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"But Apple needs to fund the App Store. XCode, payment processing, reviewers, it all costs money". Yes, very little in comparison. Apple made $50 billion in re

"But Apple needs to fund the App Store. XCode, payment processing, reviewers, it all costs money". Yes, very little in comparison. Apple made $50 billion in revenue from the App Store in 2019. $50 BILLION. The data centers costs to serve up this are miniscule in comparison. Apple could build 50 datacenters PER YEAR EVERY YEAR for that revenue. Reviewers? A staff of 10,000 fulltime reviewers paid $200k per year would cost $2 billion. Sorry, I'm not buying this excuse. OSX/iOS is free for every piece of HW, and it surely has much much larger costs to staff. A $1250 iPhone had a $450 cost to make, giving Apple a staggering 64% gross margin, and $800 gross profit. The costs to run the Apple store should be included as a sunk platform cost of the phone just like OSX. The cost to run the store is marginal. The cost to serve up an additional developer app, to review an additional app, and to let someone buy one, is an insignificant fraction. It should be free like the Web, or some extremely low cost to cover CC processing fees (~3%) and electricity to keep the lights on. I'm shocked at the number of apologists who think this 30% cut is somehow necessary for poor little Apple, with a hole in the pocket, with living on their spare change. It's egregious and unnecessary, and exists for one reason only: rent-seeking behavior. iPhones are reaching saturation, and Apple can either find ways to raise the price of the phone even more, lower the costs more, or increase service revenues, in order to keep their stock going up. That's why you see focus on service revenues, because they can't really lower costs much to make the devices, and they can't really increase the price much more.

bttrfl 6y ago
Following your logic, Fortnite's add-ons should clearly be free since the cost to make and sell them is minuscule in comparison to 400M Epic made in April alone [0]. [0] https://venturebeat.com/2020/06/15/epic-games-shareholders-seeking-to-sell-stake-for-750-million-at-17-billion-valuation/ https://venturebeat.com/2020/06/15/epic-games-shareholders-s...
- deleted 6y ago
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- naikrovek 6y ago
  You may not know how to follow logic. No one is saying that Epic are doing bad things in order to maintain their monopoly position. Epic doesn't have a monopoly on any market. People ARE saying that Apple are doing bad things to maintain their monopoly position, and others are justifying that by saying that "running a business is expensive" as if that justifies a monopoly or monopolistic actions.
  - czhiddy 6y ago
    If Apple has a monopoly on the iOS App Store market, then it follows that Epic has a monopoly on the Fortnite add-on market, right?
    - yuvalr1 6y ago
      The difference is that if Fortnite abuses its power, it is relatively easy to build another MMORPG competitor. If Apple abuses its power, it's practically impossible to build another mobile platform to compete today. Even Microsoft failed with that. The bottom line is that Fortnight can have practical competition (that for example offer 3rd party plugins or lower prices), while the iPhone only has Android as competition, which is taking the exact same 30% cut.
      - outworlder 6y ago
        > it is relatively easy to build another MMORPG competitor. Oh no it isn't. There are very few successful (and even fewer wildly successful) MMORPGs and countless failed attempts. Games are not really fungible. It's not like I'm going to go out of Fortnite to buy items in WoW instead and treat them as the same. They are two completely different markets. > The bottom line is that Fortnight can have practical competition (that for example offer 3rd party plugins or lower prices) No, unless things change, you need to use the Epic store.
        dgoldstein0 6y ago
        Sure, but if the community got sick of Epic's walled fortnite garden, they can play other games. Could be WoW, could be Call of Duty, could be Pubg, could be the latest Mario. It doesn't really matter. Fortnite competes for your time with all other games, and the main thing keeping people there, besides basic enjoyment of the game, is that a lot of people play with their friends. And not many people will say that certain in app purchases are essential item (unlike, say, having an email app on your phone). iOS on the other hand has a single serious competitor, Android, and if you have an iPhone you can't install Android on it when you get mad at Apple - you need a whole new phone. From a developer's perspective, you would miss out on all the iPhone users if you ship and Android app and not an iOS one. In that sense, Apple has significant monopoly-like power over the app market; solidified by the fact that you can't just install Google play store and start downloading Android apps on your iPhone if you get fed up with Apple' App store. The switching costs are too high for most users to consider it, except when buying a new phone. A lot of this comes down to what a meaningful market is. E.g. Border's and Barnes and Noble learned the hard way that they were in the same market as online book selling - you couldn't usefully look at their book store models and ignore Amazon in the last ~decade.
- cromwellian 6y ago
  Games have a limited shelf life. I don’t really care about Epic. Fortnite won’t be around much longer when the next big game du jour comes out. Whether or not Epic charges for their store is immaterial to whether one of the largest and most important general purpose computing platforms in the world is performing highway robbery.
  - cromwellian 6y ago
    Not really sure why people are voting this down. It's self evident that Fortnite's "platform" is far more ephemeral than iOS. Team Fortress 2 is probably an example of a skins market that has been around the longest (since 2007), but very few games last this long and run a market that is still selling a lot.
    - nemothekid 6y ago
      This line of thinking is very reminiscent of “Facebook won’t be around much longer, it will be gone like MySpace”, many people still believe that as FB is now one of the most valuable companies in the world. There is no reason to believe this will be true. Grand Theft Auto V is now 7 years old at this point and has seen 2 almost 3 console generations as generates an incredible amount of money for TakeTwo. The longevity of these platforms have clearly changed
      - user5994461 6y ago
        Facebook is indeed not around much anymore, users have moved to Instagram. In fact I can't remember the last time I've seen someone under 30 using Facebook. Give it 10 years and there will be again another large social network. Teenagers won't be on the same network as their parents.
  - deleted 6y ago
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  - gsich 6y ago
    I hear this argument often, but there are counterexamples like Minecraft, CSGO, World of Warcraft (one of the few MMOs that still have a subscription). So it's entirely possible that Fortnite will stay.
- myhf 6y ago
  V-bucks should be banned completely, along with all other illegal gambling.
  - acomjean 6y ago
    I don't follow. The game is free, "V-bucks" you buy, I think you just get character/weapon skins that aren't required. I don't love the setup, but since kids are hanging out on fortnite having it free lets everyone who wants into that world.
    - three_seagrass 6y ago
      I think they're referring to swapping in funny money to obfuscate customer ability to estimate the costs. It's similar to how slot machines require tokens, but I don't think that's quite gambling. The gambling part comes in with loot boxes, where you're essentially paying to roll the dice to get something of value.
      - jpindar 6y ago
        Fortnite doesn't have loot boxes.
        zapzupnz 6y ago
        GP didn't say that Fortnite has loot boxes; they used loot boxes as a point of comparison with actual gambling.
        chucky_z 6y ago
        what about those pinatas? are those still in the game? that's very much a loot box if so.
        jpindar 6y ago
        You mean the things that fall from the sky in the game? You don't pay for them, and the stuff in them only lasts for that one game.
- SmallDeadGuy 6y ago
  Fortnite is free. They release patches to the game weekly, with major patches every month or so, which are also free. The _only_ revenue stream in fortnite is cosmetic skins, which as a player you could ignore entirely and still play 100% of the game. In fact, you can earn small handfuls of the premium currency every season, which actually allowed people to purchase premium skins or the "battle pass" with currency obtained for free. There is no comparison to be made with Apple, who won't let you do a thing on the app store without giving them money.
  - cwhiz 6y ago
    Epic won’t let you do anything inside the Fortnite store. Literally nothing at all. Seems quite anticompetitive to not allow me to upload and sell skins to compete with the official ones. This is the problem with making absurd monopoly arguments. If you redefine monopoly in such a ridiculous way, almost every company is a monopoly.
WWLink 6y ago
I agree with the sunk cost - besides, who is the customer and who is the product here? The customer is supposed to be the one who bought the phone and is using the OS in their best interest. Right? This whole thing feels all wrong. Both Apple for "gatekeeping OUR customers" and Epic for "Apple's stealing OUR money" (or "Apple is making us pay 30% so we're going to charge you 30% more") Besides, it's not as if the Apple App Store is full of quality apps. It's full of a lot of garbage. It's so full of garbage that I have a hard time finding anything worth buying - because almost all of it is ad-laden junk that tries to nickle and dime you with in-app purchases. lol.
- NorwegianDude 6y ago
  >Apple is making us pay 30% so we're going to charge you 30% more You would have to charge $142.86 for something you otherwise could sell for $100 if it wasn't for Apple taking a 30 % cut. So ~43 % more, not 30 % more. Apple sure is milking iOS users for alot of money, without users knowing.
  - WWLink 6y ago
    I think that's transparent to a lot of people, because IIRC, charging price $x on your website, and then charging price $x+30% on apple's store is a breach of the app store contract and will get your app removed. Am I wrong though? If I am, sorry. xD
    - cynix 6y ago
      No, you're free to charge whatever you want on your own website. You just can't mention that fact in your iOS app.
      - cromwellian 6y ago
        > You just can't mention that fact in your iOS app. And you don't think that is anti-competitive? Apple is free to promote their own services on their platform that compete with others, require them to pay a 30% tax that their own competing service does, and the only escape hatch they give you is "you can use the web, but you can't tell your users" Am I taking crazy pills, or do other people think this is absurd. The first rule of alternative signup models on the App Store is, you don't talk about alternative signup models.
Spivak 6y ago
I don't really think it's about the number. I try not to think about these kinds of things in terms of what different companies "deserve." Apple can get away with demanding a 30% cut on their platform and they do so without much arm twisting. Nobody has to support macOS or iOS, and both developers and customers can completely ignore their existence. They'll be missing out on a lucrative customer base but that's true of realestate in high-traffic areas as well. Apple being able to pull off such huge margins in markets where they have competition on every front I think paints a picture of just how ahead they are. The fact that the gap is so big and nobody has been able to step up and close it is mind-boggling to me. You can only blame so much on slick marketing because for 64% gross margins I think other companies would be happy to put up the marketing cash.
- ngold 6y ago
  A purse is a purse, do you think some purses are so ahead of the curve that people pay thousands of dollars for one, or do you think they are buying a brand name despite the cost?
  - Spivak 6y ago
    Like I get what you’re saying but there’s also lots of luxury designer brands. The competition in that space isn’t about the margin on individual items. Like the market thousand high-end bags, shoes, or even art is a whole other world. Like do you think a Rembrandt is overpriced because paint is only a few cents? But that’s so different from the smartphone space. Like iPhones were really a status symbol like a decade ago but you can get one now at like every price point and flagship androids aren’t much cheaper. You have threads full of people on HN arguing that Apple is actually the budget pick if you can afford to frontload the cost. I’m typing this on a used iPhone X that cost less than $400. Like have we all forgotten when Apple released FaceID and then Samsung responded with the lamest front camera picture match thing? Like yes lock-in is a thing, lifestyle marketing is a thing, brand loyalty is a thing, and momentum is a thing, but that doesn’t explain how Apple is seemingly able to do it so much better than everyone else. Because we could name companies that have all of those but still aren’t Apple.
- 6y ago
misnome 6y ago
I don't understand these arguments either. It's not illegal to have high product margins, right? Why can't they charge whatever they want? It comes across as pure moral "I don't like it" objection, which is fine, but don't use it as a legal argument.
- Jommi 6y ago
  High product margins are usually signs of monopolistic powers used, otherwise profits would slowly move towards cost as time goes forward. This has not been the case with Apple.
  - CamelCaseName 6y ago
    This is only true of products with substitutes. The extreme example being commodities. Pretty much any luxury brand has high product margins, but certainly not for lack of competition.
    - Jommi 6y ago
      Exactly, and luxury brands are characterized by their electivity. While and appstore has formed to become something close to a virtual public good.
  - lancepioch 6y ago
    Google has basically the same profit margins with their Pixel phones compared to Apple and Android has 85% market share. Yeah you can sideload any app you want on your Android, but I've heard of no even half serious 3rd party competitors to the Play store. Not sure what the point is here.
  - askafriend 6y ago
    What do you think of coffee?
    - Jommi 6y ago
      That I can make it myself at home and it comes to around 10cents? Or get it from a cafe, and value my time at around 2-3€ per cup
harryf 6y ago
This is a great picking apart of Apples justification but I think the issue that most irks everyone who’s not apologizing for Apple is where did this magic number 30% come from? Which market forces created it? Here on HN most of us probably feel that product manager at Apple licked their finger, felt the wind and said “Yeah 30% seems about the most we can get away with” And what irks even more is once Apple set the precedent, as their we’re no outcries Google was like “Let’s copy that!”. Let’s hope there was no collusion ...
- geerlingguy 6y ago
  There is precedent; the rate was actually much higher in previous mobile app stores (e.g. Symbian and ring tone stores). Additionally, there is related precedent in areas like publishing (ebook stores usually charge 30% or more commission). I don't think 30% is outlandish, though I do think it would be nice if Apple reduced that cut, especially if they wanted to consider some form of graduated rate.
  - azinman2 6y ago
    Don’t forget that software publishers were an entire industry previously.
- MobileVet 6y ago
  It is interesting that few people are recognizing that the 30% buys you distribution on a billion devices. Yes, I know, the web is free...and the App Store search is broken so discovery isn’t what it was... but still. Market access is VERY significant and worth something and the incremental cost to Apple has no bearing on what it is worth. As discussed, prior mobile cuts were far more one sided. We payed the carrier 50% and then Qualcomm 20% of what was left. Bottom line, we walked away with 40% and we were happy.
  - weixiyen 6y ago
    > It is interesting that few people are recognizing that the 30% buys you distribution on a billion devices. It's interesting that few people don't understand the difference between permission to distribute versus actual distribution. If Apple was doing any distribution for you at all, you wouldn't need to pay Facebook and Google for distribution. Note how this was different in the early days, where simply being on the app store would get downloads. That has not been true for 7-8 years now.
pwthornton 6y ago
It doesn't cost $450 to make an iPhone. That's insane. It may cost that in parts, but there are many, many highly paid engineers, designers, product managers, etc. who worked on those products. Those people's salaries must be accounted for somehow. This is something that a commenter on Hacker News should understand! All of those dumb cost breakdowns for what it "costs" to make iPhones or whatever always miss the fact that you actually have to design and build the software, hardware, and services that makes it all work. Not to mention shipping and other retail costs.
- PaulDavisThe1st 6y ago
  The $450 is the marginal cost of an iPhone. That's typically the normal number cited for the "manufacturing cost" of a product, regardless of the level of R&D and marketing that goes into it.
  - Terretta 6y ago
    GP claimed iOS was "free". Can't be both free, and the phone only costs its parts. GP also said to cover cost of app store in the phone, despite only costing its parts. I consider iOS to be one of the iPhone's parts. I don't understand why machinery engineered from metal is so different from that engineered from bits, that I must consider them two products instead of one. Metal, glass, silicon, bits: one PDA appliance.
    - PaulDavisThe1st 6y ago
      All good. But iOS has a marginal cost of essentially zero. So its presence (or absence) has effectively no impact on the marginal cost of an iPhone.
      - halostatue 6y ago
        Given the ongoing security updates and years of upgrades provided to older phones, I would argue that the marginal cost of iOS is NOT zero nor anywhere close to it. Relatively low, sure, but one would need to figure the amortized cost of ~5–6 years of OS updates across the devices who are receiving the latest iOS this fall.
m463 6y ago
The app store should be free as a complement to hardware sales. "A complement is a product that you usually buy together with another product. Gas and cars are complements. Computer hardware is a classic complement of computer operating systems. And babysitters are a complement of dinner at fine restaurants. In a small town, when the local five star restaurant has a two-for-one Valentine’s day special, the local babysitters double their rates. (Actually, the nine-year-olds get roped into early service.) All else being equal, demand for a product increases when the prices of its complements decrease." https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/ https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/ also, people should be speaking of monopsony: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony
- enos_feedler 6y ago
  Why are the app store and iphone hardware 2 distinct products? the app store is simply a feature of the iPhone product.
  - m463 6y ago
    But by selling apps, and driving the prices of these apps low or zero, the sales of iphones goes up. price of jelly goes to zero, sales of peanut butter go up. prices of software goes to zero, sales of hardware goes up. when microsoft created the PC market it took the opposite approach -- commoditize pc hardware, drive the price as low as possible -- and OS sales will go up. It worked too.;
- ksec 6y ago
  >also, people should be speaking of monopsony: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony For some strange reason the term never really caught on, even having been reported and used multiple times in mainstream media. I just wish more people understand and use it. Especially in discussions like the current issues.
scarface74 6y ago
So now we are telling companies what they should make? We know that margins aren’t 64% - it’s right in their financial statements. The costs to run the Apple store should be included as a sunk platform cost of the phone just like OSX. The cost to run the store is marginal. The cost to serve up an additional developer app, to review an additional app, and to let someone buy one, is an insignificant fraction. Would Apple be in their right to charge $25K fee to use their SDK? We would they be within their right to charge a bandwidth fee like Amazon does with the Kindle? Should all software companies only charge nominal fees because the cost of an additional customer is low? The cost of credit card transaction is around 3% + $0.25/transaction. While of course that’s much less than 30% for anything over $1.00, most of the revenue from the App Store comes from crap like Candy Crush with in app purchases of gems. Especially since the major players like Netflix and Spotify don’t allow in app purchases. Let’s not pretend that the money is coming from indy developers selling useful products - most of it is coming from the tokens and loot boxes bought by whales.
- manquer 6y ago
  > most of it is coming from the tokens and loot boxes bought by whales. Apple's money is coming from where exactly ? At $1000+ price, in gaming terminology that is either "whales" or users who cannot afford it but are exploited/addicted to the "product". There are perfectly equivalent android phones for less than half that price. Ultimately apple and epic are lifestyle companies, you don't "need" either of them sure, that doesn't mean they are not providing value to the economy. > Would Apple be in their right to charge $25K fee I am sure Epic will gladly pay 25k or $250k fee which is exactly the point. $99 is great for indie developer not for large businesses. You may not want large businesses in the store, Many do, I want my apps not to stop working because the developer lost interest, I want the companies behind the apps not to go bankrupt . > We would they be within their right to charge a bandwidth fee like Amazon does with the Kindle Sure, the can charge reasonable or even cloud rates, or even better they don't need to provide the bandwidth at all or make it optional. Many developers I am sure are happy to host files with a CDN of their choosing, a provider they can negotiate their rate at scale .I am sure apple will object on user experience grounds. Google allows you to run your own store you can use your own CDN. Sure without playservices they make it hard, both Amazon and Samsung do deliver through it though. > The cost of credit card transaction is around 3% + $0.25/transaction That is the retail rate for a high end service provider like stripe. Apple (or any company doing $1M+/month) is not paying anywhere remotely close to that. In any other industry price scales with usage. Enterprise/ high volume customers do not pay retail, retail rates have a big per unit CAC associated with it b2b sales have CAC but it is not any linearly correlated to units. Customers normally at decent volumes can negotiate, Apple will not give any volume discounts. They can get away with it because of their control over the market. Epic does not care you and I are paying 30%. They care that they are paying the same 30%. Apple also does not care small developers are paying 30% or not, they want 30% from epic size customers.
humaniania 6y ago
Who are you to tell Apple how to set their prices? Apple is an American company and we have free markets here. Price controls on luxury goods are completely against free market capitalism. If you don't like it, don't buy an iPhone. Good luck finding a better smart phone experience.
- cromwellian 6y ago
  Well, I'm a customer and I can bitch and moan about their behavior all I want. How else will they improve if their customers don't have any complaints? But again, we see the "love it or leave it" attitude. As in, you have no right to criticize the cherished totem that I have invested a huge portion of my self into.
  - humaniania 6y ago
    You work for Google and have the nerve to call a diatribe about Apple's profit margins a legitimate complaint? Cool. Well Google should charge less for advertising because they make too much money off ad clicks!
m3kw9 6y ago
Ok let’s punish them for making money, how come no one complained when they first came out with this payment scheme? Yes, they covered their fixed costs and then some, are they supposed to lower the price so they barely make a profit? Capitalism doesn’t work like that.
kevindong 6y ago
Per page 19 of Apple's FY 2019 annual report [0], the net sales for the 'Services' category (consisting of the following) was $46.291 billion. > Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, licensing and other services. Services net sales also include amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of certain products. Undoubtedly, the App Store makes up a large chunk of that $46.291 billion, but not all of it. We don't know how much money Apple actually makes off of the App Store. For all we know, Apple attributes 50% of the iPhone's profit margin to "Maps, Siri, and free iCloud services" which would dramatically skew the numbers. Services also includes digital media, AppleCare, and licensing which are all non-trivial sources of revenue. [0]: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/1a919118-a594-44f3-92f0-4ecca47b1a7d.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/1a91911...
vallavaraiyan 6y ago
There is also the $99/year subscription to apple developer program
- bob1029 6y ago
  $300/year for us, and each additional client we choose to work with. This is the cost of obtaining what is effectively side-loading capability.
AnonHP 6y ago
> A $1250 iPhone had a $450 cost to make... Where do you even get numbers like this? Are you looking at the bill of materials cost and assuming that to be the cost of the device, ignoring the R&D, testing, iterations of development and tweaking, and many other factors (including marketing) that go into the price of a product (apart from profit margin)? If yes, that’s too naive an assumption and bordering on hyperbole. This is like arguing that the ingredients for <your favorite dish> cost some low value whereas restaurants are selling it at several tens of times that cost. M
- lostgame 6y ago
  I agree. I very much like the metaphor you're drawing here. Expecting a phone to cost as much as its materials is like expecting to go to a restaurant and being outraged when a steak and fries costs $25 when you can buy potatoes and a steak from your local supermarket for $8. It's absolutely ignoring the overhead, R&D, etc; but I often also find iOS itself ignored in the built-in costs. I often find comparisons to costs of materials vs. MRSP bizarre at best, in any case.
dev_tty01 6y ago
Apple's gross revenue was about $14 billion, not $50 billion. Total app store revenue in 2019 was $61 Billion. Apple received between 15% and 30% of that, depending upon the first year/later years subscription numbers. If we use 22.5%, Apple made $13.7 billion. https://www.theverge.com/2020/6/15/21292203/apple-app-store-ios-apps-billings-revenue-517-billion-2019-antitrust-regulation https://www.theverge.com/2020/6/15/21292203/apple-app-store-... Follow the link to the cited study. Another data point is Apple's release that they paid developers $34 billion in 2018. https://fortune.com/2019/01/28/apple-app-store-developer-earnings-2018/ https://fortune.com/2019/01/28/apple-app-store-developer-ear... Since the 15% subscription model was relatively newer in 2018, let's put the 2018 developer number at 75% of the total, so Apple made about $11.3 billion in 2018. Also, we should not forget the huge overall R&D spend Apple is making to keep growing the iPhone/iPad market. Apple makes money off sales of course, but it is still a huge investment in the platform and that creates market for developers. They have also just announced a new platform for Macs that will allow iPhone and iPad apps to run unaltered on the new Macs. Again, big R&D expense from Apple with upside for developers. In general, there have been big R&D expenditures in software SDKs in recent years for developers to get to a write once model so programs can run on all the platforms. Apple also eats the 2.5% (typical number) credit card transaction costs. In addition, they deal with collecting and paying local sales taxes in every state and in 155 countries. For the user, they provide a trusted payment processor and software source so they don't have to worry if the software will have embedded malware or if their credit card data will be handled appropriately. They provide cloud servers for notifications, file storage, all of the software update processing, payment processing, and many other services. The app store team performs about 100,000 reviews every week. Somewhat automated, but a lot of humans involved too. After the first year, Apple's cut is 15%, so after all the other expenses of the app store I'd be surprised if they are clearing 10% after that. Whatever the exact number, it is far less than 30%. The 2019 net prior to R&D and other expenses is probably around $12 to $13 billion best case. Developers made about $47 billion. At any rate, Apple is making money, but we should keep the right numbers in mind when we have these discussions.
summerlight 6y ago
I don't think the number is around $50B but more likely $15B but you're still right; this is far more than enough to run the App Store. YT makes similar revenue to the App Store but likely spends considerably more OpEx given the nature of the service. But no one really expect YT to be net-loss for Google. This is especially true as Apple consistently claims that the App Store is an integral, inseparable part from iPhone; so even if Apple loses a significant amount of money from the App Store it should be fine as long as iPhone can make ~$100B profit each year. Of course, they could invalidate this logic by introducing some form of competing app stores, which would be just nominal in practice, but they didn't choose to do that. I don't know why; no one really can compete with Apple in the iOS ecosystem and this would significantly mitigate their legal risk.
nextlevelwizard 6y ago
If you don't like it why don't you make your own phone platform and make its app store free. It is easy to demand free shit from already established platforms since they don't strictly need it now, but it required a lot of capital and work to get to the point it is now and now you are expecting to get a free ride on top of that. Then again this incident has nothing to do with Apple or Epic. This is essentially China vs USA case. Just another form of cyber warfare and comments like yours show that China is succeeding.
valuearb 6y ago
Apple doesn’t make $50B a year from the App Store. That’s roughly it’s entire services revenues. It’s estimated that developers had gross sales of $50B from the AppStore last year, of which $15B is Apples share before expenses. Apples audited financials tell us gross margins on services is 68%, and $9B of those services are from an annual payment from Google for search placement in Safari with a gross margin approaching 100%. So you can make up whatever numbers you want given your limited understanding of what services the App Store provides, but App Store gross margins are clearly likely to be in the 50-65% range, making its break even somewhere between 10-15% of developer revenues. And lastly, gross margins aren’t net margins. Apple still has to pay for marketing, sales, admin, support, etc out of iPhone gross margins, and the App Store still needs to contribute to some if these as well.
- georgeecollins 6y ago
  Developers pay to advertise their apps (some of it goes to Apple) Apple pays to market Apple TV, Apple Music. Apple doesn't need to take in revenue to market other people's apps, advertising them is a money maker for them. Also, you are talking about the margins on all Apple's services, some of which are much more expensive than others. The margins that other digital software stores can charge suggest to me that they can be very profitable without the 30% cut. Full disclosure: I am a longtime Apple shareholder.
  - valuearb 6y ago
    No one is saying the App Store isn’t very profitable for Apple. Just countering the misinformation from n the original post and the blatantly wrong assumption that the App Stores only costs are payment processing. Disclosure: I’m a long tine App Store developer.
- weixiyen 6y ago
  Apple Music and anything that has content rights are where low margins are going to be. Services margin will include new areas they are investing in and losing money as well. There's zero percent chance the App Store is running at 50% margin. It's got to be closer to 80% than 50%, or they are doing something wrong.
numlock86 6y ago
> They are already rich so they don't need a 30% cut of app purchases Yes, I don't get why they don't just hand out phones and everything for free, duh. I mean surely they could do that for a while with all that revenue instead of theoretically buying 50 new data centers per year every year? Why I am not getting free stuff from rich people? What economic wizardry am I missing?
fluffything 6y ago
> It should be free like the Web, Lots of entitlement here. Apple does not owe you anything. If you don't like Apple's terms, just don't buy their products. It really is that simple.
- cromwellian 6y ago
  "Love it or leave it." Sure fire mark of tribalism. <plugs ears doesn't wanna hear criticism of sacred cow>
  - fluffything 6y ago
    Honestly, i've been hearing the criticism "What you put a lot of work into accomplishing should be free" my whole life. There is a full sub-reddit for these things (/r/choosingbeggars).

bttrfl 6y ago

Following your logic, Fortnite's add-ons should clearly be free since the cost to make and sell them is minuscule in comparison to 400M Epic made in April alone [0]. [0] https://venturebeat.com/2020/06/15/epic-games-shareholders-seeking-to-sell-stake-for-750-million-at-17-billion-valuation/ https://venturebeat.com/2020/06/15/epic-games-shareholders-s...

deleted 6y ago
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naikrovek 6y ago
You may not know how to follow logic. No one is saying that Epic are doing bad things in order to maintain their monopoly position. Epic doesn't have a monopoly on any market. People ARE saying that Apple are doing bad things to maintain their monopoly position, and others are justifying that by saying that "running a business is expensive" as if that justifies a monopoly or monopolistic actions.
- czhiddy 6y ago
  If Apple has a monopoly on the iOS App Store market, then it follows that Epic has a monopoly on the Fortnite add-on market, right?
  - yuvalr1 6y ago
    The difference is that if Fortnite abuses its power, it is relatively easy to build another MMORPG competitor. If Apple abuses its power, it's practically impossible to build another mobile platform to compete today. Even Microsoft failed with that. The bottom line is that Fortnight can have practical competition (that for example offer 3rd party plugins or lower prices), while the iPhone only has Android as competition, which is taking the exact same 30% cut.
    - outworlder 6y ago
      > it is relatively easy to build another MMORPG competitor. Oh no it isn't. There are very few successful (and even fewer wildly successful) MMORPGs and countless failed attempts. Games are not really fungible. It's not like I'm going to go out of Fortnite to buy items in WoW instead and treat them as the same. They are two completely different markets. > The bottom line is that Fortnight can have practical competition (that for example offer 3rd party plugins or lower prices) No, unless things change, you need to use the Epic store.
      - dgoldstein0 6y ago
        Sure, but if the community got sick of Epic's walled fortnite garden, they can play other games. Could be WoW, could be Call of Duty, could be Pubg, could be the latest Mario. It doesn't really matter. Fortnite competes for your time with all other games, and the main thing keeping people there, besides basic enjoyment of the game, is that a lot of people play with their friends. And not many people will say that certain in app purchases are essential item (unlike, say, having an email app on your phone). iOS on the other hand has a single serious competitor, Android, and if you have an iPhone you can't install Android on it when you get mad at Apple - you need a whole new phone. From a developer's perspective, you would miss out on all the iPhone users if you ship and Android app and not an iOS one. In that sense, Apple has significant monopoly-like power over the app market; solidified by the fact that you can't just install Google play store and start downloading Android apps on your iPhone if you get fed up with Apple' App store. The switching costs are too high for most users to consider it, except when buying a new phone. A lot of this comes down to what a meaningful market is. E.g. Border's and Barnes and Noble learned the hard way that they were in the same market as online book selling - you couldn't usefully look at their book store models and ignore Amazon in the last ~decade.
cromwellian 6y ago
Games have a limited shelf life. I don’t really care about Epic. Fortnite won’t be around much longer when the next big game du jour comes out. Whether or not Epic charges for their store is immaterial to whether one of the largest and most important general purpose computing platforms in the world is performing highway robbery.
- cromwellian 6y ago
  Not really sure why people are voting this down. It's self evident that Fortnite's "platform" is far more ephemeral than iOS. Team Fortress 2 is probably an example of a skins market that has been around the longest (since 2007), but very few games last this long and run a market that is still selling a lot.
  - nemothekid 6y ago
    This line of thinking is very reminiscent of “Facebook won’t be around much longer, it will be gone like MySpace”, many people still believe that as FB is now one of the most valuable companies in the world. There is no reason to believe this will be true. Grand Theft Auto V is now 7 years old at this point and has seen 2 almost 3 console generations as generates an incredible amount of money for TakeTwo. The longevity of these platforms have clearly changed
    - user5994461 6y ago
      Facebook is indeed not around much anymore, users have moved to Instagram. In fact I can't remember the last time I've seen someone under 30 using Facebook. Give it 10 years and there will be again another large social network. Teenagers won't be on the same network as their parents.
- deleted 6y ago
  [deleted]
- gsich 6y ago
  I hear this argument often, but there are counterexamples like Minecraft, CSGO, World of Warcraft (one of the few MMOs that still have a subscription). So it's entirely possible that Fortnite will stay.
myhf 6y ago
V-bucks should be banned completely, along with all other illegal gambling.
- acomjean 6y ago
  I don't follow. The game is free, "V-bucks" you buy, I think you just get character/weapon skins that aren't required. I don't love the setup, but since kids are hanging out on fortnite having it free lets everyone who wants into that world.
  - three_seagrass 6y ago
    I think they're referring to swapping in funny money to obfuscate customer ability to estimate the costs. It's similar to how slot machines require tokens, but I don't think that's quite gambling. The gambling part comes in with loot boxes, where you're essentially paying to roll the dice to get something of value.
    - jpindar 6y ago
      Fortnite doesn't have loot boxes.
      - zapzupnz 6y ago
        GP didn't say that Fortnite has loot boxes; they used loot boxes as a point of comparison with actual gambling.
      - chucky_z 6y ago
        what about those pinatas? are those still in the game? that's very much a loot box if so.
        jpindar 6y ago
        You mean the things that fall from the sky in the game? You don't pay for them, and the stuff in them only lasts for that one game.
SmallDeadGuy 6y ago
Fortnite is free. They release patches to the game weekly, with major patches every month or so, which are also free. The _only_ revenue stream in fortnite is cosmetic skins, which as a player you could ignore entirely and still play 100% of the game. In fact, you can earn small handfuls of the premium currency every season, which actually allowed people to purchase premium skins or the "battle pass" with currency obtained for free. There is no comparison to be made with Apple, who won't let you do a thing on the app store without giving them money.
- cwhiz 6y ago
  Epic won’t let you do anything inside the Fortnite store. Literally nothing at all. Seems quite anticompetitive to not allow me to upload and sell skins to compete with the official ones. This is the problem with making absurd monopoly arguments. If you redefine monopoly in such a ridiculous way, almost every company is a monopoly.

WWLink 6y ago

I agree with the sunk cost - besides, who is the customer and who is the product here? The customer is supposed to be the one who bought the phone and is using the OS in their best interest. Right? This whole thing feels all wrong. Both Apple for "gatekeeping OUR customers" and Epic for "Apple's stealing OUR money" (or "Apple is making us pay 30% so we're going to charge you 30% more") Besides, it's not as if the Apple App Store is full of quality apps. It's full of a lot of garbage. It's so full of garbage that I have a hard time finding anything worth buying - because almost all of it is ad-laden junk that tries to nickle and dime you with in-app purchases. lol.

NorwegianDude 6y ago
>Apple is making us pay 30% so we're going to charge you 30% more You would have to charge $142.86 for something you otherwise could sell for $100 if it wasn't for Apple taking a 30 % cut. So ~43 % more, not 30 % more. Apple sure is milking iOS users for alot of money, without users knowing.
- WWLink 6y ago
  I think that's transparent to a lot of people, because IIRC, charging price $x on your website, and then charging price $x+30% on apple's store is a breach of the app store contract and will get your app removed. Am I wrong though? If I am, sorry. xD
  - cynix 6y ago
    No, you're free to charge whatever you want on your own website. You just can't mention that fact in your iOS app.
    - cromwellian 6y ago
      > You just can't mention that fact in your iOS app. And you don't think that is anti-competitive? Apple is free to promote their own services on their platform that compete with others, require them to pay a 30% tax that their own competing service does, and the only escape hatch they give you is "you can use the web, but you can't tell your users" Am I taking crazy pills, or do other people think this is absurd. The first rule of alternative signup models on the App Store is, you don't talk about alternative signup models.

Spivak 6y ago

I don't really think it's about the number. I try not to think about these kinds of things in terms of what different companies "deserve." Apple can get away with demanding a 30% cut on their platform and they do so without much arm twisting. Nobody has to support macOS or iOS, and both developers and customers can completely ignore their existence. They'll be missing out on a lucrative customer base but that's true of realestate in high-traffic areas as well. Apple being able to pull off such huge margins in markets where they have competition on every front I think paints a picture of just how ahead they are. The fact that the gap is so big and nobody has been able to step up and close it is mind-boggling to me. You can only blame so much on slick marketing because for 64% gross margins I think other companies would be happy to put up the marketing cash.

ngold 6y ago
A purse is a purse, do you think some purses are so ahead of the curve that people pay thousands of dollars for one, or do you think they are buying a brand name despite the cost?
- Spivak 6y ago
  Like I get what you’re saying but there’s also lots of luxury designer brands. The competition in that space isn’t about the margin on individual items. Like the market thousand high-end bags, shoes, or even art is a whole other world. Like do you think a Rembrandt is overpriced because paint is only a few cents? But that’s so different from the smartphone space. Like iPhones were really a status symbol like a decade ago but you can get one now at like every price point and flagship androids aren’t much cheaper. You have threads full of people on HN arguing that Apple is actually the budget pick if you can afford to frontload the cost. I’m typing this on a used iPhone X that cost less than $400. Like have we all forgotten when Apple released FaceID and then Samsung responded with the lamest front camera picture match thing? Like yes lock-in is a thing, lifestyle marketing is a thing, brand loyalty is a thing, and momentum is a thing, but that doesn’t explain how Apple is seemingly able to do it so much better than everyone else. Because we could name companies that have all of those but still aren’t Apple.
6y ago

misnome 6y ago

I don't understand these arguments either. It's not illegal to have high product margins, right? Why can't they charge whatever they want? It comes across as pure moral "I don't like it" objection, which is fine, but don't use it as a legal argument.

Jommi 6y ago
High product margins are usually signs of monopolistic powers used, otherwise profits would slowly move towards cost as time goes forward. This has not been the case with Apple.
- CamelCaseName 6y ago
  This is only true of products with substitutes. The extreme example being commodities. Pretty much any luxury brand has high product margins, but certainly not for lack of competition.
  - Jommi 6y ago
    Exactly, and luxury brands are characterized by their electivity. While and appstore has formed to become something close to a virtual public good.
- lancepioch 6y ago
  Google has basically the same profit margins with their Pixel phones compared to Apple and Android has 85% market share. Yeah you can sideload any app you want on your Android, but I've heard of no even half serious 3rd party competitors to the Play store. Not sure what the point is here.
- askafriend 6y ago
  What do you think of coffee?
  - Jommi 6y ago
    That I can make it myself at home and it comes to around 10cents? Or get it from a cafe, and value my time at around 2-3€ per cup

harryf 6y ago

This is a great picking apart of Apples justification but I think the issue that most irks everyone who’s not apologizing for Apple is where did this magic number 30% come from? Which market forces created it? Here on HN most of us probably feel that product manager at Apple licked their finger, felt the wind and said “Yeah 30% seems about the most we can get away with” And what irks even more is once Apple set the precedent, as their we’re no outcries Google was like “Let’s copy that!”. Let’s hope there was no collusion ...

geerlingguy 6y ago
There is precedent; the rate was actually much higher in previous mobile app stores (e.g. Symbian and ring tone stores). Additionally, there is related precedent in areas like publishing (ebook stores usually charge 30% or more commission). I don't think 30% is outlandish, though I do think it would be nice if Apple reduced that cut, especially if they wanted to consider some form of graduated rate.
- azinman2 6y ago
  Don’t forget that software publishers were an entire industry previously.
MobileVet 6y ago
It is interesting that few people are recognizing that the 30% buys you distribution on a billion devices. Yes, I know, the web is free...and the App Store search is broken so discovery isn’t what it was... but still. Market access is VERY significant and worth something and the incremental cost to Apple has no bearing on what it is worth. As discussed, prior mobile cuts were far more one sided. We payed the carrier 50% and then Qualcomm 20% of what was left. Bottom line, we walked away with 40% and we were happy.
- weixiyen 6y ago
  > It is interesting that few people are recognizing that the 30% buys you distribution on a billion devices. It's interesting that few people don't understand the difference between permission to distribute versus actual distribution. If Apple was doing any distribution for you at all, you wouldn't need to pay Facebook and Google for distribution. Note how this was different in the early days, where simply being on the app store would get downloads. That has not been true for 7-8 years now.

pwthornton 6y ago

It doesn't cost $450 to make an iPhone. That's insane. It may cost that in parts, but there are many, many highly paid engineers, designers, product managers, etc. who worked on those products. Those people's salaries must be accounted for somehow. This is something that a commenter on Hacker News should understand! All of those dumb cost breakdowns for what it "costs" to make iPhones or whatever always miss the fact that you actually have to design and build the software, hardware, and services that makes it all work. Not to mention shipping and other retail costs.

PaulDavisThe1st 6y ago
The $450 is the marginal cost of an iPhone. That's typically the normal number cited for the "manufacturing cost" of a product, regardless of the level of R&D and marketing that goes into it.
- Terretta 6y ago
  GP claimed iOS was "free". Can't be both free, and the phone only costs its parts. GP also said to cover cost of app store in the phone, despite only costing its parts. I consider iOS to be one of the iPhone's parts. I don't understand why machinery engineered from metal is so different from that engineered from bits, that I must consider them two products instead of one. Metal, glass, silicon, bits: one PDA appliance.
  - PaulDavisThe1st 6y ago
    All good. But iOS has a marginal cost of essentially zero. So its presence (or absence) has effectively no impact on the marginal cost of an iPhone.
    - halostatue 6y ago
      Given the ongoing security updates and years of upgrades provided to older phones, I would argue that the marginal cost of iOS is NOT zero nor anywhere close to it. Relatively low, sure, but one would need to figure the amortized cost of ~5–6 years of OS updates across the devices who are receiving the latest iOS this fall.

m463 6y ago

The app store should be free as a complement to hardware sales. "A complement is a product that you usually buy together with another product. Gas and cars are complements. Computer hardware is a classic complement of computer operating systems. And babysitters are a complement of dinner at fine restaurants. In a small town, when the local five star restaurant has a two-for-one Valentine’s day special, the local babysitters double their rates. (Actually, the nine-year-olds get roped into early service.) All else being equal, demand for a product increases when the prices of its complements decrease." https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/ https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/ also, people should be speaking of monopsony: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony

enos_feedler 6y ago
Why are the app store and iphone hardware 2 distinct products? the app store is simply a feature of the iPhone product.
- m463 6y ago
  But by selling apps, and driving the prices of these apps low or zero, the sales of iphones goes up. price of jelly goes to zero, sales of peanut butter go up. prices of software goes to zero, sales of hardware goes up. when microsoft created the PC market it took the opposite approach -- commoditize pc hardware, drive the price as low as possible -- and OS sales will go up. It worked too.;
ksec 6y ago
>also, people should be speaking of monopsony: https://en.wikipedia.org/wiki/Monopsony https://en.wikipedia.org/wiki/Monopsony For some strange reason the term never really caught on, even having been reported and used multiple times in mainstream media. I just wish more people understand and use it. Especially in discussions like the current issues.

scarface74 6y ago

So now we are telling companies what they should make? We know that margins aren’t 64% - it’s right in their financial statements. The costs to run the Apple store should be included as a sunk platform cost of the phone just like OSX. The cost to run the store is marginal. The cost to serve up an additional developer app, to review an additional app, and to let someone buy one, is an insignificant fraction. Would Apple be in their right to charge $25K fee to use their SDK? We would they be within their right to charge a bandwidth fee like Amazon does with the Kindle? Should all software companies only charge nominal fees because the cost of an additional customer is low? The cost of credit card transaction is around 3% + $0.25/transaction. While of course that’s much less than 30% for anything over $1.00, most of the revenue from the App Store comes from crap like Candy Crush with in app purchases of gems. Especially since the major players like Netflix and Spotify don’t allow in app purchases. Let’s not pretend that the money is coming from indy developers selling useful products - most of it is coming from the tokens and loot boxes bought by whales.

manquer 6y ago
> most of it is coming from the tokens and loot boxes bought by whales. Apple's money is coming from where exactly ? At $1000+ price, in gaming terminology that is either "whales" or users who cannot afford it but are exploited/addicted to the "product". There are perfectly equivalent android phones for less than half that price. Ultimately apple and epic are lifestyle companies, you don't "need" either of them sure, that doesn't mean they are not providing value to the economy. > Would Apple be in their right to charge $25K fee I am sure Epic will gladly pay 25k or $250k fee which is exactly the point. $99 is great for indie developer not for large businesses. You may not want large businesses in the store, Many do, I want my apps not to stop working because the developer lost interest, I want the companies behind the apps not to go bankrupt . > We would they be within their right to charge a bandwidth fee like Amazon does with the Kindle Sure, the can charge reasonable or even cloud rates, or even better they don't need to provide the bandwidth at all or make it optional. Many developers I am sure are happy to host files with a CDN of their choosing, a provider they can negotiate their rate at scale .I am sure apple will object on user experience grounds. Google allows you to run your own store you can use your own CDN. Sure without playservices they make it hard, both Amazon and Samsung do deliver through it though. > The cost of credit card transaction is around 3% + $0.25/transaction That is the retail rate for a high end service provider like stripe. Apple (or any company doing $1M+/month) is not paying anywhere remotely close to that. In any other industry price scales with usage. Enterprise/ high volume customers do not pay retail, retail rates have a big per unit CAC associated with it b2b sales have CAC but it is not any linearly correlated to units. Customers normally at decent volumes can negotiate, Apple will not give any volume discounts. They can get away with it because of their control over the market. Epic does not care you and I are paying 30%. They care that they are paying the same 30%. Apple also does not care small developers are paying 30% or not, they want 30% from epic size customers.

humaniania 6y ago

Who are you to tell Apple how to set their prices? Apple is an American company and we have free markets here. Price controls on luxury goods are completely against free market capitalism. If you don't like it, don't buy an iPhone. Good luck finding a better smart phone experience.

cromwellian 6y ago
Well, I'm a customer and I can bitch and moan about their behavior all I want. How else will they improve if their customers don't have any complaints? But again, we see the "love it or leave it" attitude. As in, you have no right to criticize the cherished totem that I have invested a huge portion of my self into.
- humaniania 6y ago
  You work for Google and have the nerve to call a diatribe about Apple's profit margins a legitimate complaint? Cool. Well Google should charge less for advertising because they make too much money off ad clicks!

m3kw9 6y ago

Ok let’s punish them for making money, how come no one complained when they first came out with this payment scheme? Yes, they covered their fixed costs and then some, are they supposed to lower the price so they barely make a profit? Capitalism doesn’t work like that.

kevindong 6y ago

Per page 19 of Apple's FY 2019 annual report [0], the net sales for the 'Services' category (consisting of the following) was $46.291 billion. > Services net sales include sales from the Company’s digital content stores and streaming services, AppleCare, licensing and other services. Services net sales also include amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of certain products. Undoubtedly, the App Store makes up a large chunk of that $46.291 billion, but not all of it. We don't know how much money Apple actually makes off of the App Store. For all we know, Apple attributes 50% of the iPhone's profit margin to "Maps, Siri, and free iCloud services" which would dramatically skew the numbers. Services also includes digital media, AppleCare, and licensing which are all non-trivial sources of revenue. [0]: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/1a919118-a594-44f3-92f0-4ecca47b1a7d.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0000320193/1a91911...

vallavaraiyan 6y ago

There is also the $99/year subscription to apple developer program

bob1029 6y ago
$300/year for us, and each additional client we choose to work with. This is the cost of obtaining what is effectively side-loading capability.

AnonHP 6y ago

> A $1250 iPhone had a $450 cost to make... Where do you even get numbers like this? Are you looking at the bill of materials cost and assuming that to be the cost of the device, ignoring the R&D, testing, iterations of development and tweaking, and many other factors (including marketing) that go into the price of a product (apart from profit margin)? If yes, that’s too naive an assumption and bordering on hyperbole. This is like arguing that the ingredients for <your favorite dish> cost some low value whereas restaurants are selling it at several tens of times that cost. M

lostgame 6y ago
I agree. I very much like the metaphor you're drawing here. Expecting a phone to cost as much as its materials is like expecting to go to a restaurant and being outraged when a steak and fries costs $25 when you can buy potatoes and a steak from your local supermarket for $8. It's absolutely ignoring the overhead, R&D, etc; but I often also find iOS itself ignored in the built-in costs. I often find comparisons to costs of materials vs. MRSP bizarre at best, in any case.

dev_tty01 6y ago

Apple's gross revenue was about $14 billion, not $50 billion. Total app store revenue in 2019 was $61 Billion. Apple received between 15% and 30% of that, depending upon the first year/later years subscription numbers. If we use 22.5%, Apple made $13.7 billion. https://www.theverge.com/2020/6/15/21292203/apple-app-store-ios-apps-billings-revenue-517-billion-2019-antitrust-regulation https://www.theverge.com/2020/6/15/21292203/apple-app-store-... Follow the link to the cited study. Another data point is Apple's release that they paid developers $34 billion in 2018. https://fortune.com/2019/01/28/apple-app-store-developer-earnings-2018/ https://fortune.com/2019/01/28/apple-app-store-developer-ear... Since the 15% subscription model was relatively newer in 2018, let's put the 2018 developer number at 75% of the total, so Apple made about $11.3 billion in 2018. Also, we should not forget the huge overall R&D spend Apple is making to keep growing the iPhone/iPad market. Apple makes money off sales of course, but it is still a huge investment in the platform and that creates market for developers. They have also just announced a new platform for Macs that will allow iPhone and iPad apps to run unaltered on the new Macs. Again, big R&D expense from Apple with upside for developers. In general, there have been big R&D expenditures in software SDKs in recent years for developers to get to a write once model so programs can run on all the platforms. Apple also eats the 2.5% (typical number) credit card transaction costs. In addition, they deal with collecting and paying local sales taxes in every state and in 155 countries. For the user, they provide a trusted payment processor and software source so they don't have to worry if the software will have embedded malware or if their credit card data will be handled appropriately. They provide cloud servers for notifications, file storage, all of the software update processing, payment processing, and many other services. The app store team performs about 100,000 reviews every week. Somewhat automated, but a lot of humans involved too. After the first year, Apple's cut is 15%, so after all the other expenses of the app store I'd be surprised if they are clearing 10% after that. Whatever the exact number, it is far less than 30%. The 2019 net prior to R&D and other expenses is probably around $12 to $13 billion best case. Developers made about $47 billion. At any rate, Apple is making money, but we should keep the right numbers in mind when we have these discussions.

summerlight 6y ago

I don't think the number is around $50B but more likely $15B but you're still right; this is far more than enough to run the App Store. YT makes similar revenue to the App Store but likely spends considerably more OpEx given the nature of the service. But no one really expect YT to be net-loss for Google. This is especially true as Apple consistently claims that the App Store is an integral, inseparable part from iPhone; so even if Apple loses a significant amount of money from the App Store it should be fine as long as iPhone can make ~$100B profit each year. Of course, they could invalidate this logic by introducing some form of competing app stores, which would be just nominal in practice, but they didn't choose to do that. I don't know why; no one really can compete with Apple in the iOS ecosystem and this would significantly mitigate their legal risk.

nextlevelwizard 6y ago

If you don't like it why don't you make your own phone platform and make its app store free. It is easy to demand free shit from already established platforms since they don't strictly need it now, but it required a lot of capital and work to get to the point it is now and now you are expecting to get a free ride on top of that. Then again this incident has nothing to do with Apple or Epic. This is essentially China vs USA case. Just another form of cyber warfare and comments like yours show that China is succeeding.

valuearb 6y ago

Apple doesn’t make $50B a year from the App Store. That’s roughly it’s entire services revenues. It’s estimated that developers had gross sales of $50B from the AppStore last year, of which $15B is Apples share before expenses. Apples audited financials tell us gross margins on services is 68%, and $9B of those services are from an annual payment from Google for search placement in Safari with a gross margin approaching 100%. So you can make up whatever numbers you want given your limited understanding of what services the App Store provides, but App Store gross margins are clearly likely to be in the 50-65% range, making its break even somewhere between 10-15% of developer revenues. And lastly, gross margins aren’t net margins. Apple still has to pay for marketing, sales, admin, support, etc out of iPhone gross margins, and the App Store still needs to contribute to some if these as well.

georgeecollins 6y ago
Developers pay to advertise their apps (some of it goes to Apple) Apple pays to market Apple TV, Apple Music. Apple doesn't need to take in revenue to market other people's apps, advertising them is a money maker for them. Also, you are talking about the margins on all Apple's services, some of which are much more expensive than others. The margins that other digital software stores can charge suggest to me that they can be very profitable without the 30% cut. Full disclosure: I am a longtime Apple shareholder.
- valuearb 6y ago
  No one is saying the App Store isn’t very profitable for Apple. Just countering the misinformation from n the original post and the blatantly wrong assumption that the App Stores only costs are payment processing. Disclosure: I’m a long tine App Store developer.
weixiyen 6y ago
Apple Music and anything that has content rights are where low margins are going to be. Services margin will include new areas they are investing in and losing money as well. There's zero percent chance the App Store is running at 50% margin. It's got to be closer to 80% than 50%, or they are doing something wrong.

numlock86 6y ago

> They are already rich so they don't need a 30% cut of app purchases Yes, I don't get why they don't just hand out phones and everything for free, duh. I mean surely they could do that for a while with all that revenue instead of theoretically buying 50 new data centers per year every year? Why I am not getting free stuff from rich people? What economic wizardry am I missing?

fluffything 6y ago

> It should be free like the Web, Lots of entitlement here. Apple does not owe you anything. If you don't like Apple's terms, just don't buy their products. It really is that simple.

cromwellian 6y ago
"Love it or leave it." Sure fire mark of tribalism. <plugs ears doesn't wanna hear criticism of sacred cow>
- fluffything 6y ago
  Honestly, i've been hearing the criticism "What you put a lot of work into accomplishing should be free" my whole life. There is a full sub-reddit for these things (/r/choosingbeggars).