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.
Re:Where Apple went wrong with free apps
by danilocampos on Friday March 18, 2011 @08:02PM
(#2342511)
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.
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.