Apple’s cost to operate iTunes Store estimated to approach $1 billion annually

“Apple has made a point of saying that both iTunes App Store and iTunes Music Store are run at ‘break even’ implying that the gross margin is used up in operating costs (CAPEX, R&D, SG&A). To be sure, the cost of bandwidth and the data center(s) needed must be considerable,” asymco writes.

Advertisement: Introducing the new iPod touch. Now with FaceTime, Retina display, HD video recording and Game Center. From $229. Buy Now.

“But the operating budget for the store is beginning to reach a level that may be beyond what can be spent reasonably. The amount left over for operations has increased from ~$30 million a month in 2009 to $75 million/month today” asymco writes. “In fact, if this burn rate is maintained (even though it’s increasing) the operating budget for iTunes is nearing $1 billion/yr.”

MacDailyNews Take: As long as the enterprise operates at or above break even, there is no reasonable limit to what can be spent on its operation.

asymco writes, “One implication of the economics involved is that a budget like this may provide a significant barrier to entry for any competitors looking to take on the iTunes juggernaut. iTunes has reached content critical mass (12 million songs), user base (160 million users) and wide distribution (23 countries for songs and 80+ countries for apps)… These are non-trivial operational issues that even the best in the “cloud” business models will find challenging.

This discussion excludes video sales, rentals, book sales as we don’t have solid histories for these product lines,” asymco writes. “iTunes Music Store content downloads have generated $16.4 billion in sales to date.”

Full article here.

MacDailyNews Take: Remember that these are best-guess estimates and not official Apple numbers. Read the full article to see how asymco arrived at his estimates.