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Apple denies App Store profit margin is 75% – claims to have no clue

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Re: Apple denies App Store profit margin is 75% – claims to have no clue

#21

Post by andrewmcwatters »

rahimnathwani wrote: post #18

For those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it? As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs. I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only…

Are you serious? What company doesn’t categorize labor and expenses, especially for capitalization and R&D purposes. There’s zero chance Apple doesn’t know. It’s 100% nonsense.

They know all the labor costs and revenue for each of their products. Every single one.

Zero chance Apple doesn’t categorize server allocation and assign those to budgets. Small companies do it.

So, the obvious answer is they’re lying. They’ve done it before, too. They’re doing it now.

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#22

Post by rahimnathwani »

xhkkffbf wrote: post #19
rahimnathwani wrote: post #18

For those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it? As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs. I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only…

I agree. It's not possible to do. But that being said, if the AppStore were somehow spun off into a separate company, I think their costs would be less than 10% or even 5% of the cut that Apple takes from the AppStore sales. I'm sure I could run it at those costs. Still, it's fair for Apple to want the cut they take from the App store revenues. I totally get their position. They built a great product and platform. Th…

  But that being said, if the AppStore were somehow spun off into a separate company
The 'somehow' assumes we have some way of deciding which costs should be borne by this separate entity. But we've already agreed that's not possible!

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#23

Post by Leonard_of_Q »

rahimnathwani wrote: post #18

For those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it? As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs. I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only…

[flagged]

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#24

Post by sdwr »

Leonard_of_Q wrote: post #23
rahimnathwani wrote: post #18

For those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it? As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs. I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only…

[flagged]

When you get into brands and vertical integration, what you spend is not the cost, and what you receive is not the revenue.

Perception of value can be more important than the actual value. Like Trump famously said:

> My net worth fluctuates, and it goes up and down with attitudes and feelings, even my own feelings

He was right! The numbers on paper (and the convictions in court) don't matter when you ride the feelings into the White House.

You can argue that all Apple R&D and marketing are expenses for the App Store, or at least are so intertwined that they can't be separated. People pay a premium for the brand, and (the perception of) quality and safety. That can't be dissected into pieces.

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#25

Post by amluto »

xhkkffbf wrote: post #19
rahimnathwani wrote: post #18

For those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it? As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs. I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only…

I agree. It's not possible to do. But that being said, if the AppStore were somehow spun off into a separate company, I think their costs would be less than 10% or even 5% of the cut that Apple takes from the AppStore sales. I'm sure I could run it at those costs. Still, it's fair for Apple to want the cut they take from the App store revenues. I totally get their position. They built a great product and platform. Th…

> I'm sure I could run it at those costs.

Are you counting the surely enormous amount you would have to pay Apple for the privilege of being the App Store?

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#26

Post by rahimnathwani »

Leonard_of_Q wrote: post #23
rahimnathwani wrote: post #18

For those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it? As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs. I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only…

[flagged]

  If you think of it like a hick farmer would
OK, let's do that. But we need to use an example where there are two or more outputs under 'joint supply'. Otherwise it's not analogous to the situation with Apple's ecosystem.

Let's figure out the profit margin on wool from your sheep farm. Each month:

  - Your wool revenue is $1000
  - Your mutton revenue is $1000
  - Your total costs (feed, labor, etc.) are $1000
What's your profit margin on wool?

Most people will try to split the costs 50/50 since revenues are equal, making wool's margin (1000 - 500)/1000 = 50%.

But then ask them: What if wool prices double, so now:

  - Wool revenue is $2000
  - Mutton revenue is still $1000
  - Total costs still $1000
Should wool's costs still be $500? Or should they now be $667 since wool is 2/3 of revenue? The margin would be either:

  A) (2000 - 500)/2000 = 75%
  B) (2000 - 667)/2000 = 67%
Which is right? There's no correct answer, because any cost allocation between wool and mutton is arbitrary. We can calculate the total profit margin for the farm, but not for individual products.

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#27

Post by lotsofpulp »

rahimnathwani wrote: post #26
Leonard_of_Q wrote: post #23

Earlier quoted context omitted.

[flagged]

If you think of it like a hick farmer would OK, let's do that. But we need to use an example where there are two or more outputs under 'joint supply'. Otherwise it's not analogous to the situation with Apple's ecosystem. Let's figure out the profit margin on wool from your sheep farm. Each month: - Your wool revenue is $1000 - Your mutton revenue is $1000 - Your total costs (feed, labor, etc.) are $1000 What's your p…

Thanks for some level headed-ness. HN becomes quite Reddit-y anytime financial topics come around.

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#28

Post by robertlagrant »

xhkkffbf wrote: post #20
basch wrote: post #10

Earlier quoted context omitted.

The App Store is dependent on the OS. The OS is dependent on the hardware. Are you including the cost of API development, architecture, and hardware R&D into the probability of the app store. Because that is what Apple is round-a-bout saying. That its such an integrated product, you can't tally the net revenue from one component and call it profit.

Realistically, it's not fair to put many of the costs of iOS development on the App store. They would need to do it anyway. And if there were no App store, they would still be designing their product as a collection of independent apps. That's what MacOS is anyway. So they would still need to build all of the features for supporting apps into iOS, even if they never allowed any outside apps.

> And if there were no App store, they would still be designing their product as a collection of independent apps. That's what MacOS is anyway.

MacOS yes, but if they were just shipping a phone with built in applications it would look quite a lot different I'd imagine.

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#29

Post by tiltowait »

rahimnathwani wrote: post #26
Leonard_of_Q wrote: post #23

Earlier quoted context omitted.

[flagged]

If you think of it like a hick farmer would OK, let's do that. But we need to use an example where there are two or more outputs under 'joint supply'. Otherwise it's not analogous to the situation with Apple's ecosystem. Let's figure out the profit margin on wool from your sheep farm. Each month: - Your wool revenue is $1000 - Your mutton revenue is $1000 - Your total costs (feed, labor, etc.) are $1000 What's your p…

I had a big post written before I remembered wool and mutton come from the same animal. Good post!

Re: Apple denies App Store profit margin is 75% – claims to have no clue

#30

Post by stouset »

lotsofpulp wrote: post #27
rahimnathwani wrote: post #26

Earlier quoted context omitted.

If you think of it like a hick farmer would OK, let's do that. But we need to use an example where there are two or more outputs under 'joint supply'. Otherwise it's not analogous to the situation with Apple's ecosystem. Let's figure out the profit margin on wool from your sheep farm. Each month: - Your wool revenue is $1000 - Your mutton revenue is $1000 - Your total costs (feed, labor, etc.) are $1000 What's your p…

Thanks for some level headed-ness. HN becomes quite Reddit-y anytime financial topics come around.

As someone who has some deep interests outside of tech, I’ll say that any time I see HN commentary stray into those interests the quality of people’s understanding takes a very sharp nosedive. The knowledgeable responses don’t get nearly the attention of the shallow and instinctive (but wrong) rebuttals.

I have to assume this pattern holds true for the areas I’m less knowledgeable in. It’s probably safe to assume that the further a topic strays from tech, the less faith you should put in the popular HN take.

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