What the Success of Apple "Services" Business (Circa Quarter 4 2014) Means for Apple's Stability
In the podcast above (from Nov. 17th, 2014), tech writers and consultants Horace Dediu and Anders Brownworth discuss the state of Apple's "Services" business - which they suggest some analysts may be overlooking in their eagerness to report on Apple's remarkably vigorous hardware business (according to a report from KGI analyst Ming-Chi Kuo, "quarter-over-quarter Apple iPhone shipments will swell 82 percent in the fourth quarter of 2014").
One way of thinking about how Apple is evolving as a company is to think about the legs under a stool.
The iPad and iPod are two legs that are apparently in the process of being sawed off (in the podcast, Anders talks about one prediction that has iPad sales declining 40% in Quarter 1 of 2015).
But even if the iPad and iPod all but disappear in 2015, Apple's overall revenue stability may not be that adversely effected.
The iPhone 6 has undeniably had a VERY strong global launch.
And Apple isn't just relying on their hugely profitable iPhone product line: Apple has acquired Beats... and the Apple Watch and Apple Pay are coming...
Even if Apple Watch and Apple Pay don't catch fire with consumers (and I think Apple Pay could become popular because Apple's mobile payment solution addresses the growing problem of credit card fraud while making life more convenient for consumers and merchants), Horace Dediu reminds us that Apple's iCloud business is already growing - in a quiet way becoming the latest new support under Apple's bottom line.
For example, while Apple doesn't currently break the numbers in "iTunes/Software/Services" out - Horace Dediu thinks something like two thirds of Apple's iCloud users may be paying for that service (i.e., paying $12/year for more storage than the entry-level free accounts).
If he is right, Apple's ability to generate revenue from converting free iCloud accounts into paid accounts is unique. Google and other services are not reporting similar revenue from their consumer cloud storage businesses.
In other words, even though Apple's tablet and iTunes music business aren't growing like they once did, the money flowing from iPhones AND Apple's cloud "Services" business seem to be supporting an evolving Apple - one where access to content and a rapidly evolving complement of new high margin devices are creating new revenue legs.
Will being a luxury brand, selling high margin devices - and monetizing the ease of use of information (like selling easy access to stored data and payments with mobile devices and wearables) - continue to make Apple a hugely profitable company?
I don't know.
But Tim Cook and his crew deserve some credit for continuing to find new revenue supports even as the old legs fall off.
Posted by Randy Finch on Tuesday, November 25, 2014
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