The newly appointed CFO of Apple wasted no time before finding himself in the courtroom, where he defended the corporation against a class action lawsuit. Kevan Parekh claimed yesterday that the company has no concrete knowledge regarding its profit margins from the App Store.
This position is not new for Apple. Apple Fellow Phil Schiller has even gone so far as to assert that he is uncertain whether the App Store yields any profit whatsoever…
UK Antitrust Lawsuits
Apple is currently contending with two lawsuits in the UK, with each alleging that the company exploits its monopolistic dominance in the app market by imposing excessive commission fees.
The primary contention of both cases is that, until recently, developers were limited to selling their iPhone apps and in-app purchases exclusively through the official App Store. This scenario granted Apple monopolistic leverage over iOS applications, allowing it to set commission rates that developers were compelled to accept. Although changes have occurred in the EU and US, the situation remains unchanged in the UK.
A billion-dollar lawsuit was initiated on behalf of developers in 2023, while another case representing consumers is currently underway.
Estimated App Store Profit Margin
Independent estimates suggest that Apple’s profit margin from the App Store falls between 75% and 78%.
In 2019, a witness for the Epic Games lawsuit approximated this figure at 78%. A British expert involved in the ongoing case has stated that the profit margin exceeds 75%.
If these claims hold true, they significantly surpass the profitability typically expected from even high-end businesses. For context, Apple’s overall profit margins hover around 37%. A margin above 75% could bolster claims that the company levies excessive commissions due to its control over iPhone app sales.
Apple Claims Ignorance
Apple’s consistent rebuttal to these allegations is that it simply does not possess the relevant data. According to the company, it does not segment its Service revenue into distinct categories, meaning while it understands the overall margin in this sector, it lacks a specific percentage for the App Store.
This assertion aligns with Phil Schiller’s statement last year, where he expressed uncertainty about the profitability of the App Store business and mentioned that the company does not keep minutes from discussions among senior executives.
The Financial Times reported that Parekh reiterated this claim yesterday when confronted with the 75% and 78% estimates.
Parekh responded, “I wouldn’t say they’re accurate.” In his witness statement, he explained that Apple “cannot allocate all indirect costs to specific products or services.” He further noted, “Any attempt to allocate these types of costs would involve imprecise and subjective judgments.”
DMN’s Perspective
The notion that a company of Apple’s caliber does not conduct straightforward profit and loss analysis on one of its most critical divisions seems implausible.
While high-ranking executives may not lie under oath, the only plausible explanation appears to be that Apple genuinely does not wish to know the figures, likely because it is aware that the profit margin is embarrassingly high and could harm its position in such legal matters.
The legal proceedings continue.
Photo by Jakub Żerdzicki on Unsplash
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