Apples bread and butter has for the past 10 or so years been the iPhone but the company has recently been pushing hard its services department, that saw the launch of Apple Music, iCloud and now Apple TV Plus, News+ among others.
Apple has traditionally been a hardware maker but these recent shifts can only make one wonder why the thrust push into services? Herein lies the answer so ladies and gentlemen, shall we?
A look back at the history
Apple’s last financial quarter brought in $84.3 billion, a 5% drop from the same quarter a year prior. Traditionally this is Apples strongest quarter owing to the holiday sales that compound festive season sales as well as lying within the new iPhone launch window and for this case, that being the iPhone XS, XS max and XR. Even with the above advantages, IPhone sales dropped by 15%.
However, Apple issued warnings of missing its projected targets and partly to blame was micro-economic issues in its key markets like China where the economic slowdown impacted them big among others. Analysts also agree that people are also holding onto their older iPhones longer than before since they function as good. Adding to its woes, Apple even opened up its battery replacement program where old iPhone users can easily replace their aging batteries and juice them up as if they were new than having to buy a new iPhone. In other words Apples become a victim of its own doing.
An ever increasing average iPhone price
Add that to the ever increasing average price of the iPhone , then you can explain as to why iPhone sales are no longer ballooning like they used to. While Apple hasn’t been able to milk its cash cow as before, it has had to look for alternatives. And here comes services
And now the services push
Services alone brought in over $10.9 billion to Apples coffers in the last fiscal quarter, a figure that in its own right is bigger than what some Fortune 500 listed companies call revenue, thanks to services like Apples Music, Apple Pay, iCloud storage among others.
This has in return helped or is going to help Apple not to over-hinge on iPhone sales going forward. It has been spotted as a growth area that Apple cannot ignore.
It is also important to note that other hardware sales were not as disappointing as iPhone but given it contributes a bulk of Apple’s revenue, these couldn’t offset its negative impact on the companies consolidated results.
This can explain why Apple launched a slew of services that puts it in direct competition with companies its hosts in its App store, some of which have come to call it out for not playing fair, particularly Spotify and Netflix. Its Apple Music Service and Now TV+ compete with the two respectively. As the internet moves towards subscription based services, Apple also saw an opportunity to keep its investors happy by making a foray into the services business. It has even went ahead to go beyond its own ecosystem and brought its iTunes and Apple TV services to Samsung, LG, Sony and Vizio TVs.
Services is the way forward
Apple Music alone now has over 50M paying subscribers in just over 5 years of its operation and a big thanks to Apple’s growing eco-system that locks Apples users. It is these very users that Apple wants to convert into consuming its services. It already has an install base of over 1B and if fewer of these can upgrade their iPhones, not all would bypass a chance to consume its services by paying using its payment system, stream music at a paltry of what the competition charges, watch TV shows found not anywhere else among others and while this happens, Apple might be smiling at the bank as its services division grows to maybe one day eclipse iPhone sales.
