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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

#41

Post by rahimnathwani »

tonyedgecombe wrote: post #37
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 assumed Apple's margin was 30%, the difference between what a user pays and what the developer receives. Am I missing something here?

  Am I missing something here?
You are assuming Apple is a reseller (whose revenue is the full price paid by the end buyer) rather than an agent (whose revenue is only their commission).

You are also ignoring the app store's advertising revenue.

And you're assuming that it costs zero to run the app store.

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

#42

Post by andrewmcwatters »

stouset wrote: post #31
andrewmcwatters wrote: post #21

Earlier quoted context omitted.

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…

The GP claims to be qualified as an accountant and gives a simple example of how this type of problem can have no clear answer. Your rebuttal is simply “of course they know the answer”. Is there any reason someone reading this thread should prefer your take over theirs?

Well, I claim to be a dog on the Internet, so there’s that.

But seriously, this ignores too many simple truths. Companies with even under $100 million in revenue categorize labor and other general expenses. Even full-time employees who don’t log their hours have them tracked by entry-level management all over the U.S.

Why would one do this? To capitalize on software costs, apart from even hardware costs. Something Apple does regularly, and they have a history of sharing that information with shareholders.

So, the GP is talking out of his rear end. The obvious reason Apple doesn't want to share their margins is because every closed software ecosystem is absolutely screwing their developers. That’s why.

There isn’t a single company I’ve worked for in nearly 20 years that doesn’t assign department and project costs to employees, contractors, and ancillary workers. Each department and project also has its own materials expenditure reports.

All of them. Even the smallest companies do this. It’s such a naive claim to think otherwise. I have no idea why people here think the “integrated” argument holds up at Apple, either. Staff there absolutely have "App Store and related work" assigned to their employee profiles. Without a doubt. Even their hiring roles don’t hire general software engineers; each role is preassigned to a specific department or project.

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

#43

Post by rahimnathwani »

Leonard_of_Q wrote: post #38
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…

A and B are both close enough to the truth to indicate a profit margin of around 70%. There is room to quibble over the last few percent, no room to deny a hefty profit margin, hence It won't matter if they get it a few percent too low since actual profits will be far up in the double digits region .

The two options I gave are illustrative, and do not cover the complete range of possible answers. So you can't assume the 'true' answer (if it exists) lies within that range.

I could reasonably argue that 100% of costs should be allocated to wool (after all, I'm a wool farmer, and mutton is just a byproduct!), or that 100% of costs should be allocated to mutton.

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

#44

Post by andrewmcwatters »

headhuntermdk wrote: post #40
stouset wrote: post #31

Earlier quoted context omitted.

The GP claims to be qualified as an accountant and gives a simple example of how this type of problem can have no clear answer. Your rebuttal is simply “of course they know the answer”. Is there any reason someone reading this thread should prefer your take over theirs?

Let's look at a few things that we know about Apple: 1. The first $1 trillion, $3 trillion and (soon to be) $4 trillion company. 2. Cancels or stops production of products that don't make money (VisionPro being the latest). 3. Spent over half a trillion dollars in stock buybacks. No company gets to the height Apple is currently without knowing every dollar coming in and going out. I'm reminded of "if it don't make do…

Exactly. Considering how Schiller and other Apple executives straight up regularly lie to the engineering public, there's not a whole lot of mystery here.

Yeah, like Schiller isn't ever told about revenue and expenses at Apple. Please. What a joke.

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

#45

Post by headhuntermdk »

andrewmcwatters wrote: post #42
stouset wrote: post #31

Earlier quoted context omitted.

The GP claims to be qualified as an accountant and gives a simple example of how this type of problem can have no clear answer. Your rebuttal is simply “of course they know the answer”. Is there any reason someone reading this thread should prefer your take over theirs?

Well, I claim to be a dog on the Internet, so there’s that. But seriously, this ignores too many simple truths. Companies with even under $100 million in revenue categorize labor and other general expenses. Even full-time employees who don’t log their hours have them tracked by entry-level management all over the U.S. Why would one do this? To capitalize on software costs, apart from even hardware costs. Something Ap…

They wouldn't be a very good dragon if they couldn't account for each gold piece they were hoarding

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

#46

Post by Leonard_of_Q »

rahimnathwani wrote: post #43
Leonard_of_Q wrote: post #38

Earlier quoted context omitted.

A and B are both close enough to the truth to indicate a profit margin of around 70%. There is room to quibble over the last few percent, no room to deny a hefty profit margin, hence It won't matter if they get it a few percent too low since actual profits will be far up in the double digits region .

The two options I gave are illustrative, and do not cover the complete range of possible answers. So you can't assume the 'true' answer (if it exists) lies within that range. I could reasonably argue that 100% of costs should be allocated to wool (after all, I'm a wool farmer, and mutton is just a byproduct!), or that 100% of costs should be allocated to mutton.

The options were illustrative but the numbers are plausible, it doesn't matter whether you use wool and mutton or bits and bytes as illustrations. That is what this is about, not the last few percent but the grand scale of the margin. That Apple takes to the IT-version of Hollywood Accounting [1] may be expected but does not need to be defended.

[1] https://en.wikipedia.org/wiki/Hollywood_accounting

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

#47

Post by rahimnathwani »

Leonard_of_Q wrote: post #46
rahimnathwani wrote: post #43

Earlier quoted context omitted.

The two options I gave are illustrative, and do not cover the complete range of possible answers. So you can't assume the 'true' answer (if it exists) lies within that range. I could reasonably argue that 100% of costs should be allocated to wool (after all, I'm a wool farmer, and mutton is just a byproduct!), or that 100% of costs should be allocated to mutton.

The options were illustrative but the numbers are plausible, it doesn't matter whether you use wool and mutton or bits and bytes as illustrations. That is what this is about, not the last few percent but the grand scale of the margin. That Apple takes to the IT-version of Hollywood Accounting [1] may be expected but does not need to be defended. [1] https://en.wikipedia.org/wiki/Hollywood_accounting

In my original example, the profit on wool could be $0 (0% of revenue) or $1000 (100% of revenue), depending on how you allocate costs. So, if there's a true number, it's somewhere in the range 0% to 100%.

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

#48

Post by fragmede »

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…

For the lone farmer who's just trying to make it through the season and can't afford an accountant, it may seem difficult to correctly account for costs, but if you're one of the richest large multi-national corporations in the world, you'd book the revenue according to GAAP and not try to guess at how to do it from first principles. In particular, you'd pick a method and stay with that until there's a reason to change. By "percentage of revenue contribution" is entirely valid, though there are other methods.

Since the question was written to pose by percentage of revenue contribution as wrong, by production units is another way you could do it. But importantly, as a public company, you pick a method and go with that so that the numbers can be compared from year to year, and quarter to quarter, and is more important than the absolute number, though that's still important.

Importantly, it's not this big crazy unknown question that's never been answered before in the history of the business of sheep. Or hardware and software sales. Apple, whos legal and accounting department used an aggressive tax minimization strategy similar to the Dutch Sandwich to book revenue in Europe until they got called out for it, isn't comprised of "hick farmers" who don't know what they're doing and can't figure out a method on how to book revenue. It's a ploy yet again to avoid paying taxes or developers and isn't some off-the-cuff answer.

Apple, as a public company, is required to break out material revenue, and thus the App store revenue is listed in their quarterly 10-K with the SEC. Cost of sales and operating expenses are also listed. Importantly though, the lawyers fighting Apple just need to establish that the percentage is quite high, even if a specific number came be agreed upon, and thus Apple is can sustainability pay out whatever they're being asked for.

Though, the SEC is a US institution and has limited reach outside of the US, and the linked case is coming from the UK, so I'm not sure if the existence of the 10-K comes into play.

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

#49

Post by RhysU »

andrewmcwatters wrote: post #44
headhuntermdk wrote: post #40

Earlier quoted context omitted.

Let's look at a few things that we know about Apple: 1. The first $1 trillion, $3 trillion and (soon to be) $4 trillion company. 2. Cancels or stops production of products that don't make money (VisionPro being the latest). 3. Spent over half a trillion dollars in stock buybacks. No company gets to the height Apple is currently without knowing every dollar coming in and going out. I'm reminded of "if it don't make do…

Exactly. Considering how Schiller and other Apple executives straight up regularly lie to the engineering public, there's not a whole lot of mystery here. Yeah, like Schiller isn't ever told about revenue and expenses at Apple. Please. What a joke.

Exactly. If they can't calculate it how do they know they're not losing money? If they know they're not losing money how do they know that?

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

#50

Post by senordevnyc »

sdwr wrote: post #24
Leonard_of_Q wrote: post #23

Earlier quoted context omitted.

[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 feeling…

Seriously, I'm not sure what is so hard to understand here (I suspect it's actually not that hard to understand, people just hate Apple because "Big Company Bad"). What is the precise dollar figure of value that HN has added to YC? Literally impossible to calculate.
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