Friday, March 07, 2008

Explaining The 70/30 iTunes App Store Split

An insightful MacRumors reader about the 70/30 split on revenue Apple is offering for paid applications that will apear on the iTunes Applications Store in June 2008:


The last time I saw a breakdown, the iTunes Store $ (for a song) went something like this:

$.03 to the credit card company (special rate for Apple)
$.02 profit to Apple
$.25 Store Costs, Servers, Bandwidth, Admin (some Apple, some 3rd Party)
$.70 Record Label

The record label pays the artist $.10 (and bitches at Apple to let them charge more than $.99)

I suspect the breakdown would be (somewhat) similar for games and other apps sold and distributed by 3rd party "software" labels

Lets just look at a few costs that you might incur if you were to sell your app on your own site:

$25 month web site development ( $500 prorated over 20 months)
$15 month web hosting
$100 month Shopping Cart ($2,000 prorated over 20 months)
$25 month download & encryption software ($500 prorated over 20 months)

7% credit card costs per transaction.... if you could even get a merchant account and accept credit cards (Prolly requires maintaining a minimum $25,000 balance in an account, and $1,000 up front)

So, after several months preparation, with several thousands $ spent, out of pocket, you are now ready to sell some apps.

Oh, how will anyone find you... Simple, You advertise (invest in future sales). What's a reasonable amount to spend per month $10? $10,000?

Gee, that $99 and 70/30 split starts to look like a pretty good deal!


Anonymous said...

I have a pretty standard merchant account. The "card not present" rate is about 2.5%, plus about 40 cents per transaction. No where near 7%. Plus, I don't have any money being held in a bank account. Even still, anyone can get paypal which charges 2.9%. But honestly, the biggest fault in your logic is that if it were actually so expensive to sell software, Mac developers would already be up against this problem and begging Apple to sell the apps for them at a 30% cut.

Anonymous said...

i didnt notice that was some one else's post you quoted. well he's still way off.

FYT said...

actually his analysis matches what one of my clients gets ( my client is an extremely popular musician with his own label)

FYT said...

I do disagree with the credit card charges ... Apple has a better deal than that. But he is spot on about a developer averaging 7%

Anonymous said...

His figured for iTunes music are exactly what I've heard elsewhere. I'm not disputing that at all. What is wrong is the figures he calculates for selling iPhone applications.

Merchant accounts cost no where near what he says. Actually, they're free. I didn't put a deposit. It's a matter of a credit check. But even if you can't get a merchant account there is PayPal, or CCbill or Google Check out or a dozen others. The rates are not 7%.

Then he has hosting costs and website development. Think about your typical iPhone developer... are these people who have never written software in their life and need to suddenly get a webserver, hire a designer, etc etc etc? Of course not. The bulk of them are already Mac software developers. They have servers for selling their Mac software.

What Apple's App store gives them is exposure. That's a valuable thing. It may be very hard to find the particular iPhone app you want without the App Store. But let's not hide behind it saying 30% is fair because that's about what it costs a developer to host and sell software anyway. It doesn't. The reason the App Store is worth 30% is because your App is now in front of every iPhone owner, they don't have to go searching for it.

FYT said...

actually ... there is NO such thing as a free merchant account ... If apps are being targetted for .99 - 7.99 as I've heard ... And the average merchant account takes out 25 cents + 1.5% - 2.5% of transaction EVEN for a $1 transaction. For a $1 transaction if we used Paypal's best rate (which is what I get by the way) then a 99 cent app has just cost you around 27 cents just to process the payment. Now ... If you have a merchant account it's 25 cents + 1.5% - 2.5% + equipment lease + having a required landline telephone + the hassle of processing ( called "batching out") + the hosting( which could be significant with a good app) + the advertising. 7% ( even for a good merchant) is probably a fair figure for the credit card processing for someone who has an account that is 5 years or newer. Now ... this isn't what it's costing Apple ... but it is certainly in line with what it would cost you ... A 70/30 split is what I offer my customers to sell something on ebay for them and that leaves me with about a 15% profit / them the full 70%

Anonymous said...

You're wrong. Retail merchant accounts and Card Not Present accounts work much differently. I lease no equipment, I don't have to batch out, that's handled by the gateway. It comes down to the price of your app. Instead of 99 cents, lets go with $9.99 a more reasonable figure.

25 cents processing plus another 2.5% so another 25 cents. That's 50 cents to sell something for $9.99. That's 5% not 7%. But even if it were 7% or 10%, where does that turn in to 30%. It doesn't.

My rate since the day I got my account has been 2.46%. 7% is insane. I challenge you to find an actual merchant account provider charging more than 4%.

I sell software online. I know what the costs are. My software sells from $4 to $30. My average expense for selling the software is 10%, the other 90% goes to me. Hosting, merchant accounts, designers. These are not 30% of my costs. It's insane to say Apple's 30% cut is fair on a hosting/processing basis. On a marketing/advertising basis it might be argued that it's fair. But no developer spends 30% of each sale on hosting and processing.

Anonymous said...

The last time I heard the words "70/30 split" it ended up being "50/50 split and we sue you for the other 50." I hope it doesn't work that way with Apple.

FYT said...

you paid a set up fee / there's no such thing as a free merchant account - if it's free ... it has high per transaction costs. Apple is doing all the accounting too and just sending you a tax statement at the end of the year that you can ADD to your current income. Hosting & bandwidth costs at minimum $14.95 a month and that's most likely a "you monitor & maintain" service. I posted this ( I didn't write it) but I think its a very fair look at the breakdown. Apps above $4.99 will have to be very very good AND useful ... I think you will find the average price settling between $1.99 and $7.99 SO your figure for 5% isn't correct. I appreciate your input into this as I am very interested in the information for possible app development myself. I'm not quite sure why you are getting offended and upset ... I have a lot of experience with accounting, hosting, merchant account costs for an online business. Also aside from advertising, consider designing web pages etc etc. You will instead be able to have a page with a link that will launch iTunes ... you won't have to build an installer, you won't have to worry about a copy/piracy protection scheme or registration. There's a lot more advantages Apple is giving than just advertising. Apple taking 10% (which is essentially what they get on songs after costs) is not only fair - its an amazingly low cut. Take into account that Apple is also licensing "one click" for you and giving you instant access to one of the largest customer database with easier than eBay buying. Furthermore, give Apple a small amount of credit for designing iTunes, the app store and promotions on tv that are certain to come ... Not to mention a mention on 1000's of popular websites if you have an awesome app that honestly I know I'd never mention if they were not approved and checked by Apple.

Anonymous said...

I'm upset because you're using false information to justify Apple's cut. Let's not talk about merchant accounts, let's use PayPal instead. No setup fees, they take 25 cents plus 2.9%. Now for hosting? $15 a month? are you out of your mind??? .Mac is $99 a year or $8.25 a month. That'd work just fine for hosting an iPhone app. But still, how many developers of iPhone apps need to get MORE hosting? They already have web hosting. There is no added expense to add an iPhone app to their existing product line / store.

Your theory that selling software is difficult and paying Apple 30% is a good deal is easy to disprove... if this were actually the case shareware developers would be asking Apple to create a "Mac app store" for them and take 30%.

FYT said...

why as a developer are you posting as anonymous ?

Anonymous said...

.Mac has bandwidth limitations and is down or slow often