It has been said of Apple that it was excessively dependent on the iPhone, a product that came to monopolize two thirds of its income. Now it has lowered that indicator to less than half of its turnover. He has done it with various formulas: a Mac powered by Apple Silicon that has been gaining market share or successful complementary products such as AirPods or the Apple Watch, but above all, due to the rise of its Services division.

This division comprises the revenue from the App Store (purchases, subscriptions and purchases in-app), those of Apple Care, iCloud, Apple Pay or the company’s own services, such as Apple Music, Apple TV+, Apple News+ or Apple Fitness+, among others. And now, for the first time in a long time, it grows in a restrained way, after five years taking off in double digits.

There are reasons to worry

In the last presentation of quarterly results they have announced 19,200 million dollars billed in this division. That’s down from the previous three quarters.and “only” 5% higher than the same quarter last year.

This is a problem because it means that the division has been reducing revenue for three quarters, and unlike the iPhone division, it is not seasonal. This same graph of iPhone revenue shows a typical pattern: peak sales in the quarter after its late-summer launch, and three quarters after that with significantly lower sales.

In Services, the pattern has always been bullish beyond occasional reductions… until now. Only Apple Care, which may have more sales in the third quarter due to the renewal of the iPhone, has something seasonal here. Apple Pay, TV +, Music, iCloud, the App Store… are more sustained income over time.

Let’s look at the year-over-year growth of this division.

Services have already surpassed the rest of the divisions except for the iPhone and right now they account for 21% of Apple’s income, but its growth gives symptoms of exhaustion.

There are several movements in the last decade that indicate that Apple has leveraged in Services to continue growing. They are products that can scale faster than hardware, and leaving a better profit margin for the company.

For example:

  • In 2016, it began allowing any app on the App Store to be monetized through subscription, rather than a few categories.
  • It has gradually launched its own services, such as Apple Music in 2015; and above all, the launch of Apple Arcade, TV + and Apple Card in 2019
  • It has been offering 5 GB free in iCloud for eleven years, without increasing it, pushing more and more iPhone users to pay at least one euro per month to be able to make their backup copies
  • In 2020, it launched Apple One as a way to package subscriptions to its own services, and thus attract more customers and make cancellations more difficult.

What can come now to improve a growth trend that is starting to go down? This announcement has come just a few days after Apple announced price increases precisely for several of its services (Apple Music, TV + and the Apple One package), and weeks after the price increase in the App Store. Measures that may lead to an increase in revenue per user at the cost of losing users who decide to switch to Spotify or cancel TV+, for example; or download fewer apps.

Apple Music released new features a year ago that have not yet been replicated by Spotify, such as music without quality loss or the addition of Dolby Atmos to part of the catalog. However, it still falls short of Spotify in terms of app features (like the great Spotify Connect) and performance, especially on desktop. Would you improve your subscriber base if you focused on catching up with Spotify in this regard?

Apple Arcade has been on the market for more than three years and although its initial promise was very reasonable (free bar of games from a large catalog in exchange for five dollars under the promise that they will not use microtransaction mechanics or advertising), at this time it has not It seems more than a resource for parents who need to entertain their offspring without fear of bills of one hundred euros in virtual gems.

TV+ has very good quality productions and shares two keys with its competitors: it is part of an ecosystem and not so much a product in itself, like Amazon Prime; and focuses on auteur stories, like HBO Max. However, the speed at which its catalog is growing is glacial. And your competition goes by powerboat.

especially video games

The App Store is crucial to understanding this divide. Apple does not unbundle its income and it is impossible to know how much Apple Music bills for Services, how much Apple TV+, how much Apple Pay, how much iCloud, how much Fitness+… What we do know is that analyst estimates They give a lot of prominence to the income of the App Store, specifically to its video games.

Behind the cryptic “Services” there are many Apple products, but at the billing level, the main actor is the video game of the App Store

A report from a year ago published by the Wall Street Journal A collation of the lawsuit against Epic revealed that Apple made a profit of 8,500 million dollars directly from the games in its application store during 2019. This is equivalent to an amount greater than the profits of Microsoft, Sony, Nintendo and Activision Blizzard for video games during that year.

“Services” is an elegant way of grouping various sources of income without revealing who decides the balance the most, but apparently, according to the documentation revealed by the trial against Epic, it is the Pokémon Go, Candy Crush or Honor Kings of the day. And now it is barely able to maintain growth, already with the great Apple services put on the market.

One of the potential avenues for growth was increasing advertising on the App Store by placing ads in new placements. That was activated on Monday, it set off alarms on Wednesday and by Thursday Apple had already announced that it was backing down. Happy Friday.

Source: www.xataka.com

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Tarun Kumar

Tarun Kumar has worked in the News sector for 05 years and is currently the Owner and Editor of Then24. He reside in Delhi, India with his Family.

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