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The Blog Of David Marks

Just in case you wondered where Apple’s revenue comes from

Posted on | April 21, 2010 | No Comments

Today, Silicon Alley Insider released their excellent chart of the day for Apple’s latest revenue figures. Note that Apple receives most of their revenue selling devices like the iPhone, not software. But they spend a heck of a lot of software and content (iTunes) in order to stimulate demand and differentiation for their hardware products.

From the Silicon Valley Insider’s excellent chart of the day column.

Software and content, selling the hardware.

Compare this with the same kind of chart for Google revenue. You see the same thing: a network of web applications, including search, which enable making money from a secondary source which in this case is mainly keyword advertising.

Google revenue graph
Search and web application traffic, enabling keyword based advertising revenues.

This kind of network based business model provides differentiation and defensibility to these large companies. But startups should take note too. You’re competing with these guys! Want to launch an online video store? You’re competing against Apple who will be willing to drop prices much lower than you will because their money is made in the hardware.

Want to create a great advertising platform? To grow a large business, you’re competing with Google who has access to a sh*tload of data from a network of applications, sites and platforms and a lot of high quality traffic (let alone a large number of advertiser relationships). These networks allow the support of loss-leader nodes that otherwise would be unsustainable by themselves, because the value is harvested elsewhere. I’m looking at you, YouTube.

Before anyone gets depressed about how hard it is to build a big business in this increasingly mature technology ecosystem, I think there is an opportunity in the works: Services which connect the dots between smaller services to build defensible business networks and transfer value between nodes in the ecosystem. Not trivial to do, but not impossible. And there are a few examples: services like Bluekai are examples of connectors which connect the dots today, create new revenue sources for organizations that otherwise don’t exist.

More innovation in this area seems like a good thing, especially for those of you out there who are trying to build something big.


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