Apple’s incoming CFO didn’t get much time to settle in before he found himself in court defending the company against a class action lawsuit. Kevan Parekh yesterday claimed that the company that it has no clue about its App Store profit margin.
This is a stance the company has taken before. Indeed, Apple Fellow Phil Schiller even went as far as to claim he didn’t even know whether the App Store made a profit at all …
UK antitrust lawsuits
Apple is facing two lawsuits in the UK, each alleging that the company abuses its monopolistic control over the sale of iPhone apps to charge excessive commissions.
The core argument of both is that, until recently, the only way a developer could sell an iPhone app and in-app content was through the official App Store. This gave Apple monopolistic powers over the same of iOS apps, and allowed the company to set its own commission levels which developers were forced to accept. That has changed to a certain extent in both the EU and US, but not yet in the UK.
A billion dollar lawsuit was filed on behalf of developers back in 2023, while a second one on behalf of consumers is being heard as we write.
Estimated profit margin on the App Store
It’s been independently estimated that Apple’s profit margin on the App Store is in the 75% to 78% range.
An expert witness in the Epic Games lawsuit back in 2019 estimated that the figure was 78%. A British expert in the current case calculated a figure of “more than 75%.”
If true, that would be well in excess of the profitability expected of even a premium business. Apple’s overall margins, for example, are around 37%. A figure of 75% plus would tend to support the claim that the company is able to charge excessive commissions due to its lock on the sale of iPhone apps.
Apple claims it doesn’t know
Apple’s response to these claims has always been that it simply doesn’t know the number. The reason for this, says the company, is that it doesn’t break down its Service revenue into different categories, so while it knows the overall margin for this sector, it doesn’t have a percentage for the App Store specifically.
That was the basis for Phil Schiller last year claiming he didn’t even know if the business was profitable at all, and even if it was discussed, the company doesn’t take minutes for meetings between senior execs.
The Financial Times reports incoming Parekh making the same claim yesterday when the 75% and 78% estimates were put to him.
Parekh replied: “I wouldn’t say they’re accurate.” In his witness statement, Parekh said Apple “cannot allocate all indirect costs to specific products or services”. He added: “Any attempt to allocate these types of costs would involve imprecise and subjective judgments.”
9to5Mac’s Take
The claim that a business of Apple’s stature doesn’t do simple profit-and-loss accounting on one of its most important divisions is hard to believe.
Senior company execs wouldn’t lie about it under oath, however, so the only credible explanation is that Apple doesn’t know this number because it doesn’t want to know the number. That can only be because it knows the profit margin is embarrassingly high and would damage its position in cases of this kind.
The case continues.
Photo by Jakub Żerdzicki on Unsplash
FTC: We use income earning auto affiliate links. More.
