Resellers Contribute Tiny Share to Apple Revenues

Every since Apple opened its first retail stores in May 2001, the company has taken the position that its authorized resellers actually benefit from a nearby Apple store, instead of having business stolen away. The resellers are not convinced, and over the years have claimed a variety of illegal or unethical business practices by Apple: failure to reimburse resellers for warranty repairs they’ve performed for a customer, no supply of just-introduced products and failure to promptly supply current products.

The question has arisen—How much does the reseller segment contribute to Apple’s overall revenue—that group of small, usually individually-owned retailers in small towns across the U.S. and in other countries. I tend to believe that Apple’s authorized reseller network represents a relatively small percent of the company’s overall revenues. Unfortunately, Apple doesn’t report its revenues in a way that separates out the resellers, but rather by four geographic areas and the retail stores. Therefore, it’s impossible to know for sure. Nevertheless, there are some clues.

First, Apple doesn’t allow resellers to sell certain Apple products at all, including the iPhone. Also, some resellers are restricted from selling other products, such as the iPad, Apple TV and Mac Pro. For example, even the huge Best Buy chain does’n sell the full line of Apple products, such as the Mac Pro and Mac mini.

Second, even for products that Apple resellers are allowed to sell, it’s well known that Apple severely restricts the supply. In the months after a typical new product introduction, there is no product supply at all for resellers, and in the following months there is only an unpredictable trickle. This has been an on-going source of irritation for resellers, among other issues.

Thirdly, 68 percent of Apple’s total net sales in the first nine months of fiscal 2011 were derived from the iPhone, iPad and iTunes. The iPhone is not sold by authorized resellers (only available only at the Apple on-line store, Apple retail stores and certain cellular carriers). The iPad is sold only be certain resellers like Best Buy, and then only is very limited quantities. The iTunes store has no outside resellers at all.

Lastly, now that Apple has recently switched its method of software distribution to on-line downloads, resellers no longer have software as source of revenue, including OS X or iLife. Naturally, the resellers already were not participating in any revenue from Apple’s App Store for the iPhone.

Now, if you combine all this information, it becomes a little more clear how resellers are contributing.

Virtually none of Apple’s 68% of iPhone, iPad and iTunes sales come from resellers. That leaves no more than 32% of the total possible revenue available for resellers. If one was generous in guessing that resellers contribute 20 percent of that 32%, you’d end up with an overall 6.4 percent revenue contribution by resellers. A 10 percent share if more likely, putting the overall contribution of revenues at just 3.2 percent. If you subtract other Apple revenues from products resellers cannot sell (OS X, iOS 5, for example, which are not separately reported), the actual percentage is even lower.

To prove this low share, look at it from the other direction: If you believe that retailers are contributing 20% to Apple’s overall revenue, for example, that would mean resellers would be generating 62 percent of Apple’s non-iPhone/iPad/iTunes revenue. That’s just not reasonable.

Again, all this math refers to authorized resellers, which include the mon-and-pops, Costco, 7-Elevens that sell iPods, Target, etc. It doesn’t refer to cellular carriers who directly sell the iPhone, Best Buy and similar large resellers in other countries.

Hopefully this math is correct and all this makes sense. Let me know in the comments if you have other questions or feedback.