Complex Made Simple

Apple’s business model is undergoing a complete makeover

Today, Apple is forced to adapt to a changing tech landscape, where gadgets are no longer the sole stars of the show.

The iPhone is no longer the breadmaker it used to be In March, Apple began a true shift of its business model, putting more focus on services This month, the company even launched its own credit card

For a while now, Apple has begun to realize that its years long strategies of the past would no longer suffice to keep its financials in the black. This isn’t 2007 anymore: the iPhone is no longer the be-all, end-all of touchscreen smartphones. What Apple had excelled at, others, such as rivals Samsung and Huawei, have innovated over the years, often at more affordable prices.

Today, the American tech giant finds itself in a precarious position. As Bloomberg explains, Apple’s three big hardware markets – smartphones, personal computers and tablets – are stagnating. The usual star of the show, the iPhone, saw its revenue drop 17.33% year-over-year in Q2 2019. Further to this, CNBC reminds that “iPhone revenue accounted for 53.5% of Apple’s revenue for the quarter, which is lower than it has historically been.”

Q3, however, saw an improvement, but the downward trend of the iPhone continued. 

“Apple’s iPhone revenue was lower than what analysts expected, and fell 12% from the same quarter last year,” CNBC reported. “Weakness in Apple’s flagship product was partially offset by strength in the Mac and Wearables divisions.”

The news site continued: “The iPhone accounted for 48.3% of Apple’s overall revenue, the first time that it hasn’t contributed over half of Apple’s sales since 2012.”

So while the iPhone was facing challenges, a new trend was making waves within Apple, and it was quite noteworthy in the aforementioned two quarters. Their services revenue, which includes Apple’s wide breadth of services and subscriptions, such as Apple Care and more, saw a continued surge. This is the age of services after all, where Netflix and others have normalized the “X as a Service” business model that’s come to encompass everything from video streaming, to cloud computing and gaming.  

According to the earnings call, services margins were over 64%. This figure, says CEO Tim Cook, was an all-time record for the company in a conference call with analysts.

“Our strong services performance was broad-based,” Cook said in a call with analysts, quoted by CNBC. “We set new all-time records for AppleCare, music, cloud services, and our App Store business, and we achieved a new third quarter revenue record for the App Store.”

So with this growing new trend, Apple has realized that diversification – and more precisely the services offerings – are where the big bucks will be made moving forward. 

This was perfectly depicted in the company’s “It’s Showtime” event back in March, where the company unveiled 4 new services. These included Apple TV+ for TV channel streaming, Apple Arcade, a new gaming subscription, and more. 

This month, the company even launched its own branded credit card, after announcing it at the March event. 

Could we see Apple continue to roll out even more services and subscriptions in the years ahead? Most certainly. While the company is busy planning next month’s debut of its latest iPhone, it certainly is cooking up even more services to stay competitive. Now that Apple even has its own credit card, what could be next for the tech giant? 

At this point, the sky is well and truly the limit.