30% was originally chosen because it was required to cover the cost of offering 99 cent purchases. At the time transaction fees alone were close to 20 cents on a 99 cent purchase. I think Apple still has to pay around 11 cents.
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Apple Execs Discussed Not 'Leaving Money on the Table' When Deciding Apple TV Subscription Fees
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30% was originally chosen because it was required to cover the cost of offering 99 cent purchases. At the time transaction fees alone were close to 20 cents on a 99 cent purchase. I think Apple still has to pay around 11 cents.
I am just gonna share 2 basic rules:
- companies' main objective (and also the only way to survive) is to make money (crazy, right?),
- the price of a product is based on what people are willing to pay for it, not how much it costs to be produced. (surprise! who would have thought).
- companies' main objective (and also the only way to survive) is to make money (crazy, right?),
- the price of a product is based on what people are willing to pay for it, not how much it costs to be produced. (surprise! who would have thought).
Successful pricing has to correspond to value. Nobody provides more value to their customers than Apple.
Yes. Costco
That's definitely not how Costco works.
How Costco Makes Money
Costco generates the large majority of revenue from merchandise sales, with foods and sundries comprising the largest share of revenue.
Lower Prices Than Grocery Stories
Costco members know that the warehouse store has consistently lower prices when compared to traditional grocery stores. While other stores may have occasionally lower prices on their loss leaders, such as Walmart or Target, Costco has permanently capped its margins to ensure that members can justify paying for a membership.
What are capped margins? A capped margin is a maximum price markup that an item has. Costco doesn’t publish its margin caps but, by looking through the company’s financial statements, we can see that they are operating at a margin of 11.02%. That means for every $100 that Costco spends to buy its products, it’s selling them, on average, for $111.02.
The Cable/Sat operators can offer their Users a benefit that NO streaming company currently can, the ability to View "popular" Live (Sporting, Music, etc.) Events in High Res & High Quality !
IMO, this is where Apple should have focused its AppleTV+ service.
IMO, this is where Apple should have focused its AppleTV+ service.
That's a false statement.
Corporations Don't Have to Maximize Profits - NYTimes.com
There is a common belief that corporate directors have a legal duty to maximize corporate profits and “shareholder value” — even if this means skirting ethical rules, damaging the environment or harming employees. But this belief is utterly false. To quote the U.S. Supreme Court opinion in the recent Hobby Lobby case: “Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not.”
The Hobby Lobby case dealt with a closely held company with controlling shareholders, but the Court’s statement on corporate purpose was not limited to such companies. State codes (including that of Delaware, the preeminent state for corporate law) similarly allow corporations to be formed for "any lawful business or purpose,” and the corporate charters of big public firms typically also define company purpose in these broad terms. And corporate case law describes directors as fiduciaries who owe duties not only to shareholders but also to the corporate entity itself, and instructs directors to use their powers in “the best interests of the company.”
Serving shareholders’ “best interests” is not the same thing as either maximizing profits, or maximizing shareholder value. "Shareholder value," for one thing, is a vague objective: No single “shareholder value” can exist, because different shareholders have different values. Some are long-term investors planning to hold stock for years or decades; others are short-term speculators.
Also, most investors care not only about their portfolios, but also about their jobs, their tax burdens, the products they buy and the air they breathe. Which is to say, companies that maximize profits by firing employees, avoiding taxes, selling shoddy products or polluting the environment can harm their shareholders more than helping them.
The great news is if you're unhappy with Apple's margins, simply vote with your wallet and reward another tech company.
OTOH... you may not be aware Apple's gross and net profit margins are well with the norms of other tech companies.
The difference there is that retailers generally have to compete against other retailers, which means that even though there is a markup on wholesale prices, it usually reflects a competitive price once retail costs are factored in (rents, staff, advertising, etc).
Apple's App Store doesn't compete at a retail level. There isn't a competing app store to undercut them on the 30% margin. Without competition at the app store level, it's very hard to tell if the 30% margin is a fair cut.
Yes. Costco
That's definitely not how Costco works.
How Costco Makes Money
Costco generates the large majority of revenue from merchandise sales, with foods and sundries comprising the largest share of revenue.www.investopedia.com
Lower Prices Than Grocery Stories
Costco members know that the warehouse store has consistently lower prices when compared to traditional grocery stores. While other stores may have occasionally lower prices on their loss leaders, such as Walmart or Target, Costco has permanently capped its margins to ensure that members can justify paying for a membership.
What are capped margins? A capped margin is a maximum price markup that an item has. Costco doesn’t publish its margin caps but, by looking through the company’s financial statements, we can see that they are operating at a margin of 11.02%. That means for every $100 that Costco spends to buy its products, it’s selling them, on average, for $111.02.
Sure - that's one operating model and a differentiator. For the record, I love Costco and pretty much do all my grocery shopping there when I can. But why should Apple operate this way?
I don't get the narrative about monopolies and Apple's greed. If you don't like their products, don't buy them. I know plenty of folks who use Windows and Android and never use Apple stuff. It is more expensive, but that's by design and intent. Just like companies such as Porsche, Rolex, Louis Vuitton etc, charge more money for things that can be had much cheaper elsewhere. If you don't like their things then don't buy them!
I'm not saying Apple should operate this way.
I was merely pointing out to Username32123 and calstanford that not every for-profit business operates around the idea of don't leave money on the table and maximize profits.
Not true. Any small business selling to a larger business is used to being told how much to charge, because the large business knows they have the small business by the short and curlies. My two biggest customers regularly demand 5-10% price reductions per year. Doesn’t matter if my costs went up. If I want to stay afloat, I do what they say. This is how big companies (like Walmart and Apple) become big. They have all the stroke.
iOS is hardly a monopoly, there are other platforms that a developer could focus on and bypass iOS altogether; however the iOS market is quite lucrative and those developers enter it in hopes their product will be popular.
Apple's model has been a lot better for developers; it has eliminated the cost of physical packaging, back stock and writeoffs, cut out layers from the distribution channel so their margins went from 20-30% to 70%, made it easy to distribute instead of having to persuade stores to carry your product so smaller developers could get their product to market, and provided access to a much larger customer base. I'd argue the walled garden also provides developers with a fixed platform so they don't have to worry about having to make their app work with every possible combination of processor, graphics chip, etc.
However, consumers set demand and thus gross revenue; the company has to decide where the sweet spot is between market share and price.
There is competition; all across Apple's product line. People buy Apple because they perceive the value is worth the price. As long as Apple is perceived as providing sufficient value for it's price they will be able to command a higher price.
The partners made a choice to go with Apple and knew what that entails'; they could have said no as Snapper did to WalMart. Companies decide who to partner with; Stihl, for example, does not sell to big box stores but through a dealer network, The product's quality and after sale service allows them to not only charge a premium but stay out of big box stores as well.
Running a tech company like Apple means many high paid technical staff, large server farms, managing a complex supply chain, advertising, running retail stores, etc. Much more complicated than running a few storefronts.
Then they should do it for a platform that allows direct loading and bypass iOS.
They go to the App Store because it is a lucrative market that they don't want to forgo and enter some other market and go it alone.
Costco's model as a membership store seeks to maximize profit in other ways. They're big money generator is memberships, so to encourage renewals they must offer something in exchange for the membership costs, which is very competitive prices on quality products. They aren't always the lowest but overall they are, and their special events and sales offer even more value. Thus, members renew.
There are many ways to maximize profit, which is distinct from revenue. Costco treats employees well, because it generates long term employees who like working there and provide excellent customer service.
From Costco's perspective, these things are better drivers of profit than squeezing every penny out of a purchase price. As a very long term Costco member, I like their model but more importantly the value I get from buying there.
It sort of depends.
For Example, charging 30% for access, like Multi Education Class because you are streaming to 5 or more Students? Streaming Subscription when you dont own any of those Content but merely a Gateway? That is thing like Apple charges 30% because they are the Video player?
For Apps and Games I felt it is Ok.
There is a hell of a lot less overhead on an all digital marketplace. The percentage of profit on that 30% is ridiculously high vs supply chain retail.
The take away here is - we need to push back against their 15/30% cut because it is not based on ANY financial analysis regarding costs. It is completely made up with no justification. Developers losing 15/30% just cause DOES have a financial impact on us.
Everyone should be pushing against those fees. They are way too high.
Everyone should be pushing against those fees. They are way too high.
That is exactly what I have posted before too. Legally all "corporations" are obligated to provide the most return on investment to the shareholder, as the shareholders are the actual owners of the company. No business owner in their right mind would be willing to "leave money on the table" They can be nice about it and return excellent customer service, but they still need to get every dollar left on the table. I don't think 30% is a crazy amount, given everything on the back end. Most products for sale have way more mark up than that.
Hobby Lobby is not a corporation, it is a privately held companyThat's a false statement.
Corporations Don't Have to Maximize Profits - NYTimes.com
www.nytimes.com
There is a common belief that corporate directors have a legal duty to maximize corporate profits and “shareholder value” — even if this means skirting ethical rules, damaging the environment or harming employees. But this belief is utterly false. To quote the U.S. Supreme Court opinion in the recent Hobby Lobby case: “Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not.”
The Hobby Lobby case dealt with a closely held company with controlling shareholders, but the Court’s statement on corporate purpose was not limited to such companies. State codes (including that of Delaware, the preeminent state for corporate law) similarly allow corporations to be formed for "any lawful business or purpose,” and the corporate charters of big public firms typically also define company purpose in these broad terms. And corporate case law describes directors as fiduciaries who owe duties not only to shareholders but also to the corporate entity itself, and instructs directors to use their powers in “the best interests of the company.”
Serving shareholders’ “best interests” is not the same thing as either maximizing profits, or maximizing shareholder value. "Shareholder value," for one thing, is a vague objective: No single “shareholder value” can exist, because different shareholders have different values. Some are long-term investors planning to hold stock for years or decades; others are short-term speculators.
Also, most investors care not only about their portfolios, but also about their jobs, their tax burdens, the products they buy and the air they breathe. Which is to say, companies that maximize profits by firing employees, avoiding taxes, selling shoddy products or polluting the environment can harm their shareholders more than helping them.
I did not say iOS was a monopoly, I said the App Store is, and it is because there is no other way to distribute your apps within the OS. And also it was managed tyrannically just until a few months ago when Apple implemented the appeal process, before that they would just remove your hard-worked app without giving you many options.
Okay, you are not forced to buy their products. Do your due diligence and do product comparison. If the price is too high, buy a lower price product.
So they have a lower margin on their products. But don't forget that they have an additional revenue stream to help offset that, memberships. The stuff you posted even backs that up. So they don't just have lower prices for the benefit of their members, selling a membership is also part of that equation. It's like they're leaving money on the table, but also claiming whatever spills over onto the floor.
I suspect they're also doing what they can in their own way to maximize profits. They just have a different way of going about it.
Oh bother. Tell me what you are paid for your job and I will tell you if you make too much. Sounds like rubbish? Second guessing pricing is the same as second guessing wages - a silly generally self righteous effort. I would be happy to convince my boss to pay me more. I worry I am leaving money on the table. This is all normal behavior and nothing scandalous. Because in the end you don’t have to pay Apple anything. Ever.