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If it's merely a break-even proposition for Apple, then perhaps a flat fee per purchase (or at least a maximum) would make more sense and allow services like Dr

If it's merely a break-even proposition for Apple, then perhaps a flat fee per purchase (or at least a maximum) would make more sense and allow services like Dropbox, Skydrive, and Amazon to participate.

drewcrawford 14y ago
Okay, let's do some math. Apple has paid $6.5b to developers [1], which would make the App Store gross $9.3b. This means their operating budget is $2.8b. About 49% of app revenue comes from IAP [3] rather than paid downloads, so let's assume that's still the case in our flat-fee world. We still need to come up with 51% ($1.4b) of our budget from paid downloads. Users have downloaded 35 billion apps [1], but the free-paid ratio is somewhere between 11:1 to 15:1 [2]. This would put the number of paid downloads between 2.3b and 3b. Result: Apple charges a flat fee between $.47-$.61 per paid app to maintain their current operating budget. A developer who is trying to stay below the $1 magical price point (most developers) is now making 50c or so, whereas they were making 70c before. Does this still sound like a good idea to you? Just thinking it through logically, a flat fee is effectively a decrease on expensive purchases, and (if the books are to be balanced) must be matched by an increase on cheap purchases. [1] http://thenextweb.com/apple/2012/10/23/apple-announces-35-billion-app-store-downloads-6-5-billion-paid-to-developers/ http://thenextweb.com/apple/2012/10/23/apple-announces-35-bi... [2] http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consumers-download-15-free-apps-for-every-paid-app-purchased-in-the-iphone-app-store/ http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consu... [3] http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-equal-to-download-revenue/ http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-...
- ddlatham 14y ago
  That reasoning assumes that the number of subscriptions is going to be the same regardless of the change in their policies. If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. I also question the assumption that they continue to need this level of revenue. If the app store was a little more than breaking even two years ago, they should be able to take advantage of growth and better efficiencies since then.
  - drewcrawford 14y ago
    > If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. As the old saying goes, if you lose money on each sale, you can't make it up in volume. If it is indeed true that Apple makes no or very little money from the App Store, it would require a huge, order-of-magnitude-shift, 10x, 100x, in purchase behavior to translate into raising $2b. > I also question the assumption that they continue to need this level of revenue. You and I can sit in our comfy chairs and question it, but unfortunately neither of us are in a position to run app stores, and the people who do don't provide a lot of transparency about how much it really costs. I do think if it was possible to do it for less, that Amazon or Google would undercut Apple (Amazon, in particular, has an incentive to run their store below cost). Seeing as how they don't, I'm inclined to believe 30% is very close to the actual cost. I also think that solving the multinational billing/legal problem is much more difficult than many developers realize. The iOS app store recently opened in Chad, which is consistently ranked as one of the most difficult countries to do business with according to several international organizations [1]. Forget "formalities" like it taking 63 days to start a business or an effective tax rate of 65% that takes 732 hours per year to calculate [2], and worry about "informalities" like the government officials openly soliciting bribes to get electricity turned on to your office. Or try operating in India, where it takes 1,420 days to enforce contracts [3] or in the Congo where it costs 7x what it does in a Western country to import a shipping container [4]. I have customers in all of these countries through the iOS app store. I bring up the cost of doing business in foreign countries, not only because it's expensive, but also because it's the factor to which Apple attributes its 2011 App Store growth. In a SEC-audited filing, the line item including the app store went up "primarily [due] to increased net sales from the iTunes Store, which was largely driven by App Store expansion into new countries that contributed to strong growth in all of the Company’s geographic segments." Basically, Apple's growth in the App Store is driven mostly by selling the product of first-world payment transactions to second and third-world countries. For this reason, the legal and accounting infrastructure behind Apple's various stores are probably among the most complex business processes that exist anywhere in the world. [1] http://rru.worldbank.org/BESnapshots/Chad/default.aspx http://rru.worldbank.org/BESnapshots/Chad/default.aspx [2] http://www.doingbusiness.org/Custom-Query/chad http://www.doingbusiness.org/Custom-Query/chad [3] http://www.doingbusiness.org/data/exploreeconomies/india/#enforcing-contracts http://www.doingbusiness.org/data/exploreeconomies/india/#en... [4] http://www.doingbusiness.org/data/exploreeconomies/congo-rep/#trading-across-borders http://www.doingbusiness.org/data/exploreeconomies/congo-rep... [5] http://files.shareholder.com/downloads/AAPL/2215124066x0x610219/112dd7d2-e33a-44ad-b4ea-8870c5dd9281/AAPL_10K_FY12_10.31.12.pdf http://files.shareholder.com/downloads/AAPL/2215124066x0x610...
- lmm 14y ago
  >Just thinking it through logically, a flat fee is effectively a decrease on expensive purchases, and (if the books are to be balanced) must be matched by an increase on cheap purchases. I think that sounds fair in terms of where the value is coming from. For a $1 app, Apple probably did provide 50% of the value. For a $20 app/book/etc., Apple's contribution is likely minimal.

drewcrawford 14y ago

Okay, let's do some math. Apple has paid $6.5b to developers [1], which would make the App Store gross $9.3b. This means their operating budget is $2.8b. About 49% of app revenue comes from IAP [3] rather than paid downloads, so let's assume that's still the case in our flat-fee world. We still need to come up with 51% ($1.4b) of our budget from paid downloads. Users have downloaded 35 billion apps [1], but the free-paid ratio is somewhere between 11:1 to 15:1 [2]. This would put the number of paid downloads between 2.3b and 3b. Result: Apple charges a flat fee between $.47-$.61 per paid app to maintain their current operating budget. A developer who is trying to stay below the $1 magical price point (most developers) is now making 50c or so, whereas they were making 70c before. Does this still sound like a good idea to you? Just thinking it through logically, a flat fee is effectively a decrease on expensive purchases, and (if the books are to be balanced) must be matched by an increase on cheap purchases. [1] http://thenextweb.com/apple/2012/10/23/apple-announces-35-billion-app-store-downloads-6-5-billion-paid-to-developers/ http://thenextweb.com/apple/2012/10/23/apple-announces-35-bi... [2] http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consumers-download-15-free-apps-for-every-paid-app-purchased-in-the-iphone-app-store/ http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consu... [3] http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-equal-to-download-revenue/ http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-...

ddlatham 14y ago
That reasoning assumes that the number of subscriptions is going to be the same regardless of the change in their policies. If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. I also question the assumption that they continue to need this level of revenue. If the app store was a little more than breaking even two years ago, they should be able to take advantage of growth and better efficiencies since then.
- drewcrawford 14y ago
  > If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. As the old saying goes, if you lose money on each sale, you can't make it up in volume. If it is indeed true that Apple makes no or very little money from the App Store, it would require a huge, order-of-magnitude-shift, 10x, 100x, in purchase behavior to translate into raising $2b. > I also question the assumption that they continue to need this level of revenue. You and I can sit in our comfy chairs and question it, but unfortunately neither of us are in a position to run app stores, and the people who do don't provide a lot of transparency about how much it really costs. I do think if it was possible to do it for less, that Amazon or Google would undercut Apple (Amazon, in particular, has an incentive to run their store below cost). Seeing as how they don't, I'm inclined to believe 30% is very close to the actual cost. I also think that solving the multinational billing/legal problem is much more difficult than many developers realize. The iOS app store recently opened in Chad, which is consistently ranked as one of the most difficult countries to do business with according to several international organizations [1]. Forget "formalities" like it taking 63 days to start a business or an effective tax rate of 65% that takes 732 hours per year to calculate [2], and worry about "informalities" like the government officials openly soliciting bribes to get electricity turned on to your office. Or try operating in India, where it takes 1,420 days to enforce contracts [3] or in the Congo where it costs 7x what it does in a Western country to import a shipping container [4]. I have customers in all of these countries through the iOS app store. I bring up the cost of doing business in foreign countries, not only because it's expensive, but also because it's the factor to which Apple attributes its 2011 App Store growth. In a SEC-audited filing, the line item including the app store went up "primarily [due] to increased net sales from the iTunes Store, which was largely driven by App Store expansion into new countries that contributed to strong growth in all of the Company’s geographic segments." Basically, Apple's growth in the App Store is driven mostly by selling the product of first-world payment transactions to second and third-world countries. For this reason, the legal and accounting infrastructure behind Apple's various stores are probably among the most complex business processes that exist anywhere in the world. [1] http://rru.worldbank.org/BESnapshots/Chad/default.aspx http://rru.worldbank.org/BESnapshots/Chad/default.aspx [2] http://www.doingbusiness.org/Custom-Query/chad http://www.doingbusiness.org/Custom-Query/chad [3] http://www.doingbusiness.org/data/exploreeconomies/india/#enforcing-contracts http://www.doingbusiness.org/data/exploreeconomies/india/#en... [4] http://www.doingbusiness.org/data/exploreeconomies/congo-rep/#trading-across-borders http://www.doingbusiness.org/data/exploreeconomies/congo-rep... [5] http://files.shareholder.com/downloads/AAPL/2215124066x0x610219/112dd7d2-e33a-44ad-b4ea-8870c5dd9281/AAPL_10K_FY12_10.31.12.pdf http://files.shareholder.com/downloads/AAPL/2215124066x0x610...
lmm 14y ago
>Just thinking it through logically, a flat fee is effectively a decrease on expensive purchases, and (if the books are to be balanced) must be matched by an increase on cheap purchases. I think that sounds fair in terms of where the value is coming from. For a $1 app, Apple probably did provide 50% of the value. For a $20 app/book/etc., Apple's contribution is likely minimal.