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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 accou

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 on memberships.

xhkkffbf 2y ago
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. They deserve to reap the rewards.
- rahimnathwani 2y ago
  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!
- amluto 2y ago
  > 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?
andrewmcwatters 2y ago
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.
- stouset 2y ago
  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?
  - headhuntermdk 2y ago
    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 dollars, it don't make sense" chorus from DJ Quik's "Dollaz + Sense". When I apply that to Apple (let alone any successful company for that matter), the claim that they don't know if the AppStore is profitable or not *defies belief*. Schiller might not know exactly how much profit is generated, but to suggest that he's clueless whether or not on the WHOLE if the AppStore is profitable... If people believe that, I got a bunch of bridges up for sale.
    - andrewmcwatters 2y ago
      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.
      - RhysU 2y ago
        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?
        mcphage 2y ago
Leonard_of_Q 2y ago
[flagged]
- sdwr 2y ago
  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.
  - senordevnyc 2y ago
    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.
- rahimnathwani 2y ago
  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.
tonyedgecombe 2y ago
I assumed Apple's margin was 30%, the difference between what a user pays and what the developer receives. Am I missing something here?
- rahimnathwani 2y ago
  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.
  - tonyedgecombe 2y ago
    >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). This isn't an unreasonable assumption, especially considering the invoice for my last App Store purchase has an Apple address and tax identifier (VAT number). Apple is the merchant of record.
- seanmcdirmid 2y ago
  Apple should have costs they have to pay to maintain the store, vet apps, credit card transaction fees, etc…

xhkkffbf 2y ago

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. They deserve to reap the rewards.

rahimnathwani 2y ago
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!
amluto 2y ago
> 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?

andrewmcwatters 2y ago

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.

stouset 2y ago
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?
- headhuntermdk 2y ago
  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 dollars, it don't make sense" chorus from DJ Quik's "Dollaz + Sense". When I apply that to Apple (let alone any successful company for that matter), the claim that they don't know if the AppStore is profitable or not *defies belief*. Schiller might not know exactly how much profit is generated, but to suggest that he's clueless whether or not on the WHOLE if the AppStore is profitable... If people believe that, I got a bunch of bridges up for sale.
  - andrewmcwatters 2y ago
    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.
    - RhysU 2y ago
      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?
      - mcphage 2y ago

Leonard_of_Q 2y ago

[flagged]

sdwr 2y ago
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.
- senordevnyc 2y ago
  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.
rahimnathwani 2y ago
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.

tonyedgecombe 2y ago

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

rahimnathwani 2y ago
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.
- tonyedgecombe 2y ago
  >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). This isn't an unreasonable assumption, especially considering the invoice for my last App Store purchase has an Apple address and tax identifier (VAT number). Apple is the merchant of record.
seanmcdirmid 2y ago
Apple should have costs they have to pay to maintain the store, vet apps, credit card transaction fees, etc…