The things you state as facts are your estimates. Apple has never published numbers on their costs as far as delivery cost, billing cost and operating expense. What if delivery cost were .05 and billing cost only .10. That would change the net profit by .07 per .99. Your data is not 100% accurate so don’t portray it as fact. As far as the Ifund, I don’t think the funds came from Apple. According to the Ifund FAQ
“Kleiner Perkins Caufield & Byers (KPCB) has earmarked $100 million for this initiative and it will be managed by KPCB’s partners. Apple will provide KPCB with market insight and support.”
You make some reasonable assumptions, but save the hyperbole. My guess is Apple has about a 10% Net profit on the App Store which is similar to Music store.

There are 300,000,00 Americans.

6,000,000/300,000,000 = .02

2% of American have iPhones.

98% of Americans do not have iPhones.

Apple also does not care if they make money with ITMS.

These are both about tying users to a hardware platform.

Apple does like to sell hardware at 50% gross margin.

Did you even read the details of my post?

I stated that the mobile apps range from free to above $10.00! I only used an $0.99 app as an EXAMPLE to demonstrate the breakdown of the economics of the store to show you that the net profit per app after variable and fixed costs is around breakeven or a maximum of $0.02 or around 2%.

The data is 100% accurate…I won’t say any more than that.

MG was saying that the analyst was way out with his estimate of $20-45m and saying that it shoud be higher, more like $90m. However, there is no real breakdown or detailed analysis of how MG arrives at his ‘estimate’.

There are approximately 20,000+ mobile apps in the store.

The current price distribution breakdown and number of apps in that price range is:

4,660 Free
8,153 $0.01-0.99
2,712 $1.00-1.99
1,291 $2.00-2.99
553 $3.00-3.99
1,134 $4.00-4.99
227 $5.00-5.99
92 $6.00-6.99
120 $7.00-7.99
39 $8.00-8.99
613 $9.00-9.99
803 $10.00 >

The way the store is currently designed, only 100 apps are highly visible which means people are competing for positioning in this top 100 by driving down their price which drives down Apple’s margin and therefore keeps the net profit very low to breakeven. Apple are NOT in it to make a profit from the store as stated by Apple. They simply use it to sell more iPhone which is what they are truly monetising for profit.

75% of the top 100 apps are there because they are between free or up to $0.99. This competition for the top 100 visibility is fierce and as stated, for developers to get visibility they need to keep the price low which is driving down the prices and inevitably it will deter developers from investing. This is unless Apple can come up with a better way of exposing the depth and breadth of apps in the store (consumer discovery), create premium categories, create promo opportunities outside of the top 100 and or possibly differentiate revenue share is developers invest in promotion / marketing etc.

The ratio is the ratio – for evey 11 downloaded apps only one is paid for.

If you have ever worked in marketing you will know that YOU are NOT your customer. Your behaviour means means very little in the total scheme of the economics and customer behaviour associated with the store.

My estimate of net profit to Apple from the store is between $0 and $20m in Year 1, more likely between $0 and $7.5m. But, as I said if you factor in sunk costs to establish the store, the $100m iFund etc it will be 2-3 years minimum before Apple sees any return on investment just on the store itself. But once again there aim is simply to breakeven or just above.

The average person I know has at least 3 paid apps on their phone …

Let’s look at 3 of mine as an example:

(I have more paid apps, but for attention span we’ll look at 3)

Crash Team Racing $4.99 … In the recent “Billion Song Celebration” this was listed as one of the top 5 paid apps. Not .99 cents.

Tetris $4.99 … No gaming device is complete without Tetris … Also celebrated in “Billion Celebration” as a top 5 app downloaded not just “in all” … Not a .99 cents app.

iBird Explorer Pro $29.99 … This app is being featured on an iPhone commercial. I have it. I work in Best Buy with Apple products … greater than 50% of the over 25 crowd buying an iPhone are buying the it because of that commercial (in my store) They want that app and the compass app (which I also have and is also NOT .99 cents)

So let’s extrapolate a little bit … The apps mentioned above are very high volume downloads for every 5-30 downloads of these apps, 5-30 free apps could be downloaded and Apple profits.