The Top Five Reasons Why iPhone Has Become Apple’s Most Prized Business
Apple (NSDQ: AAPL) normally talks about a range of products during its annual Worldwide Developer Conference in San Francisco, but not this year — there was no announcements of new MacBooks and iPods were only mentioned in passing.
Instead, Steve Jobs was zeroed in on the new iPhone 4 and iPad, to deliver this underlying message: the iPhone — and other devices running the iOS — is their most prized division.
Here’s five reasons why:
1. Market potential: While the PC and laptop market has become saturated, there’s still plenty of wiggle room left in portable/connected devices. In the first 59 days the iPad was for sale, it was selling at a rate of one every three seconds. Apple’s Steve Jobs couldn’t have said it more clearly when wooing developers: Later this month, Apple will surpass 100 million iOS devices sold.
2. Advertising: On July 1, Apple is jumping into the mobile advertising business for the first time. In the past eight weeks, it has already secured $60 million worth of ads for the second-half of the year. While Apple claims it’s not in it for the money — but rather there to support the developer — it’s own piece of the pie is worth $24 million (40 percent). Not too shabby.
3. Apps: Jobs said it has now paid developers $1 billion for all the apps sold in the App Store. Based on the Apple’s industry-setting 70/30 split, Apple’s take away represents $430 million. It’s not gigantic, but it’s not trivial either. (Corrected: Thanks to everyone who pointed out the error. It’s $430 million, not $43 million).
4. Hardware: Just as with the iPod, all the ancillary businesses mentioned above are designed to juice hardware sales. And, the iPhone has something going for it that computers and music players don’t: Subsidies. Apple has found another company — namely AT&T (NYSE: T) and other international carriers — that are willing to discount the hardware, making their high-end devices more affordable to the masses. While end-users pay in the range of $199 per device, Apple reports the average selling price is closer to $620 each.
5. Revenues: The iPhone now represents Apple’s largest division by revenues. In the most recent quarter, iPhone and accessory revenues totaled $5.45 billion, compared to laptops and desktops which saw revenues of $3.76 billion. We don’t even know what iPad will do yet. Add all this up, and Apple became the largest tech company in the world by market capitalization, beating Microsoft (NSDQ: MSFT) last month.
We’ll be addressing some of these themes during our next conference, PaidContent2010 Mobile: Leveraging the Smartphone Boom, July 20 in New York City. You can find out more about the agenda and register at http://paidcontent.org/event/mobile2010/.
apps should be accounted for 430 million instead of 43 million.
Let me add three more reasons:
6. Digital media: Apple has become the king of digital media distribution in music. Movies, TV shows, podcasts and now e-books are icing on the cake and perfectly suited for consumption on iDevices. Interestingly, Apple doesn’t hinder anyone from importing non-DRM content for any of these areas like Sony, Microsoft and the telcos tried to do. Apple even has a “Create Ringtone” command in Garageband.
7. Peripherals: Apple makes a cut of every “Made-for-iDevice” peripheral.
8. Third parties: In spite of their “walled garden” approach, Apple has made it possible for third parties to make gobs of money in the walled garden. And if they don’t like the walled garden, they can still set up shop in the public park across the street known as HTML5-Land to tap into the riches of the iDevice universe.
9. Independence from third parties: Right now, the iDevice universe is only dependent on one other strategic third party in the USA. AT&T. Otherwise, no one else I can think of, has a strategic part in the iDevice universe. This situation is completely different from around 10 – 15 years ago when Apple was almost completely at the mercy of doofuses like CompUSA, Sears, Adobe, Microsoft, Avid, etc. This is THE reason Apple didn’t want Flash on the iDevices. They didn’t want to wait around for Adobe with every major OS upgrade.
Okay, I lied. Four more reasons.
Sloppy math eh?
“8. Third parties: In spite of their “walled garden” approach, Apple has made it possible for third parties to make gobs of money”
Fix:
“8. Third parties: Because of their “walled garden” approach, Apple has made it possible for third parties to make gobs of money”
Sorry, when I did maths many years ago Apple’s revenue from the App Store would have been $430 million – not $43 million – based on sales of one billion. Perhaps that’s inflation for you.
The math in #3 above is definitely incorrect… $430 million isn’t small potatoes on $1 billion… check your math.
What percentage of the iPhones revenue comes from subsidy payments from AT&T?
If ATT exclusivity goes away it seems unlikely they will pay a premium subsidy.