What’s Apple Up To?
We’re all familiar with the story: Out of a small garage in Los Altos, California, three people came together to create one of the most valuable companies ever created. Apple Computer Company, as it was originally called, launched in 1977, truly revolutionizing computer technology. Over the years, Apple has continued to innovate, creating new computers, music players, phones and watches. Every top company in their respective fields are affectionately referred to as “the Apple of _,” and even today, the design, polish and experience of an Apple product is top-notch.
On March 25, Apple held a press conference detailing new services that its devices would offer consumers. For example, Apple News+ is a service allowing users to access over 300+ publications, including The LA Times and WSJ, and online publications like Vox and TheSkimm for a flat rate of $9.99 a month. Another service, Apple Arcade, offers over 100 games from esteemed game development companies around the world for a flat rate of $9.99. These are playable on various Apple devices (iPad, iPhone, Mac and Apple TV) and are specially formatted for each device.
Making a stronger push into the financial industry, the Cupertino-based company announced its “Apple Card, a credit card offered in collaboration with Goldman Sachs. Impressive features include charts that detail your spending habits and encourage you to spend wiser, no annual fees and instant access to the card when you sign up instead of waiting for the card to come in the mail. Finally, Apple TV+ is a streaming service offering exclusive TV shows and movies (a la Netflix Originals) created by some of the biggest names in Hollywood: Steven Spielberg, Oprah Winfrey, J.J. Abrams, they’re all there.
It’s clear that Apple took a significant shift in its business plan, steering away from new hardware and devices and towards more services. What’s up with the change?
Apple has been close to reaching a breaking point for a long time. For the past few years, the iPhone has represented most of their earnings. It’s just such a successful product that other Apple devices can’t compare. In the holiday quarter of 2018, Apple earned $84.3 billion, with $51 billion of that coming from iPhone sales. While it’s an enormous amount of money by any count, it is a 14.9 percent drop in sales from last year. The market for customers who have never had a smartphone is shrinking and attempts to move into emerging markets like India have been unsuccessful. Along with this, market share in countries in China have dropped due to increased competition between local companies like Oppo and Huawei. Apple has realized iPhone sales can’t increase as much as they used to in the past, simply because most people who want one already have one. So how do they increase their revenue? By opening up to services.
It is safe to say a market of a billion-plus is a market worth expanding into. While products like AirPods and Apple Music might be available on other non-Apple devices, they are associated most often with Apple products. For example, fewer than 5 percent of users on Apple Music use an Android phone rather than an iPhone. There will always be competition between iPhone and Android phones, but most people are comfortable with what they have and don’t want to learn a new interface. To offer services for your products exclusively is a way to help users use your service in a way incomparable to others and strengthens the grip the company has on you. That’s part of why Google has a single sign-in system for all its services; the easier it is to sign up, the better.
At the same time, the services industry has been growing and growing. In the music industry alone, streaming now accounts for over 50 percent of revenue, and most experts expect it to only grow. Other services like Netflix and Hulu have helped usher in a new era of TV-watching and pushed other titans like Disney and Warner Bros. to release versions of services. The service industry is growing quickly, and Apple wants a sweet piece of that pie.
The announcement of these new services helps Apple grow their services division to heights it hasn’t reached before. This past holiday quarter, revenue from the category reached $10.9 billion, marking the first time it reached double digits. Since the third quarter of 2015, this category has grown double digits year by year due to growth in iCloud usage and the introduction of Apple Music and Apple Pay. To help accelerate growth, Apple has introduced new products for categories with streaming markets. Be it TV, games, news; Apple’s there.
Really, we won’t be able to tell how this will impact Apple’s bottom line for a year or two. Releasing so many services in the span of a few months? Tearing people away from their services they already use? On top of this, there are questions that focus on each service: If a celebrity is found doing something not up to Apple’s squeaky-clean image, will they drop them from Apple TV+? If a news service is found guilty of collusion with an outside source, what will Apple do? All these questions will have to be answered somewhere down the line, but if we’ve learned anything about Apple’s storied history, it’s that they will somehow come out on top.
Photo Caption: In an effort to diversify its revenue sources, Apple is launching many new services.
Photo Credit: Wikimedia Commons