Face the facts. Apple’s entire business model has a problem. As diversified as the iPhone maker is these days– everything it makes is profitable– the company cannot go on squeezing revenue from a static customer base.
Run down the list of Apple’s plentiful Services revenue sources and what do you see? Apps, App Stores, Apple Music, AppleCare, iTunes Store, Google, Apple Pay, Books, repairs, lawsuit wins from Samsung, licensing, and more. What do they have in common?
It’s The Hardware, Stupid
Every time I read a headline that says Apple is becoming a Services company I laugh. Or, spit. It depends on whether or not I’m eating, drinking, or just reading. Yes, Apple is making a move toward ever more services because iPhone, Mac, and iPad sales are mostly flat.
What does that mean?
Hello? Apple? Anybody home?
Services are dependent upon one thing. Customers. Hardware customers. Apple’s push into ever more services means ever more revenue from a somewhat stagnant customer base that isn’t buying hardware like it did a few years ago when everything hard– iPhone, iPad, and Mac– was selling at record levels.
Yes, Apple can still sell more services to the customer base of hardware owners, and it can sell ever more accessories to those same hardware owners– which explains Watch, AirPods, Beats headphones, iPhone cases and iPad keyboards– but there is a limit to how much revenue can be extracted from each customers, on average.
Apple does not seem to care about gathering more customers to the base of hardware owners and has doubled down on ever more services. Apple News+, Apple TV+, Apple Card, Apple Arcade are the newest and undoubtedly become a steady increase in revenue for many years as the company milks the hardware customer base until we’ve become the raisins of high tech gadgets.
Steve Jobs brought the iPod to life and sold a few hundred million of them. He ensured the life span of the Mac would continue by moving the platform to Intel Inside. He launched the iPad and it became Apple’s fastest growing product ever. Jobs was the King of Market Disruption.
Then along came Tim Cook, the King of Apple Accessories, with Watch and AirPods and Beats headphones.
What’s missing from the current strategy should seem obvious. One. More. Thing. Or, put another way, the next insanely great thing. Hardware. All those software sales and services sales are dependent upon the same thing. Hardware customers.
Apple needs to grow the customer base and that can be done only two ways. First, new products to sit alongside iPhone, iPad, and Mac. Second, entry-level products to attract new hardware customers to Apple’s various platforms.
Without a growing customer base it won’t be long before current customers can no longer afford to live in the walled garden ecosystem.