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Day January 17, 2011

The Cook Doctrine

We believe that we’re on the face of the Earth to make great products, and that’s not changing.

We’re constantly focusing on innovating.

We believe in the simple, not the complex.

We believe that we need to own and control the primary technologies behind the products we make, and participate only in markets where we can make a significant contribution.

We believe in saying no to thousands of projects so that we can really focus on the few that are truly important and meaningful to us.

We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot.

And frankly, we don’t settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we’re wrong and the courage to change.

And I think, regardless of who is in what job, those values are so embedded in this company that Apple will do extremely well.

- Tim Cook, Acting Apple CEO, January 2009 FQ1 2009 Earnings Call

See also: Apple vs. Exxon-Mobil

How long before apps overtake physical video game content sales?

After reviewing the payments to suppliers, we can look at the store’s revenue generation rate. With the same assumptions, we have the following chart:

We will have to wait for another report to see whether the recent burst of volume from apps is sustained[1], but the trend shows income from apps narrowing the gap to music.

iTunes has paid over $2 billion to app developers and $12 billion to record labels

The last analysis of the iTunes content store showed amazing acceleration in download rates. Since we know something about the pricing of apps in aggregate, we can make some guesses about the income from apps for both Apple and suppliers.

The key assumptions are:

  1. Average selling price per app $0.29 (as reported in June 2010 here).
  2. Price per song $.99 increasing to $1.05 over time
  3. Music gross margin 10%
  4. App gross margin 30%

The first chart shows the accumulated payments made to suppliers of content to the iTunes store over time.