They're losing perhaps $100 million to credit card transaction fees. Then, salaries for god knows how many sysadmins, developers, designers, sales/marketing people, app reviewers, accountants, on and on. Assuming that just 5% of its ~30,000 non-retail employees work on the App Store, salaries eat up another $150 million.

So now we're down to $600 million, or so.

Then you've got bandwidth, infrastructure maintenance, scaling costs, utility costs. You've got to pay out cash to developers each month, so now there are banking fees on top of the ones you see when you collect money from consumers.

Still, let's be extremely generous here and pretend that operating at this scale costs nothing at all.

In such a case, operating the App Store made Apple a profit of $60 million a quarter since it opened. Apple's Q4 2010 profits were $4.31 billion, making the App Store in such a scenario worth a whopping 1% of Apple's profits.

In reality, once you account for all the hairy stuff we skipped, it's probably a lot closer to a rounding error than any kind of significant contributor itself.

You have to keep in mind though that the app store drives hardware sales. Looking at it in isolation obscures the point of its existence.

Everything Apple does drives hardware sales. They're a hardware company. The App Store creates a virtuous cycle that makes their platforms more useful. The point, here, is that they aren't making money from the operation of the store – they're just barely breaking even. Would they operate at a loss to continue improving their device sales? I doubt it. And the crux of this piece is that Apple is doing what it can to keep this monster from turning into a money pit.

Obviously they don't want it to become a money pit, but I still think it only makes sense to consider app store revenues in the big picture of the entire iOS business. I'm sure they'd rather it were profitable but even if the store ran at a reasonable loss it would still be an essential and healthy pillar of their business.

You should also consider how fast the market is growing too. Maybe it's only 1% of Apple's profits, but that's a lot considering it was non-existent 2 years ago. Perhaps in another 2 years it will be 5% of Apple's profit. That's incredible growth into a completely new profit market.

Maybe it is but it bears more analysis than just capitalizing the word 'IS'.

There are a fair number of costs involved:

- Reviewing 350,000 apps x the number of updates. Say 1,000,000 reviews?

- Bandwidth and hosting for all apps, free or not.

- Taxes

- Credit card fees

- Bank fees for payouts

- Data center

- Legal Work for maintaining a store in 91 countries.

- Software development of the store itself.

- Developer support

I'd say that's obviously going to be 100's of millions on costs. 850? who knows, but the net is that it's going to be minor on their balance sheet and not a business they'd bother with if not for the synergy with their hardware business.

It's relative. Assing all 850 million were to be considered profits, that's over 2 years so roughly $106 million a quarter.

For reference apple made $6 billion in profit last quarter,. So, no it's not a big profit center.

Exactly. I think it's clear they are trying to make more money off the app store, including free apps, but I'm pretty sure they're already making money off of it.