Counting stool legs

February 13th, 2013 § 0 comments

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:

  1. iTunes now becomes a steadily and rapidly growing business. Growth over the previous two years averages well over 30% and is consistent across seasons.
  2. The absolute revenue number is substantial: $13.5 billion for 2012 (up from $10.2 billion in 2011).
  3. Assuming a gross margin of 15% to 17% yields contribution of $2 billion in margin in 2012 and $1.6 the year before.
  4. iTunes is now Appleā€™s fourth largest business, having overtaken the iPod in revenues two years ago
  5. 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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