Just pointing out that 30% of sale price is beyond “handling/processing” fees. It has accounted for a substantial share of their revenue.
Amazon doesn’t write those books either but at least they stock/handle a lot of physical product.
How is it a digital song costs the same as a vinyl 45 of days of yore? Certainly doesn’t have the material and distribution costs.
Substantial? No, Paradise, you have no idea what you are talking about. My degree is in Economics. . . and I DO know what i am talking about. I have also been a CEO of a corporation and managed others. Let me analyze this for you.
The costs for getting software by any other route to consumers is FAR higher than the 30% Apple charges in commissions to allow the sales in their App Store.
Amazon uses the same 30% commission policy for these kind of sales and is barely breaking even or losing money.
In other channels of getting products to market there are wholesalers, and shipping costs, as well as site management, advertising, overhead, taxes, etc which will be added at every step in the process PLUS profits for each organization with their fingers in it. A retailer with a Brick and Mortar store usually wants to see a margin of 40-50%! He has to cover his cost of sales and leave room for a reasonable profit too. in the firearm business, a used gun is marked up 100% from the purchase price. . . . or looking at it the other way, a 50% margin. Buy it for $100, sell it for $200. If you did not, you'd be closing your doors pretty quick. When I was managing the Old Sacramento Armoury, after all the jobbers, wholesalers, shippers, and the manufacturers got their cuts, the markup on NEW firearms was only 18%! The only way we were able to survive was to form our own wholesale company for Colt and several other gun makers. We still had to buy from a jobber, and not directly from Colt! But that got us another 10% though, and we could wholesale to other gun dealers. Again margins were all important!
Apple's 30% is very reasonable. The Developers get 70% of the sales price with Apple. . . anywhere else it would just exactly the opposite. . . 30% would go to the developers, then the jobber would sell it to the wholesaler, who would sell it to the retailer, who would then sell it to the consumer. . . all of whom have costs and profits to meet. Markups at every level add to the PRICE the consumer pays.
Last year Apple sent $10 BILLION dollars to the developers of the software sold on the App store. . . and kept $4.73 Billon for their end, out of which they paid everything to maintain the app store, advertise it, maintain it, collect the money, handle the accounting, PAY sales taxes, PAY FEDERAL INCOME TAXES of 26-30%, State of California Income taxes of 11% plus sales taxes of multiple entities where the Apps were sold and kept track of the various sales taxes in those venues where necessary (and that is a major worldwide headache, not just a local one for direct sellers), and handled returns and refunds) as well as curated the apps on the app store to assure no malware got into the store. Finally, Apple gives the developers ACCESS to a market of buyers who have money in their pockets. . . and are willing to buy. . . and an easy way of buying that is only matched by Amazon's but is NOT matched by Amazon in the sheer number of credit cards registered TO buy by a single click, 500,000,000! No one else can offer that kind of marketing power!
In a standard model, as I mentioned, the developers. would get the $4.73 Billion. . . and a whole host of other people would get their fingers into the pie. But those developers would have to pay for their OWN marketing, their own sales to jobbers/wholesalers, handle their own returns and many other expenses now handled for them by Apple. Sorry, Apple earns that 30% commission on the Sales.
The figures for the App store also include a lot of Apple Created apps and services. iWork suite, OS X itself, i OS X Server, Movie, Garageband, Aperture, Final Cut Pro, Motion, Compressor, Logic Pro X, MainStage 3, FaceTime, and Apple Remote Desktop which are some of the top sellers in the app store. Also included in that figure are all of Apple's Services. . . including paid repairs, AppleCare, iCloud extra storage, paid training classes, etc. In fact, 37% of the increase in 2013 came from growth in services.
As for your "substantial share of the revenue" you are right. . . but Revenue and profit, are two different things. Some people are counting as revenue money that flows into Apple. . . while Apple counts as revenue only that 30% they are actually entitled to as commissions on sales in the App and iTunes stores. The rest is passed to the developers. Apple then subtracts operating expenses to get to NET REVENUE, which is still not NET PROFITS, which would be after tax profits.
All of the following data is gleaned from Apple's 10-Q filed with the SEC.
For example, the first quarter of 2014, the gross revenue of the APP store, services, sales of Pro Apps, OS X, etc., Apple showed intake of just under $6.9 billion. . . but Gross Revenue, which is a combination of the 30% commissions, and income from the sales of Apple produced software and services) of $2.4 billion out of which they subtract the operating expenses. In these areas, Apple reported a gross margin of 34.7% in that quarter. . . meaning the operating expenses (overhead, salaries, advertising, cost of materials, etc.) was 65.3% which in this definition is "Cost of Sales, or $1.56 billion. (for perspective, Samsung spend $14 billion on advertising in 2014 to garner $25 Billion in sales!) That left less than $900 million to add to the bottom line of profits for that quarter.
For the entire year, granting an escalating growth in iTunes, App Store, software, and Service sales, It's probably these added $5 Billion to Apple's bottom line for 2014. Initially started as a "break even" service for iPod and iPhone users, the iTunes and App stores are showing profits, but most of that profit is coming from the services and Software end from Apple, after operating expenses and taxes are paid.
Amazon doesn’t write those books either but at least they stock/handle a lot of physical product.
Not ebooks, streaming video, or digital music. They use the same model as Apple does now. However, we can talk about Amazon when they do not lose $437 million in a single quarter and projecting an even larger $570 million loss for the most recent quarter just ending. That simply doesn't make them a good role model for any business decisions. . .
How is it a digital song costs the same as a vinyl 45 of days of yore? Certainly doesn’t have the material and distribution costs.
Again, you need to think like an economist.
It literally doesn't "cost the same," not in terms of the amount of work you need to do to earn that digital song, compared to the amount of work you had to do back in the "days of yore," when the minimum wage was $1.10 an hour!
Did you check prices what a vinyl 45 cost back in the "days of yore," say 1960, in reference to inflated dollars? In 1960, a 45RPM new release of a best seller was 98¢ to $1.49 depending on the artist, in today's 2015 dollars, that record with two tunes, would cost you $7.98 to $11.97 or $3.99 to $5.98 a tune. . . instead of 99¢ a tune. It is four to six times CHEAPER because you don't have to pay for material and distribution costs. . . but the distribution costs ARE in there. More importantly, the ARTISTS get more of that money than they would have in 1960! You can check those calculations with the US Inflation Calculator, a very useful tool to put things into perspective.
So your basic point is twaddle. . .
CUPERTINO, California—October 20, 2014—Apple® today announced financial results for its fiscal 2014 fourth quarter ended September 27, 2014. The Company posted quarterly revenue of $42.1 billion and quarterly net profit of $8.5 billion, or $1.42 per diluted share. These results compare to revenue of $37.5 billion and net profit of $7.5 billion, or $1.18 per diluted share, in the year-ago quarter. Gross margin was 38 percent compared to 37 percent in the year-ago quarter. International sales accounted for 60 percent of the quarter’s revenue.
These are facts. . . not twaddle.
Here's some more of those pesky facts, Paradise:
Apple reported the following number of shipments for its products during the quarter:
So, the iTunes Store, App Store, software, and services, may have accounted for a little over maybe $4.73 Billion in revenue our of $42.1 Billion of quarterly revenue, and perhaps $1 billion of the $8.5 Billion of after tax profits. . . and you claim it is the driver of their "continued success" when Apple is breaking records in EVERY area except the iPad and iPod???? Hilarious! No, Fool in Paradise, the increase in the Soft side of Apple is BECAUSE of the remarkable growth in the OTHER HARD side of Apple. . . Apple's Mac side, for example experienced a 21% year over year increase in sales when comparing the same quarter with 5.5 million Macs sold! That will translate into a LOT of Mac apps being sold in the App store. The amount of cash on hand topped $182 BIlLION! That's CASH! Apple has more spare change than the United States Treasury!
As for RAW revenue coming into the company, here is what CEO Tim Cook said about the entire FISCAL 2014 Year, which ended September 27, 2014:
"These results bring to a close a record breaking fiscal 2014. Over the last four quarters, our products and services have generated a $183 billion in revenues, an increase of $12 billion over last year. We sold 243 million iOS devices and 19 million Macs, both all-time highs.Our revenue from iTunes software and services reached $18 billion, which was more than the annual sales of two thirds of the companies in the Fortune 500 and we generated $6.45 in earnings per share, which is 14% higher than last year and also set a new record. — Source: Apple's Financial Call Transcript
In other words, the software and services were only 10% of the overall gross revenue. . . before deducting any costs at all, including paying the developers their cut. Again, proving my point, that this area is NOT a primary driver of growth of profits but just part of the overall picture and responsive to the huge growth in the Mac Market and iPhones where the sales are driving sales of Apps, software and content.