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The Daily Californian: Singing a Different Tune

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By Dennis Lloyd

Publisher, iLounge
Published: Thursday, November 20, 2003
News Categories: Apple

“It’s a little known secret that Apple barely makes money off iTunes, despite the software’s popularity—nearly all revenues still go toward the copyright holders: the music labels.

By luring people in with the free iTunes, Apple put itself in a position to sell them its popular iPod mp3 player which is uniquely compatible with the iTunes software and is selling like hot cakes. Each $499 iPod brings in $175 in profit.”

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Comments

1

How novel is this!
Practically give away the software, but make a profit on the hardware!
Totally opp to videogames business
If this is true (have doubts over profit level), shows how far ahead of the curve apple is

Posted by tariq ali on November 20, 2003 at 9:59 AM (PDT)

2

right. just ask bill gates if software isnt the key to a company staying competitive. another classic blunder by apple to promote only the hardware aspect of its business. it seems that everyone else makes money off of Apples ideas except them. if we dig deep enough people will see that apples profit margin on iPods are just too great to justify its high price. gotta love that chinese slave labor.

Posted by Jaguares in Bay Area, Ca on November 20, 2003 at 11:14 AM (PDT)

3

Gee, Apple is one greedy company, 35% profit is quite a feat. That is $350 milla on the romoured $1bn ipod sales. iTunes on the other hand, with sub-10% profit at most, especially on penny items will not bring in the dough. Anyway they are onto something good, and hopefully they put some money back into R&D. I just wish they would not apply the scorched earth tactics to their customers who bought a generation old iPods. It really does not build confidence that the current version will receive any support when the next one comes out…

Posted by pbox on November 20, 2003 at 11:18 AM (PDT)

4

“Apple is one greedy company, 35% profit is quite a feat”

Actually, this is sub-standard for high-tech. Apple has traditionally enjoyed some of the highest margins in the business. Back when they had a GUI monopoly they enjoyed 60%+ margins. Their financial woes in the mid 90s were due to them descending to around the 50% margin level, and their cost structure was simply not suited to such poor pickings.

Because they selected the iPod from off-the-shelf designs and proprietary parts, their initial margins were razor-thin. PortalPlayer took a big chunk of change for the circuit board, and toshiba the rest for the hard drive.

Only now are their margins for the iPod rising, but they are still way below a level Apple feels comfortable with. Steve Jobs reduced Apple’s spend on R&D by nearly 50% over the past 3 years so they can deal with moving to a low-margin business like consumer electronics, but they stil have to price high to meet payroll. Selling cheaper iPods is not on their wish list for a long time!

Posted by adamsmith on November 20, 2003 at 11:43 AM (PDT)

5

Trying to assign a business motive to iTunes might be a fruitless exercise.  Steve Jobbs is a technologist, not a business man.  Remember Next?  It was beautiful, interesting and got him on the cover of Time but he didn’t make a dime.  Sound familiar?

Posted by rci on November 20, 2003 at 2:30 PM (PDT)

6

I remember Next…

Sold it back to Apple as I recall…

Posted by northernlights on November 21, 2003 at 5:47 PM (PDT)

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