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Comment by vlovich123 | Hacker News Reader

What’s the typical margin in physical retail stores, particularly with respect to software (eg video games)? It’s hard to find. All the things I found are about profit margins not what the price breakdown is at the point of checkout.

I think 30% has been ridiculously high although I don’t know what a fairer margin is. For what it’s worth Apple has managed to maintain a 30% profit margin (not just sales) on the hardware they sell which is unheard of in the consumer electronics industry (everyone else is struggling to just barely make money in phones and mostly losing while others are taking a much more modest cut in other categories). Partly it’s branding. Partly it’s savvy business practices. Partly it’s immoral business practices.

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I don't know what percent is fair, that's for the market to decide. There needs to be competition though.

My partner works in buying for physical retail (caveats: nothing to do with software, also she’s generally worked mid market and above, rather than anything high volume/low cost) and I believe _margin_ is often 30-60%, or a range similar to that. Larger retailers will also have agreements with suppliers where the margin is stipulated, I believe per SKU.

Obviously the comparison is slightly Apples to oranges, as physical retailers have massive overheads/COGS that Apple don’t incur for the App Store.

Those physical retailers aren't paying engineer salaries to sit around and develop new IDEs, develop the app store ecosystem, content moderators etc. I think people see "zomg - I'm paying Apple 30% for their app store" without realizing the end retailer often charges a fairly large markup to run their part of the business.

apple can charge whatever they want once they allow alternatives for competition.

The point is none of the third party app stores pay for any of the platform development, so why should they get to benefit from them?

the platform development comes with sale of the platform - which is to say the customer has already paid to have it developed by buying the phone.

Many developers don't want to have apple be their gatekeeper for apps. They should be able to have alternatives. Apple's rent seeking behaviour is to take platform development in the cost of the device and again to distribute apps without any alternative.

I agree and this debate is infuriating. They got paid when I bought their hardware. I should owe them nothing more to use the device after that point.

It's already a competitive landscape. If you feel Apple is unfairly charging you extra for something, then you have a myriad number of Android and other phones to choose from.

On the other hand, if Apple's model allows them to better compete with others and create a superior product that people want ... well then, it's ridiculous to mandate they should do business a different way.

>Apple's model allows them to better compete

their business business model allows them to compete because they're rent seeking by grazing off developers and apps that dont want or need their app store, payment processor, etc.

Wow who knew rent seeking was massively profitable, huge surprise!

So you think the Samsung model is correct? That is, devices shouldn’t receive any updates after the initial purchase?

I will accept the argument that apple’s gatekeeping is ridiculous, a lot of that is the bizarre prudishness of the US, but saying that apple should not be compensated at a rate that is generally below the market - the majority of apps on the AppStore are freemium from which apple makes nothing, the remainder are mostly only paying a 15% commission. This is vs 30% or so on game consoles, 30% on steam, etc.

apple is free to charge what they wish for the app store, and support phones for as long as they wish, so long as alternatives are possible.

So you do support the Samsung model? Where the only way to get security updates is through buying a new phone?

you're offering a false equivalence that isnt required for my argument to be true, so I'm going to say 'i never said that, you did,and you never managed to make a logical argument out of it yet'.

> The point is none of the third party app stores pay for any of the platform development ...

Isn't that because Apple doesn't allow for third party repos/stores/etc?

If that changes after all (I'm personally hoping it does), then it would make sense that the new alternative store(s) would have their own overheads (development, running costs, etc) and would have their own fees.

That seems sensible, yeah?

The other stores wouldn't be paying for the ongoing development and maintenance of the iOS, UIKit, OpenGL/Metal, etc. That stuff is NOT cheap to develop and maintain. The final app that you see is trivial compared to the mountain of libraries and frameworks that Apple provides.

> The other stores wouldn't be paying for the ongoing development and maintenance of the iOS, UIKit, OpenGL/Metal, etc.

Sure. And who cares? That has nothing at all to do with the App Store fees. :)

people who buy the phones pay for ongoing development and maintenance of ios and apple's software.

On the other hand the physical stores aren’t developing any of the technology used in what they sell?

I don’t know about markups but in most industries businesses would envy a 10% profit margin.

Finally found something [1].

> When setting your wholesale price, first multiply your cost of goods by two. This will ensure your wholesale profit margin is at least 50%. Profit margin is the gross profit a retailer earns when an item is sold. Apparel retail brands typically aim for a 30% to 50% wholesale profit margin, while direct-to-consumer retailers aim for a profit margin of 55% to 65%. (A margin is sometimes also referred to as “markup percentage.”)

So 50% is about normal for retail goods. Yes yes. They have physical merchandise they need to manage. Apple has engineers they need to pay to do their virtual distribution. Maybe 30% is excessive. Certainly that they're the only store and hold a monopoly on the things they allow people to do on their platform is probably fueling that margin to be higher than it should. However, if we look at Steam[2] and other console manufacturers, we see similar 30% markups. Maybe everyone is just copying Apple's lead here as "customers will swallow this". Or maybe Apple figured out a good virtual store distribution model and this is the markup needed for a sustainable thriving business.

[1] https://www.shopify.com/retail/product-pricing-for-wholesale... [2] https://www.ign.com/articles/2019/10/07/report-steams-30-cut...

Do note that the 30% cut is actually a 42% (30/70) markup.

The argument that 30% is excessive and a product of their monopoly is bullshit.

1) the majority of apps don’t pay apple a cent because they make their money off selling user information

2) of those that remain most likely aren’t reaching the income point where it stops being 15%

3) 30% matches the payments of every other store, except those stores that don’t pay for any of the platform development. It’s super easy to charge next to nothing when you don’t have to pay actual engineers to make actual products.

> the majority of apps don’t pay apple a cent

Every app in Apple’s App Stores makes them a minimum of 99USD/year, the cost of an Apple Developer account.

That's a trivial amount to enable Apple to provide documentation and tooling support for developers. I doubt it comes anywhere close to paying for all the libraries and frameworks they develop and maintain.

But you can publish multiple apps with one account

Why do you think Apple still makes Macs? According to your argument it should be a net loss for them.

People often complain about the markup on Macs, so it seems reasonable to interpret that as a higher margin being used to compensate for the lack of ongoing revenue. Higher margins are the obvious (only?) alternative to ongoing commission revenue - that obviously puts Apple at a disadvantage compared to

* Google, who makes money by harvesting information from every android user; or

* Samsung, etc who don't pay the cost of developing a platform

* Steam, GoG, etc who literally only operate a store front, yet still take 30% cuts. They don't even have significant proportion of free games - and the games that they do have are frequently > $50 so their per-sale absolute revenue is insane.

* The various console platforms, because somehow consoles are magically different from everyone else

* Microsoft (ignoring consoles) who charges for their OS, and despite that seems hell bent on putting ads into the OS

Are margins on Macs higher than on iPhones? I’d assume at least with Intel they were lower than for iOS devices.

Also basically all Apple’s direct competitors both in the PC and smartphone businesses operate on paltry margins in comparison to Apple. They usually sell a mix of low/high margin products though, e.g. most premium Dell or Lenovo laptops are priced at similar levels to Macbooks (of course their real price might significantly lower due to infinitely better customizability and reparability options). And almost none of them have significant additional revenue streams (not to a degree comparable to Apple). Yet they are still in business.

Apple would be able not to only to survive but to still thrive if they significantly cut their margins and the app store tax. Of course it would not be fair or sensible to expect any company to leave free money on the table. This is why we get ads in Windows, seem like most users dont’t really mind them too much (to be fair I’m not sure I have actually seen one, maybe it’s a windows edition and/or country thing.

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