Investor Alert

June 3, 2021, 2:51 p.m. EDT

As Epic fight puts all eyes on App Store revenue, Apple offers numbers that aim much larger

By Jon Swartz

Amid scrutiny from regulators and developers, Apple Inc. gave numbers on Wednesday that illustrate the immense size and scope of the App Store, but again avoided providing hard figures for revenue and profit from the online marketplace.

The App Store ecosystem “facilitated” $643 billion in global billings and sales last year, up 24% from $519 billion in 2019, according to Analysis Group, a third-party research organization hired by Apple (NAS:AAPL) to conduct the 30-page report. The word “profit” does not appear in the report.

The independent study, done with the cooperation of Apple in conjunction with the company’s World Wide Developers Conference, or WWDC, next week, offered another snapshot of the economic behemoth whose revenue and profitability was a fiercely guarded secret during Apple’s contentious antitrust case v. Epic Games Inc. The maker of Fortnite contends the 12-year-old App Store is a money-gouging monopoly that has enriched Apple with billions of dollars in profit at the expense of developers.

See: What each side proved in the historic Epic vs. Apple antitrust trial

Apple has never revealed revenue nor profit from the App Store, and figures it did provide an Epic expert witness were kept hidden from public view. The witness, Ned Barnes of the Berkeley Research Group, suggested that the App Store has profit margin approaching 80%, though Apple executives disputed that figure in testimony.

For more: How profitable is Apple’s App Store? Even a landmark antitrust trial couldn’t tell us

Throughout the 3-week trial, Apple executives up to Chief Executive Tim Cook insisted they did not know if the App Store is profitable. Calculating P&L, they said, was difficult because of the billions of dollars they spend on research and development, and the intricacies of the App Store’s structure and payment systems.

The Analysis Group study pointedly concluded that about 90% of the $643 billion in billings and sales world-wide occurred outside of the App Store, and Apple collected no commission on those sales. China led the way with $300 billion, most of that through sales of physical goods and services using mobile payments, followed by the U.S. ($175 billion), Europe ($74 billion), and the rest of the world ($94 billion).

Specifically, billings and sales facilitated by the App Store ecosystem increased by 24% to $124 billion in 2020, the study found. While the digital goods and services category grew 41% to $86 billion during the pandemic, physical goods and services improved 24% to $511 billion. Travel and ride-hailing categories — subsets of physical goods and services — slumped a collective 30%. (Travel totaled $38 billion in 2020; ride-hailing was $26 billion.)

Epic vs. Apple: The (predicted) verdict is in

The researchers specifically stated that the closest figure they provided to App Store revenue — the total amount of digital goods and services sold through apps — was not actually analogous to that figure for Apple. The researchers included app revenue for services that were not purchased through the App Store but were used on Apple devices, and did not include enterprise-software revenue even if those apps were used on the devices.

Throughout the report, Apple played up the importance of small businesses on the App Store, which constitute more than 90% of all developers on the App Store. It says the number of small developers swelled 40% between 2015 and 2020.

Analysis Group highlighted the work of developers Snap Inc. (NYS:SNAP) , media company Stitcher, and Bumble Inc. (NAS:BMBL) , a dating app that is a rival of vocal Apple critic Match Group Inc. (NAS:MTCH)

For more: Match says Apple charges it half a billion dollars annually

The success of small developers, most of whom pay from nothing to a 15% commission fee to distribute apps over the vast App Store platform, offer a contrast to larger developers such as Epic, Match, Microsoft Corp. (NAS:MSFT) , Spotify Technology (NYS:SPOT) , and Nvidia Corp. (NAS:NVDA) who have complained about the store’s 30% commission fees as well as restrictive technology requirements.

The Analysis Group report adds another opaque layer to the mystery of just how much revenue, and profit, is generated by the App Store.

Last year, Apple reported the earnings it paid to developers was about $39 billion world-wide in 2019, though it did not provide a similar figure for 2020. All told, the figure is well north of $100 billion since the App Store’s launch in 2008.

The company has often referred to the App Store as an “economic miracle” and openly boasted about its success in a series of news releases that highlighted its contribution to the U.S. economy ($350 billion) , jobs creation (300,000 new U.S. jobs) , and the App Store ecosystem ($519 billion inbillings and sales world-wide in 2019) .

The Analysis Group’s study sparked a sharp rebuttal from one of the App Store’s most-vocal critics.

“The study supports our contention that no one company should hold such a large role over so many companies” and wield a significant impact on the global economy, said Meghan DiMuzio, executive director of Coalition for App Fairness, a group that includes Epic, Spotify, and Match.

“Apple is spending all this time and resources on maintaining an advantage [for the App Store] rather than working with legislators to address issues,” she said.

Link to MarketWatch's Slice.