Comment by nabla9
7 hours ago
Apple’s App Store profits on commissions from digital sales
Revenue $32 B
Operating Costs $7 B [1]
Estimated Profit $25 B
Operating Margin ~78%
[1] R&D, security, hosting, human review, and including building and maintaining developer tools Xcode, APIs, and SDKs.
Apple could take just 7% cut and still make 20% profits.
Fun Fact: During the Epic trial, it was revealed that Apple's profit margins on the App Store were so high that even Apple's own executives were sometimes surprised by the internal financial reports.
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edit: There is no ideological argument for voluntary action here. The entire goal is to force regulators to step in. The debate over 'good vs. bad companies' is just online noise and rhetorical trik, no one on either side of the political spectrum wants these systems to be fixed voluntarily with corporate altruism.
The operating cost is the maximum Apple can come up with when their accountants attribute everything they possibly can to digital sales for the sake of legal argument. R&D shouldn't really be included, and Apple uses those same tools and APIs themselves. I think the actual profit margin is closer to 90%, and Apple could maintain a 20% margin with just a 3–4% fee.
I'd say that in the case of Patreon, any fee for Apple is unjustified. Apple can justify their fee on app purchases/subscriptions in the app store, but Patreon is not an app subscription, the money goes mostly from the patrons to the people they support. Ok, Patreon takes a cut to cover their operating costs, and also make a profit (not sure how profitable they are currently), but I really can't see how Apple, who don't have anything to do with this process except for listing the Patreon app on the app store, can justify taking a cut.
You could make the argument that Patreon isn't much more than a banking app.
It just focuses on the receiver of the money than the sender.
I think Apple is slowly killing apps with this policy. Everybody will slowly move to "web only" as 30% would kill their ability to compete with anybody else. This will likely be much stronger in countries where iPhones do not have the same market share as in the US.
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Next up, 2% cut whenever you use any banking or payment app. Only 1.5% when you use Apple Pay!
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If a user almost exclusively uses the Patreon ios app to consume the artist’s content and likes to live inside the ios ecosystem for frictionless payments using the card on file/privacy/UX/whatever, then I feel apple should get to set the terms of engagement.
If you were a chain store in a high end mall where customers cars were all parked for free by valets, mall staff knew their names, and generally made them feel special, you’d not balk at a higher commission to be paid to mall for access to their customers, right? Airports come to mind for this.
I believe apple lets you set whatever price you want on their store, just not tell customers that they could get a lower price elsewhere/on the vendor’s website (I don’t follow App Store policies very closely so my info is probably out of date).
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Certainly not defending Apple's behavior in this instance, but isn't the success of the larger product ecosystem a direct driver of their App Store profitability? To strictly evaluate the App Store finances in isolation seems to be the sort of accusation you've levied against Apple in the opposite direction..
I like Apple less and less these days for various reasons, but I haven't purchased an app on the App Store in more than a decade. It's strictly a vehicle for local utilities when, for whatever reason, a browser will not suffice. Nearly all purchasing is done on the 'open' web.
> ...for the sake of legal argument. R&D shouldn't really be included
That's an incredibly ridiculous take. R&D is an operating cost and it's an ongoing expense related to the app store existing.
> I think the actual profit margin is closer to ...
You can replace "think" there with "feel".
What really makes it uncomfortable is that Apple isn't just a neutral marketplace. They control the OS, the distribution channel, and the payment rails, so creators and platforms like Patreon can't realistically opt out
They could opt out - by sticking to web platforms.
Apple cannot charge for that. However, apple does attempt to gimp the web platforms on mobile to "subtly" push for apps.
The whole Epic vs Apple was about Apple blocking this. Before being slapped by regulators, Apple had anti-steering policies forbidding iOS apps from even mentioning that purchasing elsewhere is possible.
Even after EU DSA told them to allow purchases via Web, Apple literally demanded a 27% cut from purchases happening outside of App Store (and then a bunch of other arrogantly greedy fee structures that keeps them in courts).
Apple knows how hard is not to be in the duopoly of app stores. They keep web apps half-assed, won't direct users to them, but allow knock-off apps to use your trademarks in their search keywords.
They do and it’s awful. I’m making a browser based game and it works great on desktop browsers but Apple refuses to allow css filters on canvas forcing you to build your own filters and apply them to image data. The web audio api is also a pain to get working properly on iOS safari and a bunch of other arbitrary but feels like they’re intentional obstacles found only on iOS. I’m almost considering just using webgl instead of a 2d context but who knows what obstacles apple is hiding there also it will make everything so much more verbose for no real gain.
Not even in the days of IE was I ever this frustrated.
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Why could Apple not charge a percentage for any user using their mobile device? Why would it be limited to app store?
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While inconvenient and likely to reduce patrons, the article does describe how they can opt out: use the web to do any payment activity.
Don't forget they also directly compete with Patreon with podcast subscriptions. You can support a podcast through Apple podcasts or Patreon, but only one of those has a 30% chunk taken out.
Yeah, because they built it. If people were using Linux everywhere, the situation would be different.
That's pretty much the conclusion the EU came to and why they introduced the notion of gatekeepers in the DMA.
It doesn't matter if you are not technically in a dominant position if your special role in a large ecosystem basically allows you to act like one in your own purview.
You could say this kind of move invites more scrutiny but the regulators are already there watching every Apple's move with a microscope and their patience with Apple attempts at thwarting compliance is apparently wearing thin at least in the EU if you look at preliminary findings.
The problem is the monopoly over distribution channels. Regulation needs to force devices to allow A) downloading and using packages & executables from the internet, and B) any app to download and install other apps.
Regulating the fees for one central app store is no solution.
> downloading and using packages & executables from the internet
Oh boy, now my mom can get the full experience of having malware on her phone too!
With freedom also comes responsibility, and some innocent people will inevitably shoot themselves in the foot. This is not a strong enough argument for putting everybody else in a cage and letting a duopoly take over virtually all of the distribution of consumer software.
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Let's not put everybody in a cage because we can't stop dumb people from walking off cliffs.
I hate the classic apple users' "mom" argument. Why are all your moms morons? And why do you want to fuck up the entire mobile landscape to baby proof it for them. Im not gonna ruin my experience with technology because you dont expect your mom to be able to wipe her ass without apple's help
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That's not how business works. The App Store in current form would not exist without all the collective investment that went into all of Apple's hardware, for instance.
Microsoft Office: Revenue $45B Operating Costs $12B Profit $33B Operating Margin 75%
Google Search Ads: Revenue $175B Operating Costs $45B Profit $130B Operating Margin 75%
> That's not how business works. The App Store in current form would not exist without all the collective investment that went into all of Apple's hardware, for instance.
While technically true, this argument doesn't provide any merit to the discussion. The App Store backed purchase for the Patreon subscription would not exist at all without the creator's work and investment in creating their form of content.
In the absence of the App Store, the creator would still have access to their patrons via mobile web and payment via the methods already provided by Patreon. The app is merely a convenience - it's a hard sell that this convenience is worth 30% of the creator's revenue through the platform.
> Apple could take just 7% cut and still make 20% profits.
We can say this to any company, "$X could reduce price by $Y and still make $Z profits", but it doesn't really make any sense. Making profits is what makes a company a company instead of a non-profit organization.
It does make sense to highlight, because this kind of statistic is a very strong indicator that the market is not competitive. This is not a normal kind of profit margin and basically everyone except for Apple would benefit from them lowering the margins.
In normal markets there are competitors who force each other to keep reasonable profit margins and to improve their product as opposed to milking other people's hard work at the expense of the consumer.
Might not be competitive but it’s totally voluntary. No one needs app, it’s not food or shelter, so clearly consumers are willing and able to pay this.
The consumer is willing to pay the price based on the perceived value from the App Store
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Agreed, but this is about to be a special case if it's not already. We're contending with compulsory digital IDs and cashless economies that must be used on authorized devices, and Apple is one of the two makers. While it's certainly not necessary to use Patreon, not having it or something like it is an actual barrier to individual trade. I don't think I can get behind a schema that means Apple can take whatever portion it wants from a transaction initiated on a device that it creates and that is otherwise fairly necessary for day-to-day life in the developed world.
High profit margins are a sign of market failure.
Not so much a failure. Rather, there is no intent for there to be a market here at all. A market relies on offerings being reproducible. Intellectual property laws are designed specifically to prevent reproduction.
"Competition is for losers"
Makes me think of the concept of involution in Chinese business and how they understand all of this very differently, and how difficult it is to compete because of that.
For anyone else wondering https://en.wikipedia.org/wiki/Neijuan
it sounds like it does make sense because if they are making $Z profits then they are still making profits and are not non-profit.
there could also be cases where cutting back to $Z profits might be preferable in case not doing so were to prompt legislation causing someone to be forcibly cut to $Z-1 or even $0 profits from a particular profit source.
Which it has been my observation that when someone is saying "X could reduce price by $Y and still make $Z profits" it often coincides with saying therefore company X should be legislated on this particular profit source.
Note: $X didn't make much rhetorical sense.
>there could also be cases where cutting back to $Z profits might be preferable in case not doing so were to prompt legislation causing someone to be forcibly cut to $Z-1 or even $0 profits from a particular profit source.
Not in an environment where regulatory capture costs so much less than any change legislation could bring. The remedy in almost every recent monopoly case has been remarkably nothing. Politicians don’t actually want change, they want the threat of legislation so that industries bring truckloads of money to line their pockets.
When parts of a market become dominated by one or few companies operating in a limited choice environment, consumers can't just opt to not use both Apple and Play store. You need to choose one in practice.
At this point the regulators should investigate what the barriers are to new entrants and if it's too costly and nobody has managed to cut in the last few years, establishing some rules is probably a good thing. This happens as industries mature and become critical, it happened in transportation (most bus, train companies), energy, water supply, trash, etc, depending on the country and market conditions.
“Growth is what makes a cell a cell.”
Until it turns into cancer because of unrestrained growth.
Like it or not capitalism is a part of an ecosystem. We’ve been “educated” to believe that unrestrained growth in profits is what makes capitalism work, and yet day after day there are fresh examples of how our experience as consumers has gotten worse under capitalism because of the idea that profits should forever be growing.
"Why wait until tomorrow to get one golden egg when I can kill the goose today and get all the golden eggs?"
I think it's a little known fact that societies don't exist for the benefit of companies. It's actually the other way around.
It makes sense that regulators can step in without destroying a company.
Let's be honest if this was a European company it would be capped by law at 5-10%. Problem is who has an incentive to do the right thing here? Not apple and certainly not the US government (most of this revenue comes from outside the US).Nobody can defend it, yet nobody wishes to stop it.
> even Apple's own executives were sometimes surprised by the internal financial reports.
Was this recorded or just people drawing lines between Epic's expert witness claims and the executives trying to down play them?
Plus more than $20B for the Apple developer fee without which you cannot publish the their stores.
They could lower the rates even more and still afford the government bribes and solid gold tchotchkes, but the whole point of the bribes is to not do that.
Those margins are pretty normal in software, especially a mature product like that.
> The debate over 'good vs. bad companies' is just online noise and rhetorical trik...
Agreed, there are bad privately held corps, and worse privately held corps, with badness usually proportional to their size and profit.
I really think I might be done with Apple. The only thing keeping me using them is how much I hate Android. The _millisecond_ a competitor arrives, I'm dropping my iPhone like a bad habit.
GrapheneOS on a Pixel is that competitor. Open source, more secure than Apple, compatible with nearly all Android apps. It's all the positive aspects of Android without the downsides (Google).
Off topic, but is there anything specific that you hate about Android? I find it acceptable. I'm trying to cut down my phone usage so maybe I'm more tolerant.
I keep hoping and wishing for a daily drivable linux phone that's compatible with all the us networks to come along. I'll keep hoping and wishing. Someday I hope we will get there!
One company's margin, is other company's opportunity.
The problem is that Apple owns the platform and half of the mobile ecosystem. You can't just launch a competitive marketplace which could compete alongside Apple's app store, nor can you launch an alternative operating system. You have to launch a whole new smartphone stack complete with operating system, app distribution and app ecosystem.
Or not use apple.
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Indeed, that's why the former blocks the latter: not to lose margins to those opportunities
I don't think Apple could actually, unless they could prove to shareholders that it would create more value
This is all money that is reducing expenditure elsewhere. I get it: capitalism and economics. Yet I still think humanity could do better and I think capitalism itself suffers. Economics theory is broken if it thinks this is good for society in general.
But those profits made possible by actually having other infrastructure parts existing(OS, hardware, marketing, etc).
But people still use/buy it so why would they cut the cost?
There is no ideological argument for voluntary action here. The entire goal is to force regulators to step in. The debate over 'good vs. bad companies' is just online noise and rhetorical trik, no one on either side of the political spectrum wants these systems to be fixed voluntarily with corporate altruism.
But what are they even doing for regulators to have to step in? Making profits from someone selling their product in your market seems pretty valid to me. Are you saying this is anticompetitive to other possible app store storefronts like Google Play or something?
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and that exactly what monopoly allows you to do.
Advocating for regulators to step in is already a value judgement. Why is "high profitability" a cause for regulatory scrutiny? The optimal behaviour in any ecosystem (corporate or natural) is to defend as much territory as is within your power, not to keep only to what covers your "needs". Why have you deemed this behaviour, which is emergent anywhere competition between organisms exists, as in need of regulation?
Apple is succeeding largely on merit, within the bounds of civilized, peaceful competition. Shouldn't we all just be grateful for the contributions they have made to our civilization?
> force regulators to step in
> force
> regulators
That's my whole problem, personally.
What we need much, much less of in this world is government force, especially during these trying times of government force and outreach (something I expected my more left side of the isle colleagues to have finally realized by now).
COIVD really was a test of how much governmental draconianism we would take, and we failed spectacularly, and not only that, but are demanding more government.
So no, we don't need more regulation, especially given this country's history of regulatory capture. We need new solutions.
We don't need "more" government, we need the government to do its job. We need the regulators who have been legally appointed to oversee these areas to actually respond to these behaviors. Regulatory capture is the issue, but the solution isn't less government. It's getting corporate money and lobbying out of the government (Citizens United is to blame for most of our woes), increase the enforcement of anti-corruption laws, and get antitrust back on the table.
I want big corporations to be scared. I want them to fear for their own survival, and to tread lightly lest the sword of damocles fall upon them.