The iPhone is no longer a money cow. What does Apple make money from?

 The iPhone is no longer a money cow. What does Apple make money from?

For most of the past decade, the story of Apple has been the story of the iPhone. But during that time, Apple also learned a clever trick: how to make about one billion iPhone users pay for the growing number of non iPhone products and services.

Today, Apple has become a mobile communication device, wearable device, service, accessories, payment, finance and experience company.

This diverse way of making money is crucial because fewer and fewer people on earth have ideas, the ability to buy Apple products, and access the apple ecosystem.

Figure: the number of first-time iPhone buyers has fallen every year since reaching a historic peak of 129 million in 2016. In 2019, the figure is 63% lower than the peak.

Of course, Apple will continue to tap new iPhone buyers. As Tim Cook, the companys chief executive, often implies, Apple will eventually need a successor to the iPhone. At the same time, as the company continues to grow, apple must also be on the side of regulators and developer partners.

According to Neil cybart, Apples independent analyst, the number of first-time iPhone buyers has fallen every year since reaching a historic peak of 129 million in 2016. The figure is 48 million in 2019 and is continuing to decline. However, Apples quarterly revenue hit a record high in the holiday season last year.

Two aspects of statistical data can explain this phenomenon. First, Apples service revenue continues to grow. In the second quarter of 2020, as of March 28, Apples service revenue reached US $13.3 billion, accounting for 23% of the total revenue of that quarter. These include cloud service icloud, Apple Music and video subscription service AppleTV +, application sales commission, Googles payment as Safaris default search engine, etc.

The money is earned by apple from consumers who use devices rather than buy them. Apple will host its first annual global Developers Conference online on Monday. In the run-up to the conference, the interests of apple and its developer community had never been so important, but the conflict had never been so intense.

Patrick Moorhead, President of moorinsights & strategy, a technology research firm, said that in a global economic downturn, the number of people who buy mobile phones is likely to decrease. Apple said in a recent earnings conference call that people have been holding iPhones for ever longer, and that the company has been trying to persuade customers to upgrade their iPhones by lowering prices for some time.

The second explanation is that the number of active Apple devices around the world is still growing. Every year, the number is growing at about 100 million, including iPhones, iPads, macs, apple watches, Apple TV set-top boxes, and even poor sales of homepod speakers, but not including apple headphones that cant connect to the Internet independently. In 2016, there were 1 billion active Apple devices around the world. Now Apple reports that its 1.5 billion. About two-thirds of them are iPhones, Seibert said.

Figure: the number of active Apple Devices in the world is still growing.

At Apples latest earnings conference call, Luca Maestri, chief financial officer, said the company sold $6.3 billion in wearable devices, home furnishings and accessories, including apple headphones, apple watches and smart speaker homepod, and that 75 percent of Apple watches sold in the quarter were first purchased by consumers. Apple has said that the scale of such product business itself is equivalent to that of a fortune 140 company, which means that this business alone can generate about $22.5 billion in annual revenue.

To get iPhone users to buy expensive Apple products such as laptops, Apple needs to do something it hasnt done for a long time: prioritize the MAC business.

If Apple announced at this years global developers conference that some MacBook computers will abandon Intel processors and switch to arm architecture chips, the move could be a way for apple to use vertical integration to make its notebook computers more attractive to potential windows users.

This way apple can save money on the CPU of the computer. Mulhead estimates that this could mean saving $150 on a single apple laptop. In addition, apple can add functions such as cellular network connection, graphics and image enhancement processing to the chip, and even integrate into new sensors and processors that are now only available on the iPhone. Apple can also let these laptops run a lot of existing iPad apps. Mulhead said Apples MAC business could eventually exceed its current 7% share of the global PC market.

While Apple is reluctant to admit it, it behaves as if it knows that its new customers are dwindling. Take the new iPhone ESE, which was released in mid April, for example. It costs half of the usual price of the new iPhone, but it has some internal configuration of Apples latest iPhone. The new iPhone ese will target new customers in emerging markets, but it will also appeal to older iPhone users who are reluctant to upgrade.

Image: the new iPhone ESE, released in mid April this year, costs half the usual price of the new iPhone, targeting new customers in emerging markets.

According to the Brookings Institution, the number of middle-class people in the world will grow at an annual rate of 160 million by 2030 before the global economic downturn. At present, more than 3 billion people are eligible, and their daily income is between $11 and $110, adjusted by region. Most people cant afford the $700 iPhone 11, Apples flagship model. The $400 iPhone ese is not particularly cheap, but it may be more affordable for many people.

The key to Apples current strategy is that while the company is no longer so dependent on making money from selling iPhone devices, the iPhone business remains at the heart. If the iPhone loses market share, the momentum for Apples success may suddenly stop, or even reverse. If this happens, its either because Apple has been subverted by some of its competitors new technologies, or because the global economy has made it impossible for most people to buy iPhones anymore.

Apples growing business model also has a potentially fatal weakness: more and more institutions and organizations claim that Apple uses its monopoly position to charge abnormally high prices and suppress competitors, including EU regulators and technology companies such as spotify, tile and Basecamp. While Apple has never dominated the global smartphone market share, it does dominate its own device ecosystem. The more apple tries to use this advantage to drive growth, the more likely it is to be abused.

Apple further argues that when Android is still the largest share of the global smartphone market, it is impossible for apple to become a monopoly or abuse the control of its own platform. Apple also recently announced that the app store has generated more than $500 billion in revenue for companies outside apple. It also points out that 84% of apps in the Apple App Store dont have to pay Apple anything.