updated 08:58 pm EST, Tue February 11, 2014
If it were independent, iTunes would rank 130th on Fortune 500
A new analysis of Apple's iTunes and iTunes-related businesses (music sales, video sales and streaming, e-books and most importantly apps) by Asymco's Horace Dediu has revealed that it is, on its own, one of the world's most valuable businesses -- and would be ranked at 130 on the Fortune 500 if taken separately from the rest of Apple. In addition, Dediu says that iTunes' revenue is about half that of Google's search business, and growing slightly faster.
In 2013, the App Store portion of the iTunes empire became the most valuable, eclipsing the music portion for the first time. App sales grew at a rate of 105 percent over the year, while music declined by 14 percent. Even as Apple reduced the price of the iWork apps (for new buyers) and OS X Mavericks (for all compatible devices) to free, software and services continued a strong growth streak. Ignoring the 70 percent of app revenue developers make off paid apps (and the additional monies from in-app purchases and advertising), Apple reported more than $10 billion in net sales from the iOS and Mac App stores alone.
To put that in context, the app stores alone saw higher revenues than casino giants MGM and Caesar's, and even more than credit card firm Discover, or pharmaceutical company Eli Lilly. The overall revenue of the full iTunes empire, at $23.5 billion, tops US Steel, Xerox and television network CBS among others -- and grew at a rate of 34 percent overall in 2013, reports AppleInsider. That revenue figure is about half that of Google's ad-driven search business.
Dediu points out that making the iWork apps and Mavericks free for most users did have a cost -- about $350 million in potential lost revenue in 2013 -- but that app growth overall along with revenue increases in other areas far more than made up for the "gift" of Apple's price drop. More remarkably, the billions generated by the iTunes business does not include hardware sales at all. Businessweek recently claimed that Apple's iPhone business, if it were a standalone unit, would be larger than Microsoft, bigger than McDonald's and generate more revenue than even Coca-Cola.
Asymco's analysis does not comment on the profitability of the various iTunes enterprises, but Apple has said that the business is profitable, having emerged from a "break-even" proposition some years ago. Indications, however, are that Apple doesn't make significant profits from iTunes compared to its other businesses, but that is by design: nearly all of the money generated by sales in iTunes goes to the creators or rights holders, with Apple taking a 30 percent cut to cover the various expenses associated with the stores and their infrastructure. It is only the services' enormous growth that has allowed Apple to see noticeable direct profit from the enterprise, rather than the continued indirect rewards it is designed to reap -- including customer lock-in, developer loyalty and a full eco-system of associated hardware and software.