Hey guys it's Greg with Apple Explained, and today we're going to talk about Apple's
new money-maker.
Because although the company is generating tens of billions in revenue, their performance
over the holiday season disappointed investors since a slow down in the Chinese economy and
slower than expected iPhone sales caused Apple to reduce their earning expectations by about
8 billion dollars.
So with the iPhone market becoming heavily saturated, Apple has been under pressure to
find other ways to make money, especially since the iPhone is responsible for about
60% of Apple's total revenue.
So in this video we're gonna discuss a market that has become Apple's second largest and
fastest growing source of revenue.
Now this video topic was the second place winner of last week's voting poll.
And if you didn't get to vote, make sure you're subscribed.
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which video you'd like to see next.
So like I said before, we all know that the iPhone is Apple's cash cow, and it was the
primary reason why the company was able to reach a trillion dollar valuation in 2018.
But it's unreasonable to believe that iPhone sales will continue to grow forever.
And this is because a market for any piece of hardware will eventually become saturated,
which means everyone who wants that device will eventually buy it and sales will inevitably
slow down.
Now it may seem like that's not a big deal since iPhone owners will continue to upgrade
their device every 2-3 years, but that isn't the way companies like Apple see it.
To them, If a market isn't growing its shrinking.
And this is very frightening to investors since their money won't grow with a company
that is stagnant.
But I should mention that this is not a problem exclusive to Apple.
It's a challenge every hardware company has to face at some point in their product's
lifetime.
So the question is how can this issue be solved?
Well, historically speaking Apple has overcome market saturation and slowing hardware sales
by creating a new product category to replace the previous one.
For example, the iPhone replaced the iPod, and for many people the iPad is replacing
their computer.
But I think Apple knows this won't be so easy to do with the iPhone, so they've come
up with at least two different solutions for this problem.
First, they've raised the average selling price of the iPhone from about $600 to almost
$800, allowing them to generate more profit per sale.
But that's not what this video is about, it's about Apple's second solution, capitalizing
on their services business, which has become their new money maker.
The market grew 24% in 2018.
Earning the company 37.2 billion dollars, which represented 15% of their annual revenue.
And while the services market isn't nearly as large as the iPhone, it is Apple's second
largest business, and almost matches the combined revenue of Mac and iPad.
Not to mention, its growth shows no signs of slowing down, which is promising not only
to Apple but also to investors.
But what exactly is Apple's services business?
Well, it's comprised of their App Stores, the iTunes Store, Apple Music, iCloud, Apple
Pay, Apple Care, and licensing payments from third party companies.
But some of their services are more valuable than others.
For example, the App Store is likely the most profitable, generating about 13.5 billion
dollars in 2018, which accounted for about 36% of Apple's total services business.
And their second most profitable service may surprise you because that title goes to licensing
payments, which many people aren't even aware of.
And a lot of that revenue is paid by Google to ensure their search engine remains the
default for Siri and on Apple's Safari web browser.
Now the exact amount Google pays Apple is not certain, but Goldman Sachs has estimated
the fee to be about 9 billion dollars, accounting for almost 25% of Apple's total services
revenue for 2018.
Apple even admitted that licensing fees were the primary reason for their services growth
that year.
And when it comes to more popular subscription services like Apple Music, the company experienced
rapid growth of about 50% in 2018 but only takes about a 15% commission from the monthly
payments.
So although Apple Music is the most popular music streaming service it only generated
about 5 billion dollars for Apple in 2018.
And the situation is similar for things like Apple Care and iCloud, since the cost of maintaining
these services are fairly high.
But I want to talk about one service in particular that I think has a lot of potential, and that
is Apple Pay.
It was released over 4 years ago but it still feels like a service in its infancy.
And that's probably because it hasn't been adopted as quickly as Apple would've
liked.
Back in 2014 the company claimed that one day our phone would become our wallet, but
that day doesn't even appear to be on the horizon since Apple has faced so many challenges
to get Apple Pay widely adopted.
Mainly due to competing payment services like CurrentC from the Merchant Customer Exchange,
which has a huge influence over the mobile payments industry and signed exclusivity deals
with major retailers like Best Buy, Walmart, CVS Pharmacy, and Rite-Aid.
In addition, other retailers like Target dragged their feet when it came to adopting Apple
Pay.
Likely because they didn't have access to all the customer data they typically received
with traditional payment methods.
So from the user's perspective trying to use Apple Pay may require more effort than
it's worth.
Because not only do you have to go through the process of registering your debit and
credit cards, but you also have to figure out which retailers accept Apple Pay and which
don't.
And even when you can use Apple Pay, the cashier may be confused by how it works since they
don't have experience with it.
So considering these inconveniences it isn't too surprising that apple pay has only been
used 20% of iPhones.
And I find this to be pretty disappointing since using apple pay is more secure and efficient
than using a physical card.
So because of this, I think apple pay will eventually become a bigger player in the mobile
payment market and therefore a much bigger source of revenue for apple's services business
in the future.
Now what are apple's plan for the future of their services business?
Because if they are going to continue growing in this market than they'll need new services
to offer users.
And we've received hints from apple that they're interested in creating original
video content for a streaming service similar to Netflix and Hulu.
Now at first I was a bit skeptical about this idea since apple has already released original
shows like Carpool Karaoke and Planet of the Apps on apple music which I thought were pretty
mediocre.
But apple has invested over 1 billion dollars in securing projects with some big names,
including a multi-year deal with Oprah Winfrey, children shows from the creators of Sesame
Street, a series from La La Land director Damien Chazelle, a thriller series from M.
Night Shyamalan, and a morning show featuring Reese Witherspoon and Jennifer Aniston.
So it's clear apple is serious about making quality video content for their streaming
service but only time will tell if these projects will turn out to be any good.
But I should mention, apple is in a unique position compared to Netflix or Hulu.
Because they have a large entrenched user base who are more likely to use apple's
streaming service than their competitors.
And we've already seen this situation play out with apple music which grew to become
the largest music streaming service despite it being one of the last to enter the market.
Another service apple appears to be developing has to do with magazines.
In fact, references to the service was found in the beta version of iOS 12.2.
Specifically a landing page was found in the developer code that referred to an "Apple
news magazines internal seed" and suggested that payments for the service would be linked
to your iTunes account.
And this raised questions about how this service would be implemented.
Would it be integrated with iTunes like apple music?
Would it be a dedicated app like the current news service?
Or would it be part of a bundle that combines services like apple news, apple music, and
their streaming service into one.
And that brings me to perhaps the more unique approach apple might take to their subscription
business.
Because there are rumors that suggest apple may introduce a single subscription that combines
its music service, video streaming service, and magazine service into one, which is similar
to Amazon Prime.
Now there isn't any information about how much this subscription would cost, but ideally
it would be less than paying for each service separately.
And I can see the appeal this may have for apple and their users.
Because not only is it a more seamless experience for users who want all the services apple
provides, but it encourages more apple users to utilize the company's services.
Now there is one last subscription service apple may be working on, and that is a gaming
service.
I should mention that there aren't many sources to verify this rumor, but I wanted
to include it in this video because I could see the appeal in this type of service since
gaming on the iPad, iPhone, and iPod touch is more popular than ever before, and its
the most popular category on the app store.
So the idea behind the gaming service is that apple would partner with developers to offer
access to a certain number of gaming apps, although it isn't clear how in-app purchases
would be handled.
So we will definitely continue to see apple focus on growing their services business to
counteract any hardware slowdowns and compete with some of the biggest names in the subscription
industry.
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So that is apple's new money maker, and if you'd like to vote for the next video
topic don't forget to subscribe.
Thanks for watching, and I'll see you next time.
For more infomation >> 5 Proven Tips for Making More Money with Affiliate Marketing - Duration: 20:26. 
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