The App Store
Back in June, Horace Dediu took a look at 9 years of numbers for the App Store:
The App Store is almost 9 years old. In that time it has generated about $100 billion in revenues, of which about $70 billion has been passed on to developers and $30 billion was kept by Apple. It’s very likely that running the App Store for 9 years did not cost $30 billion so, if it were an independent “business unit” it would probably have been and still be quite profitable.
But Apple does not run “business units” with separate Profit and Loss statements. The App Store is a part of Services which is an amalgamation of non-hardware sources of revenues but that does not mean it’s a business. The purpose of Services isn’t to turn a profit or define its value through some metric of financial performance.
The purpose of Services is to make the experience for the Apple user better. The combination of good experiences allows Apple to be perceived as a valuable brand and that allows it to obtain consistently above-average profitability through pricing power. I like to emphasize that the iPhone at over $600 in average price is more than twice the average price of all the other smartphones and captures over 90% of all available profits.
The fact that Apple doesn’t have business units is important and it’s what makes the company so hard for analysts to define and for competitors to compete with.
At the end of the day, yes, Apple is a company that manufactures physical gadgets but like Dediu points out, if you take away software or services from the equation, Apple falls apart.
It’s all connected.