Figuring Apple's App Store gross profit

Piper Jaffray analyst Gene Munster reckons that since its launch, the contribution by the iTunes App Store to Apple's total gross profit is just $189 million.

John Paczkowski

Apple's iTunes App Store may be the biggest mobile application around, but it's not much of a revenue generator for the company.

The company claims it runs the App Store at "a bit over break-even" and, according to an analysis by Piper Jaffray analyst Gene Munster, that is indeed the case. Extrapolating from metrics provided CEO Steve Jobs during his WWDC keynote earlier this month--$1 billion paid to developers for 5 billion free and paid app downloads--Munster figures the App Store has contributed only $189 million to Apple's total gross profit since it launched.

That's about 1 percent of the company's $33.7 billion gross profit during the same period.

"Using a pricing scheme similar to iTunes, with 70 percent ($1.04) to the developer, $0.20 plus 2 percent of the ASP ($0.23) to the credit card company, and 1 percent ($0.02) per app for processing (storage & delivery), Apple's App Store gross margin on revenue from paid apps ($428 million since launch) is about 44 percent, or $189 million in gross profit," Munster explains. "This does not factor in the roughly $81 million Apple has spent since launch to store and deliver the 4 billion free apps that have been downloaded."

So while App Store sales are through the roof, Apple's certainly not making a killing from them. But that's never been the point, anyway. Like iTunes itself, the App Store's purpose is to drive hardware sales. It's a secondary business.