We have recently seen a change in Apple’s behavior. Why Apple is shifting its focus from hardware to software company?
For many years, the iPhone has been Apple’s most important product, and it has helped the business become the first trillion-dollar corporation. However, things are beginning to change. During its most recent earnings conference, Apple said that it would no longer break out unit sales of the iPhone or its other devices. “A unit of sale is less meaningful for us now than it was in the past given the breadth of our business,” CFO Luca Maestri said.
This shift comes as Apple’s iPhone sales have been practically steady for the last two years – they peaked in the Christmas quarter of 2016 – signifying the company’s first exposure to the smartphone market’s slowing growth.
Why Apple is shifting its focus from hardware to software company?
Apple’s “services” revenue was around $10 billion in the most recent quarter or approximately $37 billion in the previous year. Services revenues, which include income from the App Stores, the iTunes Store, Apple Music, iCloud, Apple Pay, and AppleCare, as well as money paid to Apple by Google to be the default search engine on its operating systems, bring in nearly as much as the Mac and iPad combined and account for 16 percent of Apple’s revenue. That business alone would place Apple in the top 80-85 of the Fortune 500. (Apple’s total yearly income is estimated to be over $229 billion.)
Services are the fastest-growing revenue source for Apple, and Apple has laid the seeds for this to expand enormously in the future. Apple Music subscription growth has more than compensated for the dramatic reduction in music download sales, and Apple’s upcoming video service will almost certainly be a money-maker as well. ( Why Apple is shifting its focus from hardware to software company? )
Apple’s services revenue by quarter
Many subscription-based services do not rely on users updating their devices or making impulsive purchases but rather generate revenue every month.
This is true for iCloud storage, Apple Music subscriptions (though you may sign up for a year at a time), and the upcoming video and Apple News services. Against dropping iPhone sales in China and India and flat global sales, services growth, although not replacing decreased iPhone revenue, will help the business.
One subscription? ( Why Apple is shifting its focus from hardware to software company? )
This has prompted several commentators to contemplate the concept of an “Apple Prime” membership service, which would provide a single subscription to all of Apple’s services (perhaps including AppleCare). Apple has already made efforts to reduce the rising cost of iPhones by creating its iPhone upgrade program, which allows you to purchase an iPhone with AppleCare and upgrade after a year for a monthly charge. There will be no more limiting carrier plans, no more concerns about the exorbitant cost of the phone altogether, and no more concerns about selling an old phone when you want a new one.
Most Apple services rely on platform lock-in; except Apple Music, which is available on Android, all of these services need one or more Apple devices. As a result, the consumer base is simple to come by. Consider a single monthly charge for Apple Music, Apple’s video service, more iCloud storage, and maybe other benefits. If it were priced correctly, this would be an easy sale because it’s far simpler to persuade people to pay for a package of services than individual services. It would also alleviate the pain of iCloud storage nickel-and-diming (no matter how many devices you have, you only get 5 GB free and must pay $1 or more per month to save all your stuff on the cloud).