How does Apple Make Money Outside of iPhone Sales?
Apple is the first publicly traded US company to hit a market value of $1 trillion. The tech giant’s rise has been driven largely by its wildly successful iPhone, which has been instrumental in shaping our mobile world and is a staple of daily life for hundreds of millions of people who use it to make calls, send texts, take photos, check Facebook and stay on top of the news. However, the sales of the iPhone across the world have hit a plateau since 2018. So how to make money outside of iPhone sales becomes a significant issue for Apple. In this article, we will focus on services and discuss whether they can be the most critical growth point for Apple.
Let the Data Talk
In the 10-K annual report of 2018, we can see that compared to 2017, the unit sale of the iPhone almost does not increase (less than 0.5%). The 18% increase in net sale by iPhone is just because of the rise in unit price. However, the net sale of services increases by 24% in 2018 and 23% in 2017. Services are the second biggest part of the five categories in net sales (iPhone, iPad, Mac, Services, and Other Products). When we have a more in-depth look at the data from the four financial quarters of 2018, we can see that Services are the only one in the five categories that keep growing through the whole year, which indicates that they are the stablest.
When we talk about services, what are we really talking about? There are four major parts in Apple services, which are digital content and services, iCloud, AppleCare and Apple Pay. Digital content and services include iTunes Store, App Store, Mac App Store, Book Store, Apple Music, etc. The services are different from other products that they are usually charged by the usage and subscription. Just last week, Apple had a special event without releasing any hardware products but announced several new services, which can indicate how Apple values services.
Four New Services
On March 25th, Apple had a special event which introduced four new services: Apple News+, Apple Card, Apple Arcade and Apple TV+.
Apple News+ is a subscription offering for magazines, which is launching with over 300 publications as well as digital subscriptions to newspapers like The Wall Street Journal. It’s $9.99 per month, the first month free, with Family Sharing.
Apple Card is Apple’s own credit card and it offers immediate online signup, app-based support, spending tracking by category and more. It’s done in partnership with Goldman Sachs and MasterCard.
Apple Arcade is a subscription service with access to 100+ high-quality games across iPhone, iPad, Apple TV, and Mac with no ads and no in-app purchases.
Apple TV+ is a new streaming video service consists entirely of original movies and TV shows handpicked and produced for Apple. It is apparently set to take on established players like Netflix and Amazon.
With these four new services, it is no doubt that we will see a big increase in the net salary of Services in next year’s financial report. But can these services save Apple when the growth in iPhone sales comes to a standstill?
The Future of Services
When talking about these new services, Tim Cook, the CEO of Apple, said “I believe it’ll be material over time. They’re things that we feel really great about, that we’ve been working on for multiple years.” Although Tim has confidence in the services, Warren Buffett, the chairman, and CEO of Berkshire Hathaway may have a different idea. When discussing the newly released services, he said: “Apple should do some things that don’t work.”
From my point of view, these new services are essential not only for their contents but also because they will increase user stickiness on the Apple devices. Think about three years later, you are following the series on Apple TV+, paying by Apple Card, reading your favorite magazine on Apple News+ and playing games which are on Apple Arcade only and if you want to buy a new cellphone, will you consider not using iPhone?
For myself, right now I am paying $9.99/month for 2T iCloud storage, $4.99/month for Apple Music and I have several in-app subscriptions which Apple takes 30% commission. It is very likely that the total amount of money I spend on Apple services will be continually increasing in the future. Although we are not sure whether these services could help Apple maintain the high rate of growth, Apple has given the whole IT-industry a new direction, which is focusing more on bringing better services. Maybe this is a new start for Apple.
Thank you for your reading and see you next time.
