“Apple makes most of its money from iPhones and iPads; however, iTunes/Software/Services is the company´s fastest growing business,” Andrés Cardenal writes for The Motley Fool. “This segment is not only a key competitive asset for the company but it´s also becoming a massive business with serious long term potential.”
“The iTunes/Software/Services business generated $3.99 billion in revenue for Apple in the last quarter,” Cardenal writes. “That is a relatively small fraction of total sales for a company with more than $35.3 billion in revenues for the quarter, but it’s a huge business on a stand-alone basis. For that matter, iTunes is already bigger than most media and entertainment companies.”
Cardenal writes, “More importantly, the segment is growing at 25% annually and becoming an increasingly bigger part of the equation. iTunes billings translated to quarterly revenue of $2.4 billion, up 29% from the year ago quarter… Wall Street analysts usually think of this segment as a competitive advantage that differentiates Apple from its competitors and keeps users engaged to its much beloved ecosystem… but maybe it’s time to give more consideration to the financial impact this business could have in the middle and long term.”
Read more in the full article here.
[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]
It can also help Apple build a moat around its other businesses, but I see it really as a way for Apple to help tie all of its businesses together.
Amazing. And I remember watching the iTunes counter rolling toward the 1 million mark
Bah! When I were a lad we used to dream of even having an iTunes counter to watch.
LOL…. good one.
We had a counter, but we had to carve the numbers out of sticks.
Everything Apple is vastly unerestimated.
underestimated
… Perennially.
Except among the cognoscenti, aka We The Fanatics.
But of course.😋
Sure Apple has a complete eco-system and loads of patents pending, but Samsung has big ass phones people should be embarrassed to hold up to their faces.
I saw a big-ass phone in public once. It was embarrassing just to be in the general area.
This.
I laughed out loud.
Did it have a BLN hanging off of it?
I call them surfboards.
I call them:
Blether Boards,
Prattle Planks,
Chatter Chunks,
Jabber Junk,
Slobber Slabs… 😉
Every business Apple has is underestimated by Wall Street based on the fact that Steve Jobs is dead and there’s no way to resurrect him.
I do find it mildly frustrating how Apple’s iTunes business is worth more than many companies yet that revenue can barely move Apple’s share price a few dollars. If iTunes were a separate business like Netflix it could be worth about $500 a share.
good point.
The whole iTunes Store business (especially in music) grew to its current prominence because Apple never had to treat it as a PROFIT center. It is a value-added service, to enhance the user experience and long-term loyalty of its hardware customers.
Apple’s competitors in this “services” segment are at a distinct disadvantage, because for most of them, the service is their primary product; the “service” must be their profit center, or there is no point in existing. Apple is fine with breaking even, and Apple also has a massive advantage in lowering cost through volume. Not only are the rules for Apple different, Apple is not even playing the same game.
Ironically, Apple’s iTunes Store business has grown to such an extent (alongside Apple’s hardware business), that it is a significant source of Apple’s overall revenue. It may still not be a “profit center” for Apple, but with that much revenue, Apple has huge leverage and influence in the “content creation” industry. That will continue to help Apple sell hardware and keep those customers happy and loyal.
Exactly…well put. Numerous other direct and ancillary services are now benefiting from the trail blazed by Steve Jobs. Thanks to iTunes the music business was dragged kicking and screaming into making more money than ever.
And yet the myopic neanderthals in charge of the television and movie industries are still clinging to their antiquated business models thinking that they are some how “different”. Those dinosaurs too must fall at some point. Let’s hope it’s sooner than later.
So why not expand the market by licensing OSX to (say) two of the tier 1 OEMS – perhaps HP and Lenovo or perhaps Sony. Apple are not making much of their profit from Mac hardware, the bulk of it is coming from phones, iPads and particularly the iTunes store.
Given the traditional PC market is in decline, now might be a good time to do it, whilst at the same time using it as a way in to the wider corporate market.
Consumer demand is fickle – a solid base in the corporate market could be a hedge against this.
Because Apple’s software is also a “value-added service” that is used to sell hardware. That’s why Apple only charges $20 per upgrade, because Apple is NOT interested in making Mac OS X licensing into a profit center.
If Mac OS X is licensed to third parties, that just makes non-Apple hardware more attractive. The ONLY possible result is that fewer Mac AND iPads will be sold. And THAT would be a stupid move.
“why not expand the market by licensing OSX”
Aaaaaarghh!!! Noooo!!! It lives! It lives!
(Lurch, shuffle, moan, arms outstretched.)
You may not have been around Tacitus. This has been discussed over the eons (well, eons in computer years). One point is that what is so wonderful about Apple is because of Apple’s control and integration. Licensing would be the kiss of death to quality control.
Just did some searching and found that Horace Dediu estimates that the iTunes store only makes 1 to 2 percent profit margins, which seems incredible since they charge 30% for distribution fees for apps and other media (He points out that they make closer to 50% on their own software). Shouldn’t this go up as their infrastructure matures? So if their sales keep going up annually and margins do too, they will continue making a killing for the foreseeable future.
Apple 30% covers credit card, distribution, storage and tax cost. That is a lot of money and time developers don’t have to worry about. To think that Apple is making a lot of money off each sale is wrong. They do have economies of scale working for them. The iTunes profit growth does show just how large the store has become.
The iTunes store profit margin is currently kept low by the massive spending for new data centers. As this building program slows the profit margins for the iTunes store should go up.
Except for OS X, iTunes is the most important ingredient in ’s incredible success of the last fifteen years.
Major NFL games pull in about 18 million viewers (from a bit of googling). The Champions League gets about 200 million viewers.
Do the 200 respond to advertising as enthusiastically as the 18?