Thriv­ing Ser­vices

How Ap­ple is mak­ing money with Ser­vices

Mac|Life - - CONTENTS - By Alex Sum­mersby

How Ap­ple is mak­ing money with Ser­vices.

Ap­ple is a hard­ware com­pany, right? Well, sure, but af­ter buy­ing MacBooks or iPhones, cus­tomers con­tinue to spend money with Ap­ple, mak­ing its Ser­vices busi­ness its next-big­gest rev­enue stream af­ter the iPhone. There’s ad­mit­tedly quite a gap — in Ap­ple’s Q1 2018 (ev­ery­one else’s Q4 2017, end­ing De­cem­ber 31, 2017), iPhone sales brought in $61.6bn and Ser­vices $8.5bn — but this still makes the Ser­vices seg­ment on its own the size of a For­tune 100 com­pany.

What is Ap­ple’s “Ser­vices”? It in­cludes the App Store, Ap­ple Mu­sic, iCloud, Ap­pleCare, and Ap­ple Pay.

In Fe­bru­ary, Ap­ple CEO Tim Cook said in Ap­ple’s Fi­nan­cial Con­fer­ence Call that the quar­ter’s Ser­vices rev­enue was up 18% over the pre­vi­ous year, “and we’re on pace to achieve our goal of dou­bling our 2016 Ser­vices rev­enue by 2020.” In ad­di­tion, “The num­ber of paid sub­scrip­tions across our Ser­vices of­fer­ings passed 240 mil­lion by the end of the De­cem­ber quar­ter. That’s an in­crease of 30 mil­lion in the last 90 days alone, which is the largest quar­terly growth ever.”

As Ap­pleIn­sider points out, Cook is un­likely to mean that Ap­ple has “a quar­ter-bil­lion sub­scribers to its own Ser­vices;” a large pro­por­tion of this num­ber must be sub­scribers signed up through the App Store for games, ser­vices, and con­tent feeds from which Ap­ple gets a cut.

De­spite com­men­ta­tors pre­dict­ing that the app econ­omy boom is over, the App Store is still do­ing strongly. Ap­ple does not de­tail how much of its rev­enue comes from this stream, but ac­cord­ing to data an­a­lyst Sen­sor Tower, US iPhone users spent an av­er­age of $58 per ac­tive iPhone in 2017 on pre­mium apps, subs, and in­app pur­chases (but ex­clud­ing on­line shop­ping and the like). This was a 23% in­crease, up from an es­ti­mated $47 in 2016, and sig­nif­i­cantly higher than Google Play’s rev­enue per user of $38 in 2017.

Sen­sor Tower says mo­bile gam­ing rep­re­sented the largest sin­gle cat­e­gory of spend­ing on iPhone apps: Games and IAPs ac­counted for about $36 of the $58 spent per de­vice, or 62%. En­ter­tain­ment (in­clud­ing sub­scrip­tions to ser­vices such as HBO NOW, Hulu, and Net­flix) was the next-largest cat­e­gory, at an av­er­age $4.40 spent in the App Store per ac­tive iPhone, a 57% rise over

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