Apple’s new CFO was swiftly thrust into a courtroom, where he was tasked with defending the company in a class action lawsuit. Kevan Parekh stated that the company lacks clarity on its profit margin from the App Store.
This isn’t the first time Apple has adopted this position. Apple Fellow Phil Schiller previously asserted he was uncertain whether the App Store was even profitable…
Antitrust Lawsuits in the UK
Apple is currently dealing with two lawsuits in the UK, both claiming that the company exploits its monopolistic hold on the sale of iPhone apps by imposing excessive commissions.
The primary contention in both cases is that, until recently, developers had no choice but to sell iPhone apps and in-app purchases through the official App Store. This situation granted Apple monopolistic authority over iOS app sales and allowed it to dictate commission rates that developers had to comply with. Although there have been some changes in this regard in the EU and US, the status quo remains in the UK.
A billion-dollar lawsuit was initiated on behalf of developers in 2023, while a second lawsuit representing consumers is currently in process.
App Store Profit Margin Estimates
Independent estimates suggest that Apple’s profit margin on the App Store falls between 75% and 78%.
An expert witness during the Epic Games lawsuit in 2019 proposed that the margin was 78%. A British expert in the ongoing case has calculated that it’s “more than 75%.”
If accurate, this figure significantly surpasses the profit margins typical of even premium businesses. For context, Apple’s overall margins hover around 37%. A profit margin over 75% could substantiate claims that the company charges excessive commissions due to its control over iPhone app sales.
Apple’s Claims of Ignorance
Apple has consistently maintained that it is unaware of the specific profit figures. The company explains that it doesn’t segregate its Service revenue into distinct categories; while it understands the overall margin for that sector, it lacks a percentage specifically for the App Store.
This was the foundation of Phil Schiller’s statement last year, where he suggested he didn’t even know if the business was profitable. He noted that the company does not keep minutes of gatherings among senior executives discussing such matters.
The Financial Times reported that incoming CFO Parekh echoed this sentiment yesterday when questioned about the 75% and 78% estimates.
Parekh stated: “I wouldn’t say they’re accurate.” In his testimony, he indicated that Apple “cannot allocate all indirect costs to specific products or services.” He elaborated: “Any attempt to allocate these types of costs would involve imprecise and subjective judgments.”
DMN’s Perspective
The assertion that a company of Apple’s magnitude does not engage in straightforward profit-and-loss tracking for one of its most crucial divisions is difficult to comprehend.
While senior executives would not commit perjury, the most plausible explanation is that Apple is unaware of this figure simply because it does not want to know it. This could stem from an awareness that the profit margin is significantly high, potentially jeopardizing its standing in related legal matters.
The legal proceedings are ongoing.
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