Apple, a longtime hardware company, is beefing up its software plays. As my colleague Peter Kafka wrote yesterday, Apple wants — and maybe even needs — to be a service company so it can make money from people who don’t own its devices.
Ahead of the annual Consumer Electronics Show, the company announced it would be selling Apple TV services through Samsung TVs. It was an indication that Apple needs to sell things to people who don’t own its iPhones, computers, or Apple TV streaming devices — whose sales haven’t been so hot.
Just last week, Tim Cook revised Apple’s revenue guidance down for the first time, citing lackluster iPhone sales in addition to trade tension with China. In his letter to investors, Cook directed the limelight instead onto Apple’s growing services segment, which hit an all-time revenue high of $10 billion last quarter. Services include recurring revenue streams like iCloud and Apple Music for which consumers pay an ongoing monthly fee. A yet-to-be-announced video service would add to that revenue.
Services made up about 16 percent of Apple’s total revenue in the forth quarter of 2018. It made up less than 10 percent in Q4 2015. Services revenue is higher than iPad but lower than Mac sales. iPhone revenue is growing too, thanks to larger price tags, but those markups have contributed to stagnant unit sales — and further price increases could only make the situation worse.
Of course, the fortunes of many of Apple’s services — iCloud, Apple Music, Apple Pay — are still partially contingent on the success of the iPhone. So increasing services revenue isn’t a silver bullet, but it’s better than the alternative.