Color me somewhat jaded with lame-stream news media these days, but I’ve grown weary of headlines which do not match reality, and thin-skinned analysis masked as news. Uncovering truth takes some work.
As an example, you’ve probably read the headlines about Microsoft’s new Surface Laptop and how it’s a MacBook killer. No. It’s not. You may have read that iPhone sales are falling. No. They’re not. The iPhone business is doing well. You may also have read that Apple’s burgeoning Services business is the company’s next great thing. No. It’s not.
General Motors OnStar satellite business is growing faster than the company’s automobile business, but does that mean GM is becoming a satellite company? No. GM sells cars and trucks. Likewise, Apple is a hardware company. Yes, it sells software. But Apple also sells TV shows and movies. So, is Apple becoming an entertainment company? Not really. All these extra Services that Apple collects into a single category are there– and growing– because Apple sells hardware and the customer base is growing.
What are Apple’s Services?
Think of Services as a catch-all category of all the products and services Apple sells that are not iPhone, iPad, Mac, or accessories. The iTunes App Store for iPhone and iPad. The Mac App Store. Apple Care. Apple Pay. And a gazillion subscriptions for things like Apple Music, iCloud, and everything else that isn’t a major hardware product.
How big is Apple’s Services business?
Big. Very big. And growing fast, thanks to an installed base of customers which continues to grow each year. Apple doesn’t have many customer defections so each year brings millions of customers into the ecosystem. How big? Apple said it has 165-million subscription customers. The most recent financial quarter gave more than $7-billion in revenue to Services. That puts Services on an annualized rate of nearly $30-billion. Is that good? It’s double Microsoft’s cloud business which has Office 365 subscriptions. It’s more than double Amazon’s Prime and media business. It’s more than double Netflix annual revenue, too.
Apple’s Services is a big business.
Apple as a company comes in at #3 on the Fortune 500 list. Where would Apple Services fit? Ahead of Time Warner, John Deere, 21st Century Fox, McDonalds, and in the Top 100.
So, isn’t it obvious that Apple is becoming a Services company?
Again, no. Services revenue doesn’t mean much if Apple doesn’t sell hardware. Services are driven by user base growth, and that’s where Apple excels. The user base is defined as all the hardware customers Apple has, and with a few hundred million iPhone sales each year, dozens of millions of iPads and tens of millions of Macs sold each year, the user base grows.
So, is Apple’s future in Services? No. Hardware drives Apple’s revenue and profits, and Services is something of a catch-all category to account for everything else Apple sells. Services is growing fast and that isn’t likely to change as long as Apple’s iPhone, iPad, and Mac continue to sell well. The secret is in the user base which continues to buy subscription products (Apple Music is a good example; so is iCloud storage, among others), and continues to return to the fold for new product upgrades.
No, despite the headlines and articles suggesting otherwise, Microsoft does not make a MacBook killer and Apple is not a Services company.