While traditionally viewed as a hardware company, Apple has made major strides to expand its services business over the past few years. The reason behind the services push is quite obvious: as smartphones, tablets and other devices have matured and breakthrough innovations have become few and far between, replacement cycles have gotten longer, making it harder and harder for a company like Apple to keep growing or even maintaining revenue at its incredibly high level.
Enter services, which provide Apple with a steady stream of recurring (and presumably high-margin) revenue, which, considering Apple‘s immense installed base of more than two billion active devices, was just too good an opportunity to pass on. Moreover, Apple‘s services are tightly integrated with its hardware, meaning they help with customer lock-in, i.e. binding users to the company’s ecosystem. The fact that customers can now do pretty much anything within Apple’s (in)famous „walled garden“ makes them even less likely to buy non-Apple devices when they‘re in the market for a new smartphone, laptop, tablet or smartwatch.
Considering that Apple is still thought of as a hardware company and that its products grab most of the headlines, it’s easy to underestimate the size of Apple’s services segment, which includes the App Store, iCloud and Apple Care as well as Apple Music, Apple TV+ and Apple Pay, among others. While clearly overshadowed by the immense size of the iPhone business, Apple’s services segment has grown into a beast of its own in recent years. In the first three months of 2023, it generated almost $21 billion in revenue, making it larger than many Fortune 500 companies, including household names such as Nike, Boeing, Coca-Cola or McDonald’s.