What’s the answer? It’s not a product. Rather, Apple’s fastest growing revenue stream is made of many revenue streams, affectionately referred to collectively as Services, which now makes more money than Mac and iPad. Combined. How does Apple’s loose pocket change compare to Google?
One. Trick. Pony.
Apple’s products make money the old fashioned way. Hand over fist for hardware. And, now, Services. One can argue Apple is the iPhone company because more than 60-percent of revenue and profits come from the iconic device, but everything else makes money, too. Especially Services.
If it ain’t hardware, and Apple sells lots of hardware, it’s in Services. Think Apple Music, iTunes, iOS and Mac App Stores, iCloud, Apple Care, Apple Pay, and more. All those little pieces add up to a bigger slice of Apple’s pie than Mac and iPad and Watch (my guesstimate; tell me if I’m wrong). Here’s the problem with Services. Apple is selling to its customer base instead of selling new products to new customers.
Apple Pay, Apple Music, Apple Care, iOS and Mac apps, iCloud services, iTunes media, and almost everything else Apple sells that is not hardware is being sold to the customer base. The world is already experiencing personal computer fatigue and smartphone fatigue, so is Apple headed down a trail of customer Services saturation?
Now, let’s compare that situation with Google (Alphabet, if you prefer, but to everyone else, Google is Alphabet). Where does Google get most of its revenue and profits? Pixel smartphones? Nope. Google Home speakers? Uh uh. How about Nest devices? Colder. Search engine results? You’re getting warmer. Google was, is, and likely will remain an advertising company. Despite the playful logo and all the technology press releases of cool products, Google sells ads.
Very profitable ads is the money comes from.
You are not Google’s customer unless you buy a Pixel smartphone, or Google Home speaker, or some kind of Nest device. Or, advertising. Google gives away software for free so it can collect data from users. That makes you the user. Google gives Android OS away to cellphone manufacturers for free– so it can collect more information from smartphone users.
I see some problems ahead for Apple’s Services and Google’s revenue stream.
Apple’s Services revenue growth can only continue if the customer base continues to grow, and there are more hardware products which need services. Apple hasn’t had a big hit product since iPad, and that one lives in the doldrums.
Likewise, Google has spent a fortune– tens of billions of dollars– in failed attempts to diversify beyond advertising. There is a reason Google does not announce how many Pixel smartphones have been sold. Google has a number of fronts which could collapse revenue growth and impact profits rather quickly. First, a saturated user base. Second, privacy laws. Third, user awareness to Google’s dangerous data collections, and alternative search options. Fourth, user distrust of online advertising (hence the company’s efforts to collect and sell more data).
Both Apple and Google are flying high with increased revenue and profits and a comparable stock price. Good roads heavily traveled end up with potholes. Oh, and what goes up, must come down.
Apple’s newest diversification efforts– Services– are inwardly directed. Google has not been able to diversify beyond advertising.
Will either company overcome those potholes?