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My understanding of Apple's business model is that they plan to make most of their money from the 30% commission on in app purchases, and their share from media

My understanding of Apple's business model is that they plan to make most of their money from the 30% commission on in app purchases, and their share from media sales made through iTunes. The sale of the hardware is just a way to get a purchase platform in the hands of the consumer. Apple could probably sell a sub $200 iPhone with no difficulty, and then pay off the subsidy using their other sources of indirect revenue. Of course in that case we will probably see iPhones become even more of a walled garden, and a lot more of a crackdown on jailbreaking.

0x0 13y ago
You're probably right, which is funny since just a couple of years ago the app store was claimed to be a break-even operation. Too bad for Samsung they don't have one.
bdcravens 13y ago
My understanding of Apple's business model is that they plan to make most of their money from the 30% commission on in app purchases, and their share from media sales made through iTunes. Actually, it's project to only grow to about 37% of their total profit by 2020, not exactly "most": http://appleinsider.com/articles/14/03/24/itunes-and-app-sales-projected-to-grow-to-20-of-apple-profit-by-2020 http://appleinsider.com/articles/14/03/24/itunes-and-app-sal...
- NathanKP 13y ago
  To be more clear when I said "most of their money" I did not mean most of their total revenue for the company, I meant most of the money they make from you during their relationship with you as their customer. If you think about it your relationship with Apple as their customer begins with the hardware purchase, but then as you use the hardware you keep feeding money to Apple every time you make an iTunes purchase, in app purchase, buy extra iCloud storage, etc. The goal is that this residual source of income will surpass the initial income from the sale of the hardware. In that case they could give away the hardware at a very cheap, subsidized price, or even for free and then enjoy the steady stream of money from their other services that run on the device.
  - xuki 13y ago
    Apple make money by selling hardware. First they sell you iPod, which you like very much and start looking for their mac. Then the iPhone come out and you like them too. Next one is iPad, guess what, you already know how to use them. They drive apps price to 0.99 and make their OS free, what does that tell you about their way to make money? Apple at heart is a hardware company with very good software engineer.
  - bdcravens 13y ago
    When you factor in free app downloads, the average selling price of iPhone apps is 19 cents: http://appleinsider.com/articles/13/07/18/iphone-users-pay-average-of-19-cents-per-app-android-users-pay-just-6-cents http://appleinsider.com/articles/13/07/18/iphone-users-pay-a... To make even $100 per device, an average user would need to download approximately 1700 apps over the life of the device! Simpler math: $100 in profits would require something like $370 in app/media purchases. (30% commission, 90% margins on operating iTunes/App Store) To say nothing of the fact that this would require Apple to turn their back on the past 37 years.
kenjackson 13y ago
Apple makes such huge money off of subsidy, I don't think they can make that money back from app commissions. I've heard the subsidy north of $300/phone. That's a LOT of in app and media purchases to get that back in 2-3 years. Plus remember that the subsidy is on top of the app purchase dollars they make today, since phones with the subsidy still buy apps. There is no real upside to them on this. Sure they make good money on apps, but its hard to replace effectively free money from the carriers.

0x0 13y ago

You're probably right, which is funny since just a couple of years ago the app store was claimed to be a break-even operation. Too bad for Samsung they don't have one.

bdcravens 13y ago

My understanding of Apple's business model is that they plan to make most of their money from the 30% commission on in app purchases, and their share from media sales made through iTunes. Actually, it's project to only grow to about 37% of their total profit by 2020, not exactly "most": http://appleinsider.com/articles/14/03/24/itunes-and-app-sales-projected-to-grow-to-20-of-apple-profit-by-2020 http://appleinsider.com/articles/14/03/24/itunes-and-app-sal...

NathanKP 13y ago
To be more clear when I said "most of their money" I did not mean most of their total revenue for the company, I meant most of the money they make from you during their relationship with you as their customer. If you think about it your relationship with Apple as their customer begins with the hardware purchase, but then as you use the hardware you keep feeding money to Apple every time you make an iTunes purchase, in app purchase, buy extra iCloud storage, etc. The goal is that this residual source of income will surpass the initial income from the sale of the hardware. In that case they could give away the hardware at a very cheap, subsidized price, or even for free and then enjoy the steady stream of money from their other services that run on the device.
- xuki 13y ago
  Apple make money by selling hardware. First they sell you iPod, which you like very much and start looking for their mac. Then the iPhone come out and you like them too. Next one is iPad, guess what, you already know how to use them. They drive apps price to 0.99 and make their OS free, what does that tell you about their way to make money? Apple at heart is a hardware company with very good software engineer.
- bdcravens 13y ago
  When you factor in free app downloads, the average selling price of iPhone apps is 19 cents: http://appleinsider.com/articles/13/07/18/iphone-users-pay-average-of-19-cents-per-app-android-users-pay-just-6-cents http://appleinsider.com/articles/13/07/18/iphone-users-pay-a... To make even $100 per device, an average user would need to download approximately 1700 apps over the life of the device! Simpler math: $100 in profits would require something like $370 in app/media purchases. (30% commission, 90% margins on operating iTunes/App Store) To say nothing of the fact that this would require Apple to turn their back on the past 37 years.

kenjackson 13y ago

Apple makes such huge money off of subsidy, I don't think they can make that money back from app commissions. I've heard the subsidy north of $300/phone. That's a LOT of in app and media purchases to get that back in 2-3 years. Plus remember that the subsidy is on top of the app purchase dollars they make today, since phones with the subsidy still buy apps. There is no real upside to them on this. Sure they make good money on apps, but its hard to replace effectively free money from the carriers.