The always thorough and insightful Horace Dediu argues that iTunes, which includes the App Store, is no longer a “break-even” business and is becoming one of the primary pillars upon which Apple rests; Dediu calls these stool legs.
There are several observations we can make:
- iTunes now becomes a steadily and rapidly growing business. Growth over the previous two years averages well over 30% and is consistent across seasons.
- The absolute revenue number is substantial: $13.5 billion for 2012 (up from $10.2 billion in 2011).
- Assuming a gross margin of 15% to 17% yields contribution of $2 billion in margin in 2012 and $1.6 the year before.
- iTunes is now Apple’s fourth largest business, having overtaken the iPod in revenues two years ago
- iTunes growth relative to the Mac means that it could become the third largest business during this year.
To put this in competitive perspective:
Indeed, if seen in isolation, iTunes+Accessories combined is a bigger business in terms of revenues than any of the other phone vendors except Samsung
At a recent Goldman Sachs tech conference Tim Cook added more evidence to the pile:
And we’ve built a great ecosystem that is also fueling a developer industry..we’ve now paid out over $8 billion to them.
As Gruber points out if you add in the Apple’s 30% cut the app store take in $11.5 billion in revenue with $3.5 billion in profit for Apple. That’s one health ecosystem.
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