While Apple’s iTunes Store was originally thought of as “a low-margin ‘break-even’ operation intended to drive hardware sales” (in the words of AllThingsD’s John Paczkowski), and especially iPods, the reality of the iTunes Store has changed significantly since it was first introduced.
According to new research from Asymco analyst Horace Dediu, the iTunes Store, which has now expanded to offer Mac apps (such as Apple’s iLife and iWork suites, and their entire professional software lineup), e-books, videos, and beyond, now generates a whopping $2 billion in earnings for the company. Even more interesting, the main factor behind the increase in revenue is sales of Apple’s own software products.
My estimate is that Apple’s own software generated $3.6 billion in Revenues in 2012. As you can imagine, this is a high margin business which grows at nearly 20%/yr. Although I estimate that the software business has been overtaken by the Apps and Music businesses in gross revenues, it keeps an operating margin similar to that of Microsoft or about 50%.
This means that iTunes inclusive of Apple’s own Software generates as much as 15% operating margin on gross revenues. That’s over $2 billion a year.
I dunno about you – but that a definition of breaking even that I could totally get on board with!