenue          $32 B
    Operating Costs   $7 B [1]
    Estimated Profit $25 B 
    Operating Margin ~78%

[1] R&D, security, hosting, human review, and including building and maintaining developer tools Xcode, APIs, and SDKs.

Apple could take just 7% cut and still make 20% profits.

Fun Fact: During the Epic trial, it was revealed that Apple's profit margins on the App Store were so high that even Apple's own executives were sometimes surprised by the internal financial reports.

---

edit: There is no ideological argument for voluntary action here. The entire goal is to force regulators to step in. The debate over 'good vs. bad companies' is just online noise and rhetorical trik, no one on either side of the political spectrum wants these systems to be fixed voluntarily with corporate altruism.

[nabla9]

The operating cost is the maximum Apple can come up with when their accountants attribute everything they possibly can to digital sales for the sake of legal argument. R&D shouldn't really be included, and Apple uses those same tools and APIs themselves. I think the actual profit margin is closer to 90%, and Apple could maintain a 20% margin with just a 3–4% fee.

[rob74]

I'd say that in the case of Patreon, any fee for Apple is unjustified. Apple can justify their fee on app purchases/subscriptions in the app store, but Patreon is not an app subscription, the money goes mostly from the patrons to the people they support. Ok, Patreon takes a cut to cover their operating costs, and also make a profit (not sure how profitable they are currently), but I really can't see how Apple, who don't have anything to do with this process except for listing the Patreon app on the app store, can justify taking a cut.

[seemaze]

Certainly not defending Apple's behavior in this instance, but isn't the success of the larger product ecosystem a direct driver of their App Store profitability? To strictly evaluate the App Store finances in isolation seems to be the sort of accusation you've levied against Apple in the opposite direction..

I like Apple less and less these days for various reasons, but I haven't purchased an app on the App Store in more than a decade. It's strictly a vehicle for local utilities when, for whatever reason, a browser will not suffice. Nearly all purchasing is done on the 'open' web.

[jbs789]

Or you could argue the App Store wouldn’t exist without the hardware, so the relevant reporting is both combined - lower margins.

[parineum]

> ...for the sake of legal argument. R&D shouldn't really be included

That's an incredibly ridiculous take. R&D is an operating cost and it's an ongoing expense related to the app store existing.

> I think the actual profit margin is closer to ...

You can replace "think" there with "feel".

[SwtCyber]

What really makes it uncomfortable is that Apple isn't just a neutral marketplace. They control the OS, the distribution channel, and the payment rails, so creators and platforms like Patreon can't realistically opt out

[chii]

They could opt out - by sticking to web platforms.

Apple cannot charge for that. However, apple does attempt to gimp the web platforms on mobile to "subtly" push for apps.

[randallsquared]

While inconvenient and likely to reduce patrons, the article does describe how they can opt out: use the web to do any payment activity.

[gumby271]

Don't forget they also directly compete with Patreon with podcast subscriptions. You can support a podcast through Apple podcasts or Patreon, but only one of those has a 30% chunk taken out.

[StopDisinfo910]

That's pretty much the conclusion the EU came to and why they introduced the notion of gatekeepers in the DMA.

It doesn't matter if you are not technically in a dominant position if your special role in a large ecosystem basically allows you to act like one in your own purview.

You could say this kind of move invites more scrutiny but the regulators are already there watching every Apple's move with a microscope and their patience with Apple attempts at thwarting compliance is apparently wearing thin at least in the EU if you look at preliminary findings.

[patanegra]

Yeah, because they built it. If people were using Linux everywhere, the situation would be different.

[uyzstvqs]

The problem is the monopoly over distribution channels. Regulation needs to force devices to allow A) downloading and using packages & executables from the internet, and B) any app to download and install other apps.

Regulating the fees for one central app store is no solution.

[stouset]

> downloading and using packages & executables from the internet

Oh boy, now my mom can get the full experience of having malware on her phone too!

[funkyfiddler369]

> no one on either side of the political spectrum wants these systems to be fixed voluntarily with corporate altruism

Right on. But that's exactly the wiggle room where voters could pull some of those cards like "climate change mitigation (of consequences)", "climate change preparation", "upcoming waves of climate change refugees", "AI dividing the population", "Universal Basic Income", all of which are things companies like Apple won't do anything for (or against) while their goods are still mostly for proper earners and not for people who buy stuff at a discount (I'm exaggerating).

Since corporate altruism is definitely not on the menu, government institutions and NGOs will have to pick up way more than they are currently prepared for.

We are in a strange phase of calm before the storm, despite all those wars and conflicts--or in spite of them, I don't know. Shits' gonna hit the fan sooner or later and it's up to the voters to demand adequate preparation.

Big Corps caused significantly more damage than they had to cause for all those profits, whether as a side effect or not, and they did that long enough.

Job cuts, whether due to AI or not, will remain a thing while no "new" giants will rise for quite a while ... and corporations will sing the song "it's what the people want" only as long as voters will stay quiet.

Sure, bribes, corruption and blablabla, but it doesn't change how votes work and none of it changes how the devoted clerks in the administration do their jobs and write laws (if they have to have to) ...

[blahgeek]

> Apple could take just 7% cut and still make 20% profits.

We can say this to any company, "$X could reduce price by $Y and still make $Z profits", but it doesn't really make any sense. Making profits is what makes a company a company instead of a non-profit organization.

[awesan]

It does make sense to highlight, because this kind of statistic is a very strong indicator that the market is not competitive. This is not a normal kind of profit margin and basically everyone except for Apple would benefit from them lowering the margins.

In normal markets there are competitors who force each other to keep reasonable profit margins and to improve their product as opposed to milking other people's hard work at the expense of the consumer.

[vasco]

When parts of a market become dominated by one or few companies operating in a limited choice environment, consumers can't just opt to not use both Apple and Play store. You need to choose one in practice.

At this point the regulators should investigate what the barriers are to new entrants and if it's too costly and nobody has managed to cut in the last few years, establishing some rules is probably a good thing. This happens as industries mature and become critical, it happened in transportation (most bus, train companies), energy, water supply, trash, etc, depending on the country and market conditions.

[account42]

High profit margins are a sign of market failure.

[lz400]

Makes me think of the concept of involution in Chinese business and how they understand all of this very differently, and how difficult it is to compete because of that.

[ibejoeb]

Agreed, but this is about to be a special case if it's not already. We're contending with compulsory digital IDs and cashless economies that must be used on authorized devices, and Apple is one of the two makers. While it's certainly not necessary to use Patreon, not having it or something like it is an actual barrier to individual trade. I don't think I can get behind a schema that means Apple can take whatever portion it wants from a transaction initiated on a device that it creates and that is otherwise fairly necessary for day-to-day life in the developed world.

[bryanrasmussen]

it sounds like it does make sense because if they are making $Z profits then they are still making profits and are not non-profit.

there could also be cases where cutting back to $Z profits might be preferable in case not doing so were to prompt legislation causing someone to be forcibly cut to $Z-1 or even $0 profits from a particular profit source.

Which it has been my observation that when someone is saying "X could reduce price by $Y and still make $Z profits" it often coincides with saying therefore company X should be legislated on this particular profit source.

Note: $X didn't make much rhetorical sense.

[ImHereToVote]

I think it's a little known fact that societies don't exist for the benefit of companies. It's actually the other way around.

[gortok]

“Growth is what makes a cell a cell.”

Until it turns into cancer because of unrestrained growth.

Like it or not capitalism is a part of an ecosystem. We’ve been “educated” to believe that unrestrained growth in profits is what makes capitalism work, and yet day after day there are fresh examples of how our experience as consumers has gotten worse under capitalism because of the idea that profits should forever be growing.

[croes]

It makes sense that regulators can step in without destroying a company.

[FatherOfCurses]

"Why wait until tomorrow to get one golden egg when I can kill the goose today and get all the golden eggs?"

[matt-p]

Let's be honest if this was a European company it would be capped by law at 5-10%. Problem is who has an incentive to do the right thing here? Not apple and certainly not the US government (most of this revenue comes from outside the US).Nobody can defend it, yet nobody wishes to stop it.

[eloisant]

The US government should absolutely do that, but they won't because they defends the interests of big companies rather than the interests of small companies or US citizens.

[chrisan]

> even Apple's own executives were sometimes surprised by the internal financial reports.

Was this recorded or just people drawing lines between Epic's expert witness claims and the executives trying to down play them?

[CGMthrowaway]

That's not how business works. The App Store in current form would not exist without all the collective investment that went into all of Apple's hardware, for instance.

Microsoft Office: Revenue $45B Operating Costs $12B Profit $33B Operating Margin 75%

Google Search Ads: Revenue $175B Operating Costs $45B Profit $130B Operating Margin 75%

[devmor]

> That's not how business works. The App Store in current form would not exist without all the collective investment that went into all of Apple's hardware, for instance.

While technically true, this argument doesn't provide any merit to the discussion. The App Store backed purchase for the Patreon subscription would not exist at all without the creator's work and investment in creating their form of content.

In the absence of the App Store, the creator would still have access to their patrons via mobile web and payment via the methods already provided by Patreon. The app is merely a convenience - it's a hard sell that this convenience is worth 30% of the creator's revenue through the platform.

[sfblah]

Being a monopolist is good fun until they storm the Bastille.

[pier25]

Plus more than $20B for the Apple developer fee without which you cannot publish the their stores.

[andrekandre]

  > developer tools Xcode

also now one of the worst ide in mobile/desktop development and an embarrassment for a company of apple's size and profits

them taking more and rents from their store-related operations is hard to justify from software product-quality perspective; its like a slap in the face

[micromacrofoot]

I don't think Apple could actually, unless they could prove to shareholders that it would create more value

[Herring]

> shareholders

Yeah that has to be a good 95% of why businesses do bad things.

The last thing Apple wants is for people to think they've plateaued. Stock starts going down to normal P/E ratios, expensive engineers leave, etc.

[ripped_britches]

I’m surprised they were surprised because operating costs should be pretty much nil. What do they do, pay a few thousand app reviewers, a few hundred software engineers? Pretty sure if they had to, they could operate App Store for a few tens of millions of dollars per year.

[musicale]

Apple's App Store business model is the same as Nintendo's eShop business model.

Obviously Epic would like to pay lower platform fees to Apple than it pays to Nintendo, but there is no logical reason why it should.

[jszymborski]

> The debate over 'good vs. bad companies' is just online noise and rhetorical trik...

Agreed, there are bad privately held corps, and worse privately held corps, with badness usually proportional to their size and profit.

[throwaway85825]

All of this could be solved easily if developers were allowed to pass on the apple tax to consumers and advertise discounts for not using the App Store. No one wants to pay more for nothing.

[danielvaughn]

I really think I might be done with Apple. The only thing keeping me using them is how much I hate Android. The _millisecond_ a competitor arrives, I'm dropping my iPhone like a bad habit.

[vlod]

Off topic, but is there anything specific that you hate about Android? I find it acceptable. I'm trying to cut down my phone usage so maybe I'm more tolerant.

[drnick1]

GrapheneOS on a Pixel is that competitor. Open source, more secure than Apple, compatible with nearly all Android apps. It's all the positive aspects of Android without the downsides (Google).

[RDaneel0livaw]

I keep hoping and wishing for a daily drivable linux phone that's compatible with all the us networks to come along. I'll keep hoping and wishing. Someday I hope we will get there!

[patanegra]

One company's margin, is other company's opportunity.

[ulrikrasmussen]

The problem is that Apple owns the platform and half of the mobile ecosystem. You can't just launch a competitive marketplace which could compete alongside Apple's app store, nor can you launch an alternative operating system. You have to launch a whole new smartphone stack complete with operating system, app distribution and app ecosystem.

[eviks]

Indeed, that's why the former blocks the latter: not to lose margins to those opportunities

[ghtbircshotbe]

They could lower the rates even more and still afford the government bribes and solid gold tchotchkes, but the whole point of the bribes is to not do that.

[jama211]

Well said. Glad to see this at the top. Google also takes 30%. And I think steam too. This is 100% a regulatory issue.

[Manuel_D]

But competitors to Steam exist: Epic Games Store only takes a 12% cut. Publishers have an option to use other distributors but choose not to.

[ksec]

Are those number App Store revenue or services revenue ? Because both seems to be inaccurate.

[dmix]

Those margins are pretty normal in software, especially a mature product like that.

[wosined]

But people still use/buy it so why would they cut the cost?

[nabla9]

There is no ideological argument for voluntary action here. The entire goal is to force regulators to step in. The debate over 'good vs. bad companies' is just online noise and rhetorical trik, no one on either side of the political spectrum wants these systems to be fixed voluntarily with corporate altruism.

[vincnetas]

and that exactly what monopoly allows you to do.

[absynth]

This is all money that is reducing expenditure elsewhere. I get it: capitalism and economics. Yet I still think humanity could do better and I think capitalism itself suffers. Economics theory is broken if it thinks this is good for society in general.

[u8080]

But those profits made possible by actually having other infrastructure parts existing(OS, hardware, marketing, etc).

[eloisant]

The $160 billion of cash Apple is sitting on doesn't contribute to any infrastructure.

[godelski]

I think what confuses me is that Apple is taking so much profit that it reduces their profits.

It's a classic direct-indirect management problem. Think about Android for a second. It costs nothing to put an app on their app store. People can make apps for themselves and then just publish because either "why not" or it's an easy way to distribute to friends and family. So basically it is making app creation easy. Meanwhile Apple charges you $100/yr to even put something up on the store, makes it hard to sideload, and consequently people charge for apps, which Apple rejoices as they get a 30% cut (already double dipping: profiting from devs, profiting from the devs' customers).

BUT WE'RE TALKING ABOUT SMARTPHONES

A smartphone is useless without apps! People frustrated they can't find the apps they want on iPhone? They switch to Android. People on Android want to get away from Google but they can't do half the shit they want to on iPhones (and the other half costs $0.99/mo)? They bite their tongue or rage quit to Graphene.

The only reason this "fuck over the user" strategy works is because there's an effective monopoly.

All of this is incredibly idiotic as the point of a smartphone is that it is a computer that also makes phone calls. We have made a grave mistake in thinking they are anything but general purpose computers. All our conversations around them seem really silly or down right idiotic when you recognize they are general purpose computers. And surprise surprise, the result is that seeing how profitable and abusive the smartphone market can be leads to a pretty obvious result: turn your laptops and desktops into smartphone like devices. Where everything must be done through the app stores, where they lock you out of basic functionalities, where they turn the general purpose computer into a locked down for-their-purposes computer.

The thing that made the smartphone and the computer so great was the ability to write programs. The ability to do with it as you want. It's because you can't build a product for everyone. But the computer? It's an environment. You can make an environment that anyone can turn into the thing they want and they need. THAT is the magic of computers. So why are we trying to kill that magic?

It doesn't matter that 90% of people don't use it that way, and all those arguments are idiotic. Like with everything else, it is a small minority of people that move things forward. A small percentage of players account for the majority of microtransactions in videogames. A small percentage of fans buy the majority of merchandise from their favorite musicians. And in just the same way, it is a small number of computer users (i.e. "powerusers") that drive most of the innovation, find most of the bugs, and do most of the things. I mean come on, how long did it take Apple and Google to put a fucking flashlight into the OS? It was the most popular apps on both their stores for a long time before it got built in. Do you really think they're going to be able to do all the things?

[thegrimmest]

Advocating for regulators to step in is already a value judgement. Why is "high profitability" a cause for regulatory scrutiny? The optimal behaviour in any ecosystem (corporate or natural) is to defend as much territory as is within your power, not to keep only to what covers your "needs". Why have you deemed this behaviour, which is emergent anywhere competition between organisms exists, as in need of regulation?

Apple is succeeding largely on merit, within the bounds of civilized, peaceful competition. Shouldn't we all just be grateful for the contributions they have made to our civilization?

[dimitrios1]

> force regulators to step in

> force

> regulators

That's my whole problem, personally.

What we need much, much less of in this world is government force, especially during these trying times of government force and outreach (something I expected my more left side of the isle colleagues to have finally realized by now).

COIVD really was a test of how much governmental draconianism we would take, and we failed spectacularly, and not only that, but are demanding more government.

So no, we don't need more regulation, especially given this country's history of regulatory capture. We need new solutions.

[Atreiden]

We don't need "more" government, we need the government to do its job. We need the regulators who have been legally appointed to oversee these areas to actually respond to these behaviors. Regulatory capture is the issue, but the solution isn't less government. It's getting corporate money and lobbying out of the government (Citizens United is to blame for most of our woes), increase the enforcement of anti-corruption laws, and get antitrust back on the table.

I want big corporations to be scared. I want them to fear for their own survival, and to tread lightly lest the sword of damocles fall upon them.