Apple announced this week that subscribers to its popular services, including Apple Music and Apple TV+, have reached 900 million in 2022. The figure is astounding, but more than that, it gives a sense of how quickly Apple’s services business has grown. Amassing 900 million paid users across its services is a reflection that Apple isn’t just about the hardware, an image Cupertino has been trying to break for a very long time. With Apple gearing up to report for the first fiscal quarter of 2023 next month, the news of its services business reaching 900 million paid subscribers might help it focus on the long-term strategy of increasing service bundles and tightly integrating services with its hardware products.
More users subscribing to Apple services
Under CEO Tim Cook, Apple’s focus in recent years is shifting. With iPhone sales peaking in many matured markets and the company struggling with supply chain issues in China, the service segment has never been more important for Apple. Its service business, which includes marquee offerings Apple Music, iCloud+ and Apple Arcade, brought in $78 billion in fiscal 2022. In fact, Apple’s services arm is bringing more revenue per quarter than the company’s other business segments – the Mac, iPad and the Wearables, Home and Accessories unit, with exception of the iPhone.
In a press note on Wednesday, Apple highlighted how its services have grown quickly in a short time and are only getting better. The oldest of them, Apple Music (launched in 2015, after Apple bought and rebranded Beats) boasts of 100 million songs. Although the music streaming service is reportedly trailing Spotify in paid subscribers count, Apple regularly adds new features that keep iPhone users hooked to the service. Another service that is gaining attention is Apple’s video streaming service, Apple TV+, which won an Academy Award for Best Picture for its movie “CODA.” Apple TV+ competes with Netflix and Disney+ in the cut-throat streaming market.
One Apple service that is underrated but has a lot of potential to become big in the future, is Apple Arcade, a subscription-based gaming service. Because of its broad market appeal and lower entry point, Apple Arcade has become a hub for fun and casual games. Although the gaming service does not compete directly with Nintendo, Xbox and PlayStation, Apple Arcade has started to look like a breath of fresh air among other gaming services and platforms.
But the services business has its own challenges
The services business may be the second largest revenue contributor after the iPhone, but Apple’s fastest-growing unit faces multiple challenges. It’s entirely tied to the App Store. The largest component of the services business is the App Store but its growth has started to slow down. Apple’s services segment grew by just 14 per cent last year, down from about 27 per cent growth in fiscal 2021. If the growth from the App Store starts to stall, it will impact Apple’s service business in the long run.
Apple, which operates the App Store – the gateway to millions of apps and games for iPhone and iPad users, is facing lawsuits and antitrust charges globally due to its market power. The European Union, which has become the center of global regulatory crackdown against Big Tech, has accused Apple of stifling competition. The UK antitrust regulator, the CMA, recently started an investigation into Apple and Google over mobile practices.
Cupertino, however, continues to reject charges of monopolistic practices. Instead, it says the App Store continues to thrive, with developers benefiting the most from the mobile economy. The company noted that developers selling digital goods and services on the App Store have earned more than $320 billion since the launch of the platform, up from $260 billion as of last year. In 2021, Apple announced the expansion of its App Store pricing system to offer developers access to over 700 additional price points, a sign that the company is losing its tight grip on software distribution and payments on the App Store.
For Apple, the services segment is a high-margin business that is free from the complexities of supply chain problems which hammered its growth in recent months. App Store, despite signs of slowing down, still garners more than 650 million visitors across 175 regions each week.
But, like other companies, Apple is also vulnerable to an economic slowdown. A slowing economy, currency headwinds and high inflation could slow down subscriber growth as fewer people have money to continue paying for the services. Apple’s reliance on the iPhone, which accounts for two-thirds of sales, could threaten the growth of its services business. Apple’s services are tied to the iPhone, iPad and Mac – and growth in those devices has begun to slow. Apple’s unwillingness to make these services grow beyond its devices and bring them on rival platforms is hurting the growth potential of its services business.