What's an Apple user worth?

This week Apple announced that iTunes has 575 million accounts. This is the 8th update (that I know of) over the last four years. The history of this data is shown in the following graph.

Screen Shot 2013-06-14 at 6-14-1.13.02 PM

The number of accounts has increased by almost a factor of six since late 2009. It amounts to an account growth rate of about 500,000/day or 44% compounded annually. Not bad, but along with this increase what happened to revenues per user?

Looking at iTunes revenue (gross) reveals a picture of revenues/account, shown below:

Screen Shot 2013-06-14 at 6-14-1.13.11 PM

This can be read as: “Each of the current 575 million accounts generates about half the revenue of the 100 million accounts of 2009.” One would expect such a decline as an user base expands and this approximate 50% decline in revenues per account seems reasonable for a six-fold base increase. In absolute terms the graph shows that an iTunes account generates about $3.2/month in transactions.[1]  Put another way, during the last year, an average of $40/yr of economic value is generated by every iTunes account.

Stretching further, one could also use the 575 million iTunes accounts as a proxy for “the Apple customer base”. The assumption would be that iTunes accounts are attached to some Apple product, be it an iPhone, iPod or Mac. As a bounds check, a total of 865 million Apple devices (which interact with iTunes) have been sold since 2007. Assuming 575 million users does not seem to be a contradiction.

The logic deployed would be that it’s unlikely for a consumer to have an iTunes account without owning or using an Apple product. If we take this leap in logic then it would make sense to measure Apple (not just iTunes) revenues per iTunes account. In order to smooth out seasonality I took trailing twelve months’ average quarterly revenues and measured the following company revenues per iTunes account.

Screen Shot 2013-06-14 at 6-14-1.13.19 PM

Note again the reduction in revenue per “customer” as the base grows. The reduction is less pronounced however, with about one third lower spending for a sextupling of the base. One can read this graph as “Three years ago an Apple customer used to spend $400/yr on Apple products but as the number of users increased six-fold the spending decreased to about $300/yr per customer.”

The practice of valuing a company by the rate of spending of its customer base is not uncommon, especially when the customer base is relatively loyal. Apple emphasized the importance of customer satisfaction (and, implicitly, loyalty) during its WWDC presentation. It was singled out as the most important metric they track. So perhaps valuing Apple itself on the basis of repeat purchase behavior should be considered.

When framing the value of of the company itself as a function of users (in the form of iTunes accounts) we get the following graph.

Screen Shot 2013-06-14 at 6-14-1.13.26 PM

The graph measures the Enterprise Value (i.e. Market cap minus cash) on a per-customer (i.e. iTunes account) basis.

It shows that for a number of years—from 2009 until late 2012—Apple’s users were valued (implicitly by the stock market) as likely to create a net present value of about $1200 in earnings. The current value is about a third of that, or $440 in earnings. Today’s expectation is therefore that each current customer will buy the equivalent of 1.8 iPhones. And nothing more, ever. A few months ago it was expected that each customer would buy three times as much.

Although the rate of spending of each customer is decreasing, the number of new customers is increasing more rapidly. As this is happening the company’s equity is being priced such that an Apple user is considered less than half as valuable as she used to be—from 3.2x revenues to 1.5x revenues. This change in user value has been quite abrupt, happening only within the last nine months. What could justify a drop in user value would be a drop in customer satisfaction or loyalty. So far, I have seen no evidence of this happening.


  1. Note that these revenues include App Store, Music Store, TV Shows, Movies, iBookstore, Mac App store, and Services (including iCloud). Some of this revenue is not reported as part of Apple’s statement of operations since some content is treated with an agency model.
  • L

    My suspicion is that as Apple changed the sign up rules over time, they became more effective at coercing or “guiding” customers to sign up but evidently it does not result in higher revenues.

    • Glaurung-Quena

      The only reason to own an Itunes account used to be to purchase music (and later digital media of all kinds). Nowadays, it’s also your Icloud account, your ticket to downloading free apps, and probably a ton of other things (game center, perhaps also facetime & imessage) all depend on your having an itunes account.

      So the use of an Itunes account has grown far beyond “buying media,” which means that many owners of Apple devices who are not big spenders on digital media (eg, my spouse and I ripped our CD and DVD library so we don’t need or want to buy media from the Itunes store) are still going to need to sign up for an Itunes account.

      • Andy Orr

        Good point. I believe the 575 million figure refers to iTunes account holders, but the Apple ID system has made things more complicated. My household has one Apple ID tied to an iTunes account and three more set up to allow separate iCloud islands. These are connected to nine devices. One iTunes account, four Apple IDs and nine devices.

        I would think that these variations make it hard to calculate good comparison metrics.

      • Kizedek

        @Andy and @Glaurung-Quena,
        I don’t think it is that complicated…
        I think Tim Cook referred to Credit Card numbers.

        An AppleID doesn’t require a CreditCard for Apple Support or for iCloud Mail and Sync services. So, until you fill in card and billing details, an “AppleID” is not an “iTunes Account”.

        I believe Horace has tried to make this clear a couple of times: 575M credit card numbers.

    • iObserver

      Or… early adopters are generally wealthier and more committed to their products so buy higher-end and more apps. Now that there are free-with-contract iPhones, cheap iPads, etc… perhaps, just perhaps, iTunes revs per user are expectedly and benignly settling down.

      • Glaurung-Quena

        Remember that the metric here is Itunes store revenue. If, five years ago, a lot more of the revenue mix was from sale of music and video, whereas today it’s a lot more due to sale of apps, then that right there would explain the drop in dollars per customer — apps are significantly cheaper than music, especially if you factor in the number of hours each is going to be used before the customer decides it’s time to buy another.

    • vincent_rice

      But it does result in higher revenues – just not per individual, which is to be expected.

  • mieswall

    EV/customer: nice stat, Horace. Would be nice a comparison with other retailers.
    Although in the case of apple, almost all that’s sold are revenues for the company; in amazon or ebay, most are revenues for third parties.
    Another point could be how much of these accounts are real users. Many have more than one appleid.

    • Walt French

      Why would people have multiple user IDs? My wife opened her own and now we can’t automatically share apps and sharing music is a bit more work.

      • mieswall

        Because of your problem. At home, we have a common appleID for everybody, for shared purchases; plus one for each member, for ecosytem preferences coordination.
        That, besides a pair of “false” AppleID’s that were registered by mistake while adding a device: this is the ONE user-unfriendly issue of Apple.
        A slight mess, since we registered the common ID after a lot of stuff was individually set up in each account (the one I mostly regret, hundreds of music CD’s clouded with iTunes match, not available for the other ID’s).
        This is in a four member family, currently with about 12 apple devices (imacs, MacBooks, touches, ipods, iphones, ipads, AppleTV, Time Capsule, airport), plus 4 or 5 no longer used (old ipods, stolen iphone, another that went to the swimming pool… , etc). Some dying pc’s.

        The one thing I miss (besides more clarity for non technical users on this subject), could be a branched AppleID system, having parent and branch ID’s. Then, a way to coordinate your home and work ID with minimal conflicts – haven’t tried yet osx server, though-.

      • Walt French

        Yes, there are lots of things Apple could do to help users manage their IDs. I’ve left things as I described because I the hassle to convert would be severe.

        But in both your and my situations, I’ll note that the number of Apple IDs is pretty close to a 1:1 relationship with the number of actual people, while there’s economic reasoning to have fewer IDs than people. So I don’t see why the number of IDs would proliferate particularly — especially not just in the last couple of months, the period where Horace’s clever metric is suggesting valuations have run amok.

  • Hear, hear.
    I guess non factual wall street unreasoning is something like: user will change quickly habits and apple will be doomed since … (put whatever non factual reason you like here, SJ missing, disruption every odd year missing, and on and on).
    But user base is growing and user satisfaction is stable.
    Each satisfied user is buying and tying itself to the ecosystem, changes can not happen so quickly.
    You just don’t buy another phone and you are done, you have to buy again all your apps and transfer all your data and settings from the cloud.
    It’s a new kind of telephone market, a more sticky one.
    It is the same kind of stickiness that maintains windows in its dominant position.
    When non consumption will terminate, apple user base will be more and more valuable.
    The time for going up again will be quicker than nine months.

    • Alen Teplitsky

      why do you have to buy all your apps again? if i were to switch to android there are lots of apps i’ll just leave behind on iOS and not rebuy. new games come out all the time, no reason to buy the old ones a second time

      same with data. lots of clouds out there and most are platform agnostic

      • Well there are a certain number of apps you could not leave behind, that you’ll have to buy again.
        Numbers says that ios users do use their phones and their apps, so they will want to use the same apps elsewhere.

      • Walt French

        It’ll vary. My most expensive app is a Chinese/English study tool that is freeware with paid tools. Switching would be essentially costless, just a minor nuisance. If you add up all the $5 apps that most people have you are well below $50 — that may present a psychological barrier but it’s hardly an economic one in the context of a platform change.

      • Psychological barrier is the barrier, before the ecosystem there was only a barrier of know how to use, now there are three barriers, know how to use, little spend again money, know everything I need is available (and apple’s service are not) including the port of my data.
        Everything is doable, but users are not geek and the stickiness of an average user is far greater than before.

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  • This is just the sort of rational thinking, astute analysis, and depth of consideration that Wall Street analysts need.

    Therefore, it will be summarily ignored.

    • The theory is that if Horace is true, and I thing he is, the value of the user base will influence apple’s fortune in the market and therefore will influence apple’s earnings a a way wall street will have to understand.
      Today they are betting on a radical change of apple’s fortune, when evidence will be of the contrary apple’s value will increase.

      • I’d argue that, if Horace’s thinking is correct, then there is absolutely no reason why Apple stock has dropped over the past year.

        And I think that’s the point of the post.

      • The reason is a bet for a sudden catastrophe for Apple. There was no reason for this bet but historically telephone market has seen sudden deaths.
        Users could change the cool phone of the moment for the new one in droves.
        My point is that with the new kind of ecosystem phones, the change of handset is not so unpainful to allow a rapid change in fortune for a company.
        So whatever reason guided wall street bet it was based on broken premises, user wont be able to fly away from apple quickly, no matter what.
        They are satisfied, they have invested in the ecosystem and they are increasing, no reason can change that quickly, as soon as wall street sees the result of that price will increase again.

      • Tatil_S

        Still… It seems iOS7 is said to be slated for a Fall release. Apple tends to go by equinoxes when it talks about seasons, so we are looking at a release past late September. It has never released an iPhone without releasing that year’s iOS update, so it seems more than 12 months will come to pass between iPhone launches. This is rather long.

      • Sacto_Joe

        That’s a guess, Tatil_S, and my guess is that iOS 7 and the majority of iOS device upgrades will occur just about exactly one year after the last set. The timing will be adjusted slightly depending on how much time Apple estimates it will take to get to full production in advance of the holidays, but otherwise Apple will stick to its normal 12 month upgrade cycle, now taking place for iOS pretty much exclusively in the Fall.

      • Tatil_S

        Sure, it may meet a 12 month cycle, barely, but that still makes it risky for investors. If the target is 12 months, any unforeseen delay will hurt sales noticeably, as the product will look more and more stale past the one year point. 10 or 11 months is not a big difference, but 12 to 13 months presents a bigger psychological barrier.

        Having iPhone and iPad released at the same time must be making life pretty difficult for design, testing and manufacturing. Some specialist teams will be very busy for some time, followed by a long period where they will be underutilized.

        Near simultaneous releases also makes it more difficult to dominate word of mouth marketing, as the news of one will drawn out the other.

        Anyways, these are all valid concerns for investors, even if one could argue without a new ARM processor or a substantially better screen technology, there is nothing worth releasing at this point.

      • The customers for iphones are in vast majority carriers companies. These companies sell two years data plan using iphone as salesman.
        The user are on a two years upgrade cycle even if the buy the iphone by themselves.
        Apple make a major release every two year, 3g, 4, 5 and a minor release in between 3gs, 4s, ?.
        User have no compelling reason to upgrade every single year, because there is not much difference, while there is a big difference every two years.
        On a 24 months schedule one or two months +/- are not a big deal. The holiday season is the target obviously, no other consideration matters for apple.

      • Tatil_S

        It is a big deal, as carriers tend to let their customers upgrade three months or more before their contract is up, before their subscribers hit the open market. During these three months and any additional delay that may take place, many customers will be tempted by new models from other brands. These are in addition to the many customers who are not locked into any long term contracts.

      • iPhones are not like any other companies phone, they last.
        A two year old model look quite new usually, still works well and is fully supported by apple. It runs the latest o.s. and apps. There is not a need of a quick change.
        The thought about changing it starts when the new model comes in the market, whatever date it is, carrier’s policy does not matter.
        You look if a new model is available and think if a change is worth enough after the end of your contract.

      • Focus does not require to launch as many models as you can to see if something stick on the wall.
        That’s portfolio theory and it is an old and surpassed theory apple is glad to avoid.

      • Tatil_S

        When did I say anything about a portfolio? The comment was strictly about the replacement of the only flagship model.

      • If you don’t have a flagship model you have many of them, a portfolio.

      • macyourday

        People seem to be assuming totally irrational behaviour from “The Street”, but it would seem market manipulation of the grandest order is not beyond them. There is no logical reason to imagine that Apple will crash, in fact the opposite would be suggested by its performance. Manipulating Apple stock is likely to lead to immense profits as it climbs back to real values. Do people assume that the “GFC” was simply an idiot inspired *#**up when some entities made insane amounts of profit blackmailing the state. I am aware of the adage regarding stupidity versus conspiracy, but what would the figures suggest?

      • How is manipulation done? Inducing total irrational behavior in many shareholders so that a few one’s gain a lot of money.
        So the assumption of irrational behavior is correct, only a few don’t follow the rule.

      • macyourday

        I’ve always seen the share market as a casino anyway, things just happen a lot faster and far larger amounts are involved. A lot more is lost than just shirts. The house always wins. What happens in Vegas, etc….

      • Casinos are zero sum games. Share markets aren’t. Net value of market equities grows (or falls) in function of value created by the underlying firms.

      • Ernest

        “Casinos are zero sum games”. I believe the statement is incorrect. What do you mean by it?

        A casino is in general a business where gambling games are played. Just think of it a minute: if the casino’s business was a zero sum game, all the casinos would go under, as there would be no profit to cover the casino operating costs, let alone generate profits.

        If you take individual casino bets – yes, it appears that it is a zero sum game: what one player (individual or house) loses, the other wins, hence the sum is zero. However, in most casino games the house has an edge, which is the casino profit expressed as a percentage of the player’s original bet. As the number of rounds increases, the expected loss by the gamblers will eventually exceed the standard deviation. Over the long run, it is mathematically impossible for the gambler to win. He will end on the losing side.

        Of course, there are gamblers who, either with exceptional skills (think card counting) or various tricks (sleight of hand), try to turn the odds in their favor. When the house detects them, they are invariably thrown out, and they are no longer allowed on the premises.

        So, casinos are not zero sum games; they have an edge in most games which gives them higher odds of taking a higher percentage of the winnings over the long term.

      • I meant, of course, that Casinos are zero sum games if you include the casino itself.

      • Ernest

        “Net value of market equities grows (or falls) in function of value created by the underlying firms.”

        The market value of equity is, by definition, calculated by multiplying the company’s stock price by its number of outstanding shares. The stock price can be affected by many factors, other than the value created by the underlying firms: anticipation of a takeover or a merger, employee layoffs, stock manipulation, etc.

  • Alen Teplitsky

    sounds right
    my mom has never bought an app and will probably buy very few if ever. my mother in law has no idea what an app is.

    apple needs to get everyone using iAd to get some revenue from customers like this

    • I’m pretty sure, if all developers put ads in their apps, the number of iTunes customers would actually start dropping.

    • DarwinPhish

      I am sure they are more than happy with the revenue they received when your mother bought her device.

    • SunFlyShoo

      Apple is a hardware company, Google (Android) is an ad company. I am sure Apple would love for iAd’s to have wider adoption in free apps, but they are happy just selling the device. I personally for the most part avoid apps with ads, and happy to pay for the premium service. Would Mercedes put ads on their dashboards to make more money on each customer? Why would Apple (another premium vendor)?

  • ChrisPJones

    Are there a significant number of people with iTunes accounts on Windows machines, but no Apple device?

    • Mark Jones

      I doubt it’s significant. I would think they bought at least an iPod.

  • iObserver

    I can’t help but read this article and think, “What will iTunes radio do to these numbers?”
    If pandora rakes in $4/mo from premium accounts, and let’s assume 2/3 that from free accounts that’s about $30-40/yr per account. Apple will release in the US (about 1/3 of users) and charge less per year but will likely make up for some by the sale of iTunes tracks. I’m guessing it’ll add an average of $10/yr/US account which is approximately 1/3 of their installed base.

    • Henry

      I think your confusing revenue with earnings. My understanding is that Apple has tiny margins on music tracks. iTunes radio may be similar, especially since the subscription price is half that of Pandora.

      On the other hand, iTunes radio is likely to boost device sales and stickiness.

  • Walt French

    “So far, I have seen no evidence of this happening.”

    There you go again, dealing with reality rather than competitors’ propaganda. Sheesh!

  • Foobar66

    Don’t quite understand the one-but-last paragraph. Shouldn’t it be talking about “$1200 in enterprise value” not “$1200 in earnings”? Also don’t understand the derivation of the 1.8 iphones number.

    • Enterprise value is by definition net present value of all future earnings. The figure of 1.8 is derived from the assumption of 40% operating margin on iPhone at about $620 average selling price.

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  • highroller

    Great article

  • highroller

    May I suggest improving the graphs though? Perhaps, shortening labels for the x axis and displaying a grid instead of just horizontal lines.

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  • obarthelemy

    This is interesting, but needs to be put in perspective with others metrics: a company’s value is not, never has been, and never will be the net present value of its customers.
    Apple is facing pressure on
    -margins, and lower-end models won’t help with that, The high-end segment is being battered by lower contract prices and fewer subsidies.
    – growth prospects, the “category-busting” product pipeline seems empty too.
    – and iOS7 was summed up as an iffy new iconset and partial catch-up features

    Even Apple can’t assume they own their customers, especially with customers’ engagement with iTunes at an all-time low.

    • And everyone is going to flee using Google Search. People world wide are going to stop buying MS Office and Windows. Don’t forget every shopper is going to stop using Amazon to shop.

    • Bernhard Grabowski

      “and iOS7 was summed up as an iffy new iconset and partial catch-up features”

      Being an iOS developer myself and after looking extensively into the new APIs this week – nothing could be a greater distortion of the truth.

      Eventually you’ve picked the wrong people to sum it up or you gravitate towards summaries which feed into your precomputed opinion.

      I also disagree on the iffy iconset – I love to work with the truly unique features of iOS7, but I can’t warm up to the new icons, not to save my life.

      I can’t wait till the NDA is lifted. Awesome stuff that can get built now with so little code…

    • Space Gorilla

      I’ve seen this sentiment about growth a few places recently. It seems everyone has forgotten about the iPad. That’s the next growth driver, my understanding is that the iPad is ramping up faster than the iPhone ever did and that the iPad will be outselling the iPhone within a couple years. It also seems obvious that the iPad is the future of personal computing.

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  • John

    Hi Horace,

    2 important things:

    (1) A company with a P/E 20 is equivalent to having an earning yield of 5%. But it’s not correct to ask the question why investors settle on merely a 5% “owner return”. What’s missing is expected growth. If the company grows at, say, 10% p.a., the expected return is approx. 15%. (Growth in capex and working capital is ignored for simplicity.) Similarly here, we can’t simply look at EV/Customer, or flipped upside down, Customer/EV, “customer yield” and ask why investors paid for such a lower customer yield then (but doesn’t do so now). It’s missing the growth component. To put it differently, EV/Customer dropped drastically because the market suddenly believed the growth was gone or even negative.

    (2) We compared EV/Customer of Year X to EV/Customer of Year Y. They are drastically different. But it’s a mistake to jump to the conclusion the figure for Year Y is wrong. The incorrect can be Year X’s.

    p.s. On the record, I’m long AAPL.

    • warren

      If the Customer Lifetime Value of an Apple customer is $2000 and Apple Serves a Billion customers, then Apple’s market cap should be 2 Trillion

      • bat9991

        You cannot multiply LTV by number of customers to get market cap.
        Margins for consumer products are nowhere near 80-90% margins of SaaS, because these products need to be built, even Apple’s is now in the 30s, which is considered high.
        Also, companies actually spend on R&D etc, so even that small margin will drop, so if you want to invest money in a business and only expect to get back 25% of your money, that’s awesome, give me your phone number, I own a couple of businesses myself.

    • bat9991

      I will also add that this analysis is severely flawed.

      When analyzing SaaS, you need to account for churn. Revenue per active account hasn’t dropped (which he can’t explain), I bet it has increased. It is the number of active accounts that has dropped. You cannot use total customers and assume them as customer/year.

      Our household has 3 iTunes account, two of them have been inactive for 3 years (Churn), the third was almost deactivated last year.

      Also, you cannot tie hardware sales to SaaS accounts. Consumers buy product when there is something good to buy, not because they have an account with that brand.

      Yes, Apple stock is under-valued, but that has nothing to do with this flawed analysis. If you want made up numbers to feel happy about the value of the stock you own that is half what you bought it at, then sure go ahead and believe this garbage, if you want to understand the value of iTunes user look elsewhere.

      Apple’s biggest problem right now is earning growth, and that is caused by a) smaller growth in new customers b) churn of existing user base.

      • Kizedek

        I think you are missing Horace’s point.

        “Consumers buy product when there is something good to buy, not because they have an account with that brand.”

        The only link Horace made was that hardware purchasers likely have an account. And the number of accounts is an interesting proxy for repeat or loyal customer base.

        In other words, if nothing else, Apple is likely to sell 575 million more iPhones to someone at some time; just one more phone to each “existing customer”, no other hardware, sometime in their lifetime, but likely within the next three years.

        Plus, $40 per year per person on iTunes. So, let’s limit that to the next three years, too (the life of one phone).

        All Horace is saying, is that Wallstreet totally overlooks a couple of interesting things when it undervalues Apple. Just as cash is often left out of the discussion (like how half the share price is covered by Apple’s cash in the bank), so too is a loyal customer base overlooked.

        In Apple’s case, a good case can be made that its customer base is worth *something*. (obviously the media and carrier companies think it is worth something!) At the moment the worth is a paltry 400 — WITHOUT the cash. And yet, it seems a pretty sure thing that if Apple stopped doing everything else right now, and did not sell one more Mac, iPod or iPad, they would still sell 575 million phones over the next 3 years. That’s 48 million per quarter, 16 million per month. Plus 69,000,000,000 in iTunes revenue (575M x 120).

      • bat9991

        OK, listen, I am not disputing that the Apple stock is undervalued, in fact I stated exactly that in my comment. But this article is wrong. It overstates existing customers, Apple doesn’t have 575 million customers, it has 575 million iTunes account many of which are past customers (churned), or duplicate accounts. I have 3 accounts myself, two of which I have switched to Android, obviously not a statistic but an example. You cannot use that 575 number to predict anything without knowing the real active accounts. Active accounts are existing customers, not total accounts. Am I an existing customer? yes. Am I 3 existing customers? No. Can Apple sell me an iPhone in the 3 years? unlikely. An iPad? likely, Could they have sell me an Apple TV? YES!

        As for the $40/account, what I am saying is that its higher than $40/account, much higher, it should not drop with time, and if it did it should ring SaaS alarm bells (spending per account/year should increase), but the problem here is you are not using active accounts. Quick math tells me that 30% of these accounts have churned which should bring spending back to $60-70 range if not higher.
        Anyway, a little education on SaaS revenue model would tell you these basic stats, and why this article is severely flawed.

        Now back to Apple stock, I find it funny that Apple fans are now using fundamentals to valuate stocks. You know what? it only works that way for boring stocks, and the Apple stock is fairly valued if not over valued by that measure.

        BUT Apple is not a boring stock, it is a high flying technology innovative company, which means that the value should be much higher than fundamentals. Having said that, when buying a high flying stock it is no longer fundamentals as much as future potential growth. 1 Year ago, Apple had the potential to lock the mobile industry, just like MS locked desktop, combined with Apple’s high margins that means big future earnings. But fast forward to today, and you will see that Apple have pretty much lost their leadership in market share to fragmented bunch of commodity makers… this is huge let down.

        Of course this is like the PC war, you are missing the point. The PC war is not about commodity crap Dell, HP vs Apple. That’s the race to the bottom which Apple will only lose. The PC war is the trillion dollar software industry on top of it. And the company that figures out how to control that industry will be a huge winner, not the one that focuses on the commodity running that industry. Apple had it very right with 30% AppStore revenue, but screwed up big by not securing monopoly. Both Google and Amazon (to a lesser extent) are building for the future not the present.

        Apple hasn’t worked hard, they foolishly focused on short term earnings and ignored long term potential of platform monopoly. And they rightfully got punished for it.

        What made things even worse was WWDC, I was literally shocked when Cooks left the stage without any significant new product announcement. I hit the sell button less than 30 seconds when he left, and I was very right.

      • Kizedek

        “Apple hasn’t worked hard, they foolishly focused on short term earnings and ignored long term potential of platform monopoly. And they rightfully got punished for it.”

        And that’s the crux of it isn’t it? Looked at through the lens of MS, or even Google or Amazon, you might have a point.

        Of course, this site looks at the mobile industry using Apple as a lens, because the subject becomes far more interesting than it would at first glance.

        Interesting that you accuse Apple of a focus on “short term earning”. Apple is often lambasted for not focusing on the short term — such as market share, most notably. Rather, they are planning their platform 10 years out and building the means of production; so don’t worry about its potential. The other platforms are surface-y mimics with no real depth or future potential. Everything that Wallstreet and pundits seem to celebrate is short-term.

        One could look for that gold-rush potential for monopoly in others and find some real issues: MS appears to have missed the mobile boat; Android appears to have peaked, and it has split into a hundred pieces (with Amazon, Baidu, Tizen, etc.); Amazon requires lots of sales to break even and cover the cost of their hardware.

        Remember the $40 per year (good or bad) is ON TOP of hardware. Amazon and others have to cover their hardware. Apple’s ecosystem is adding value and making their hardware (which garners good margins) more attractive.

        Controlling the industry? That’s so 1990’s; and that makes a company ripe for disruption. Today people know you don’t have to be on the same platform with exactly the same software in order to function and collaborate. What you are asking is for Apple to change its whole ethos and commitment to great products in favor of some current industry advantage — and that would be short-term thinking.

        So there is a little twist of reality going on when you speak of Apple focusing on the short term. Apple is the company with the longest view that we know (read most of the articles on this site). Since their lock on the PC world, MS is perpetually in the short term because they can’t break from their commitment to support legacy technologies; while Apple is prepared to disrupts itself at every turn.

        When you said PC War is not about the OEMs race to the bottom but about the one who controls the platform or software on top, you were being a little disingenuous. They are two sides of the same coin and interlinked: what we now see is that MS killed their golden goose and can no longer get margins on its piece of the pie; so what does MS do? Enter the race to the bottom itself, finding that it can’t compete with Apple for quality, value, support, loyalty or any of a hundred other metrics.

        And despite Apple’s negative reputation for draconian control of their own platform (but it would be OK if they controlled the entire industry, right?), they actually play better with open standards and other companies’ technology than anyone else (that’s the long-term view again, which Jobs always had for the Mac). Apple is entering all sorts of fields right now and setting the standards in many.

        You may have 3 iTunes accounts. We have two (based in two diff countries) for a family of five (but one iCloud account each). As others have noted, it probably all works out, and it is still a good proxy for customer base. We probably spend 200 dollars per year through iTunes.

        WWDC is a developers conference and the announcement about iOS 7 and OS X Mavericks was good. Apple isn’t going to announce a new product line like the iPad every year, maybe every three years.

      • Camden1

        bat9991, I believe that 575 million number is current credit card numbers not accounts. You have three accounts with iTunes but does Apple have three current credit card numbers from you?

      • dajhilton

        “churn of existing [Apple] user base”? Really. Where are these legions of former Apple users? I’ve never met any. And in the studies I’ve seen the number of people who abandon Apple for competing products is so low as to be statistically insignificant.

        I think this may be wishful thinking on your part.

      • bat9991

        Apple’s market share has shrunk significantly, from a market leader to 17%, where do you think all these people went?
        I used to be an iPhone user, I know many others who did the same.
        It is not statistically insignificant, 17%!!!!

      • bad

        Totally wrong. The market share drop is due to market expansion. Their absolute number of users is only increasing.

      • Apple’s share of all phones sold has never been higher. Its share of smartphones was at at its highest at 24% (Q1 2012) and was 22% during Q4 last year.

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  • zato

    “Note again the reduction in revenue per “customer” as the base grows. ”

    I think the main reason for the reduction in revenue as user base grows is because many users now have more than one account since the switch to iCloud and icloud email addresses. Two years ago, I had one account, now I have 5. I probably buy twice as much stuff.

    • Kizedek

      An iTunes account does not equal an iCloud account. True, iCloud accounts have proliferated, but this is because all MobileMe accounts AND AppleIDs can/have become iCloud accounts. An iCloud account does NOT require a credit card attached.

      Furthermore, in your iOS Device settings and Mac, you can specify separate iCloud and iTunes accounts on one device or computer (they have nothing to do with each other whatsoever).

      The iCloud account is more personal — for syncing files and calendars and email, etc. — while the iTunes account is likely used by a whole family/household for purchases of all kinds. That’s how we do it — one iCloud account per person/device, but only one iTunes account for the whole family, with credit card attached (well, 2 iTunes accounts, for two different countries we have lived in).

      Five people can easily share one iTunes account. But it is hard to share an iCloud account (due to its being your personal mail account, etc.). THAT is why iCloud accounts have proliferated.

      If anything, iTunes account are not redundant and do NOT represent less people than the stated number of accounts (as you imply). If anything, each iTunes account represents more than one person — therefore the user base will grow as, for example, kids get older and start making their own purchases.

      So, you could say 575 million iTunes accounts likely represents about 575 million households. I believe very few people have more than one iTunes account exclusively for themselves.

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  • Jessica Darko

    The drop in EV is due, it seems to the drop in the stock price / market cap, vs. iTunes users, which is a subjective metric rather than an objective one. Or put another way, the conclusion I draw from this article is that wall street is continuing to under value Apple (or to price in external / systemic financial risk into the Apple stock price.)

    • fstein

      And ironically, the drop in EV is partly due to the accumulation of cash which is subtracted from Market Cap.

      Of course, the big driver is the lower stock price. But let’s remember that all asset prices go through excessive moves regardless of long term trends.

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  • Ernest

    The reason the iTunes revenue per user declines as the number of users increases is this: new Apple users tend to buy more apps in the beginning after they get a device.
    After a while the user’s device is “saturated”, so to speak, and he will spend far less on new apps, even though he may upgrade and buy a new device.

    Also, app upgrades bring in less revenue than the new apps. The old users may upgrade their iPhones, but they will not buy again the same number of apps as they did when they got their first iPhone or iPad. So, every generation of new Apple users will bring in new revenue but this will taper off over the years, while the total number of users necessarily increases.

    This is why the company publishes the total number of devices, the total number of apps, the total number of users, or the total number of accounts, but not the average revenue per user.

    I bought my first Apple devices years ago. I bought my first apps the very first year I bought those devices. It’s been maybe two years since I bought anything on iTunes.

    As far as iTunes music/video – I never buy any music or video; similarly I long stopped buying any CDs or DVDs; I can listen to any number of Internet radio stations, no need to buy the song. So my account may count in the current cumulative total but it does not count much anymore as far as current iTunes revenue goes.

    • Space Gorilla

      ” It’s been maybe two years since I bought anything on iTunes.” That doesn’t feel typical to me. Of course I could be wrong, maybe a lot of Apple customers actually don’t buy anything on iTunes for that long a stretch. My kids certainly don’t behave that way, they’re buying music, games, content creation apps, educational apps, and probably other stuff I’m forgetting, on a fairly regular basis. My wife and I aren’t quite as active but we’re not far off, regularly buying from iTunes.

    • aaarrrgggh

      I’ll admit to not being the median iTunes user, but Apple’s iTunes revenue from me has gone from maybe $30/year in 2009 to over $150. Music has remained flat, apps increased slightly, but the big delta is entertainment through the Apple TV. My wife and I have separate accounts, and in total it reflects 10 devices.

      Maybe my view is more US-centric, but the analysis seems off. The EV/User also likely reflects a bad upgrade cycle where the iMac wasn’t available for Christmas and too many new products were all released at once.

      • This is not an analysis. It’s an arithmetic calculation based on public information supplied directly by Apple. If your view is US centric I suggest changing it to reflect the 575 million global accounts that Apple has.

      • Harper

        My wife and I share an account, and after installing the Apple TV devise we have greatly increased our spending on content. I’m in the over 60 demographic, and have introduced many friends to the product, most of whom became users as well. I am looking forward to the sales figures on this devise for the current quarter.

  • fstein

    Great material and insights. Curious about the revenue not reported when the content is treated with an agency model. Seems this could be a nice new revenue stream. Any insights or good guesses would be appreciated.

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  • mluisbrown

    Just wanted to point out that there are a non-trivial number of people who have more than one iTunes account, and this may be diluting the numbers a little. I personally have 3 accounts: my main (Portuguese) account and a US and UK account for occasionally getting access to material that’s not available in the Portuguese stores.

    On the other hand, people like me who have several accounts are necessarily Apple power users and / or developers (like myself) and therefore also probably buy a disproportionate amount of Apple hardware, so this may balance things out.

    • David V.

      Although there are a fair number of users with multiple iTunes account, I believe there are even more cases of shared iTunes accounts. Our household (4 people), for example, shares one iTunes account.

      While traveling in Latin America, I was surprised to find that quite a few people I met shared an iTunes account outside the household/family. (Presumably, because some sharers lacked a credit card.)

  • Jamie

    This seems relevant: iOS7 will spawn an apps race with opportunities for disruption in well-established categories. Perhaps this helps address the app saturation we see on multi-year owners’ devices and begins to lift the average yearly spend.

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  • Andy Orr

    My earlier point was quite simply that iTunes accounts (closely related to Apple IDs with credit card information associated with them — although this is not strictly required anymore) does not equal users. Maybe it is semantics, but it under counts Apple’s audience by a lot.

  • Andy Orr

    Just a related aside – how viable in the long term are apps that get updated for free for the user’s lifetime? This is completely out of the norm for software in the past. Makes no sense to me.

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  • Tom Harvey

    Will your “Airshow: The Workshop” be available on DVD?

    • Eventually. It’s currently a 5 hour experience.

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