deagol

How Much Will the App Store Contribute to Apple’s Bottom Line?

"It’s not like they’re sharing 60% of MacBook or iPod product revenue with partners."

In fact, this is exactly the case. That's what the Gross Margin is. Apple is indeed sharing (i.e. paying) an average of about 65% (obviously it varies by product) of their revenue with their suppliers and contract manufacturers. The costs of running the business are not included there yet, expenses like running the retail stores, the online store, customer support, R&D, advertising, administrative costs, etc. It's clear to me that hosting and credit card fees fit the definition of Operational Expenses, and the 70% they pay to content creators (music or apps) fit the definition of "cost of sales". So after taking out these costs and expenses, and after paying out taxes you get your Net Margin. Once again, this Net Margin of 14% is not only out of the portion of revenue they get to keep after paying off suppliers and contract manufacturers of MacBooks or iPods or music or apps (35% overall), it's 14% of the whole thing.

I will quote from your own article and use your own numbers:

"With about $800.2m [in revenue] attributed to iTunes [...] Net Margin would be $33.6m for Q3"

Well, Net Margin of 33.6m on 800.2m revenue would mean iTunes Net Margin is 33.6 / 800.2 = 4.2%. What happened to the assumption of 14% Net Margin? Furthermore, that means the Net Margin for the rest of the business is close to 16%. So, you're saying "for the sake of putting something together, let's use the same company-wide Net Margin for the iTunes store" but actually end up with iTunes enjoying only ONE FOURTH of the company-wide Net Margin. Insisting that "using a Net Margin percentage taken as an average from the entire business [...] could be off in either direction" when the actual number hidden in the math is considerably off in one direction (down) is clearly contradictory.

To me that seems quite a bit disingenuous, or a mistake. Why not just say "I will grant iTunes a much lower Net Margin than the rest of the business, about one fourth, just to be conservative"? Wouldn't that be much more frank and clear?