App Store generates 78% profit margin for Apple, an Epic expert claims

As per testimony from an Epic Games expert witness, Apple’s App Store generated a 78% profit margin in 2019. This information has been deduced from documents obtained from Apple, as part of the trial which will take place from May 3.

Apple App Store

Apple refutes App Store profit margin claims by Epic Games expert witness

As reported by Bloomberg, Ned Barnes, a financial and economics researcher and expert witness for Epic Games, worked out these calculations based on documents prepared by Apple’s Corporate Financial Planning and Analysis group, which also included data from Apple CEO Tim Cook’s files. The intention behind Ned Barnes’ claims is to show that Apple abuses its dominant market position by charging 30% or 15% commission fees to developers.

Even though an Apple employee told Barnes that the company’s documents do not present the full picture, he went ahead to perform additional calculations to come to the conclusion that Apple had even higher profit margins of 79.6% in both 2018 and 2019. As per Barnes, Apple has been tracking App Store profit for years and he even has statements for 2013 through 2015, however, those numbers have not been disclosed.

Apple has refuted these claims and said that it does not “allocate costs for the App Store”, and any internal documents that discuss its revenue do not include expense. The company also does not treat it as an isolated business but as an integral part of iOS. Kyle Andeer, Apple’s chief compliance officer, said, “When we look at the App Store, it’s not a separate standalone business for us. It’s an integrated feature of our devices.”

Apple CEO Tim Cook also said during his pretrial testimony, “Apple’s business is not structured that way that allows a person to push a button and obtain an App Store profit and loss statement.”

Richard Schmalensee, a Massachusetts Institute of Technology economics expert and witness for Apple, echoed the company’s position and said, “estimate of the App Store’s operating margin is unreliable because it looks in isolation at one segment of the iOS ecosystem in a way that artificially boosts the apparent operating margin of that segment.” He added that “any accounting measure of the App Store’s stand-alone profitability is also arbitrary and thus unreliable as an indicator of anything.”

Apple has requested U.S. District Judge Yvonne Gonzalez Rogers to disallow App Store financial data be presented during the trial, stating that it may “unduly confuse the securities markets and participants in those markets, including the many pension funds, mutual funds, and other ordinary investors who own Apple stock.”

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