Yesterday Apple announced its Q3 earnings. There is no surprise that the company continues to seemingly print money with $81 Billion (with a B) in revenue. The iPhone now represents 49% of Apple’s revenue compared to the Mac at 10% and the iPad at 9%. (As usual, Jason Snell has all the numbers and pretty graphs.)
However, the most interesting number for me was services, which represent 21% of Apple’s revenue. That’s right. Apple makes more now on services than it does on the Mac and iPad combined.
This causes me a slight pause because historically, Apple has always been a product company. They made gizmos and we gave them money for the gizmos. Being in the gizmo business lead Apple to a particular set of priorities and serious commitment to customer experience.
Services are a different business model. The key to services is convenience and recurring revenue. This model could lead to a focus on customer experience. (People will continue to pay for outstanding services just as they would products.) However, services also can tempt a company to chisel customers. Little bits of services income across millions of customers adds up to a lot of money.
For the first time, Apple has a legitimate motivation that is not centered on customer experience. So how will they proceed? Toward excellent services or chiseling?
It seems to me that, on the whole, Apple is listening to its better angels. For example, Apple Photos and the sync engine behind it provide a truly valuable service to millions of users at a price that makes sense. Another example is the iCloud+ features coming this fall.
However, your free tier of iCloud storage remains a laughable 5 Gigabytes. That number was low when it was first announced. In 2021 it’s absurd. The goofy way in which they determine who is a small developer (lowering Apple’s cut of App sales) is another example that is hard to view as anything other than chiseling.
I don’t have the answers. At this point, I think it is an interesting question that Apple enthusiasts should keep an eye on. As services continue to grow for Apple, will they change their focus?