Apple is nearing an extraordinary milestone.
By the middle of 2017, the Californian technology giant’s revenues from iOS — its mobile platform — are expected to bring in a staggering $1 trillion (£815 billion) in lifetime revenues.
That’s according to Horace Dediu, an Apple analyst, writing on his blog on Wednesday.
“The revenues from iOS product sales will reach $980 billion by middle of this year. In addition to hardware Apple also books iOS services revenues (including content) which have totaled more than $100 billion to date,” Dediu wrote.
“This means that iOS will have generated over $1 trillion in revenues for Apple sometime this year.”
In other words, that $1 trillion figure includes both hardware and software — sales of the iPhones (and iPads) themselves, as well as sales of apps and subscription services through the Apple App Store.
The hardware sales dwarf the iOS services revenues — but the services are an increasingly important sector to Apple. Many analysts say a major shift is underway in Apple’s business model, away from “hits” and towards these services.
Historically, Apple has always been about these hits. They’re (in theory) revolutionary products that transform the landscape — giving a big boost to the company’s bottom line. The iPhone was the ultimate hit.
But there hasn’t been a major new hit for Apple since Tim Cook took the reins in 2011. The business has continued to grow, but the only new product was the Apple Watch, and that hasn’t exactly set the world on fire.
According to Horace Dediu, speaking at the UBS Tech Conference in late 2016, the company may be deliberately trying to move away from the “hits” model.
“I think Apple management has been trying to de-emphasise the hit-driven business,” he said. “That’s not to say they’re not going to have more hits, but they don’t want the company to be seen as a hits business. One of the big audiences that Tim [CEO Tim Cook] has is actually internal employee morale. I think the hit-driven mindset is demoralising internally, and there is a concerted effort to tone down this ‘Let’s hit home runs’ mind-set.”
Instead, the new focus is on services that generate continual revenue for the company — like Apple Music, its subscription-only music streaming service. The sheer size of Apple makes it difficult for any one new product to move the needle in a meaningful way.
A recent post on Seeking Alpha also points out the strengths of relying on services rather than new hits (emphasis ours):
“An Apple driverless car sounds like an amazing headline and so does a VR headset. But $0.99/song sales and small commissions on Apple Pay transactions counterintuitively excite me more. I believe a high-growing business that has already delivered nearly $25 billion in annual revenues while carrying a gross margin of at least 65% is Apple’s “next big thing” – and it is already here. If you disagree, think about Tesla’s (NASDAQ:TSLA) 24% gross margins: it would require a car company nearly three times the size of Tesla to create the same amount of gross profits that Apple already generates with its vertically-integrated Services business. Building such car company would be no easy feat.”
In other words, at Apple’s scale, capitalising on its existing userbase with services is far easier — and more profitable — than trying to move into new product categories.
January 9, 2017, was the tenth anniversary of the unveiling of the iPhone, and June 2017 will be the tenth anniversary of it going on sale. “In its first 10 years, the iPhone will have sold at least 1.2 billion units,” Dediu predicts, “making it the most successful product of all time.”
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