Ed, this is FANTASTIC, the readers on my list will love this, all but the Windoze and Android folks.
John > On Aug 7, 2017, at 8:02 PM, Ed Wiser <wisero...@gmail.com> wrote: > > Monday Note - Medium > Misunderstanding Apple Services > > <https://mondaynote.com/misunderstanding-apple-services-58b1aa248590?source=rss----c537d80ed0a---4> > by Jean-Louis Gassée > > > Apple’s quarterly numbers show positive Mac numbers, stable iPhone revenue, > and a return to growing iPad sales. But the story that has grabbed the > headlines is the growth of the Services business. Has Apple Services suddenly > become the company’s Next Big Thing? > > The headlines played like a ‘stop the presses’ moment from a 1940’s thriller: > > Apple’s service biz now the size of a Fortune 100 company (CNBC > <https://www.cnbc.com/video/2017/08/02/apples-service-biz-now-the-size-of-a-fortune-100-company-tim-cook.html>) > Apple’s services business alone now the size of a Fortune 100 company, beats > out Facebook. (AppleInsider > <http://appleinsider.com/articles/17/08/01/apples-services-business-alone-now-the-size-of-a-fortune-100-company-beats-out-facebook>) > Apple’s services business now the size of a Fortune 100 company (iMore > <https://www.imore.com/apples-services-business-now-size-fortune-100-company>) > Apple’s services division is now the size of a Fortune 100 company > (itbusiness > <https://www.recode.net/2017/5/3/15523268/apple-services-business-revenue-growth>) > The punchy, echoed sentiment is shorthand for a salient fact disclosed in > Apple’s latest quarterly numbers, released on August 1st, 2017. Services > revenue for the last four quarters reached $27.8B, figuratively placing > Apple’s Services 98th on the Fortune 100 List: > > If Apple Services were a standalone company, its $27.8M in revenue would just > squeak past Facebook’s $27.6 (although I’m not sure we’re comparing the same > four quarters). > > (Hungry for more facts? The 10-Q SEC filing is here > <http://files.shareholder.com/downloads/AAPL/3661131996x0xS320193-17-9/320193/filing.pdf>. > As always, I direct your attention to the Management Discussion & Analysis > section on page 25. You can also turn to iMore’s well-rendered transcript of > the Earnings conference call > <https://www.imore.com/transcript-apple-ceo-tim-cook-companys-2017-q3-earnings?utm_source=im&utm_medium=superfeature&utm_campaign=navigation>, > and Tim Cook’s August 2nd CNBC interview > <https://www.cnbc.com/2017/08/01/tim-cook-interview-with-cnbc-after-q3-2017-earnings-full-transcript.html> > with Josh Lipton.) > > Last May, Tim Cook said he expected the Services business to double by 2020. > That would be about $55B, right behind United Technologies, 50th in Fortune’s > list. From there, it’s an easy jump to the eternal quest for Apple’s next big > revenue generator, something as powerful as the iPhone, or the meteoric rise > of the iPad before its subsequent fall (now reversed > <http://www.macworld.com/article/3212866/techology-business/apples-third-quarter-earnings-soar-on-the-back-of-booming-ipad-sales.html>, > it seems). > > The picture of Apple Services’ growth compared to Facebook, courtesy of > Horace @asymco Dediu <https://twitter.com/asymco/status/894210897991917572>, > is tantalizing: > > > Apple Services is doing well, with accelerating growth… > > > …while Facebook's own growth slows down > <https://www.recode.net/2017/2/1/14476836/facebook-earnings-q4-2016-revenue-growth>. > > It’s an attractive comparison, if a bit grasping. Apple Services has only > recently begun its growth spurt; Facebook isn’t exactly finished. > > But the biggest misunderstanding isn’t the theoretical placement in the > Fortune 100 list, or the comparisons to Facebook. It’s the consideration of > Apple Services as a self-standing business. Remove “Apple” from “Apple > Services”…would this stand-alone “Services” company enjoy the same success > were it to service Android phones or Windows PCs? > > Apple Services is an important member of the supporting cast that pushes the > volume and margins for the main act: Apple Personal Computers. These come in > three sizes, small (iPhone), medium (iPad), and large (Mac). If rumors of the > addition of a cellular modem > <https://www.bloomberg.com/news/articles/2017-08-04/apple-said-to-ready-cellular-capable-watch-to-break-iphone-ties> > true, we may even see the Watch, today an iPhone accessory, added to the > cast as the newest and smallest performer. > > Everything else that Apple offers has one raison d’être: Fueling the > company’s main hardware act without which Apple is nothing. As an example, > headphones, earphones, loudspeaker sales, and music distribution revenue > isn’t the goal (note the fall in music purchases on Horace’s chart above). > > With Services, Apple enjoys the benefits of a virtuous circle: Hardware sales > create Services revenue opportunities; Services makes hardware more > attractive and “stickier”. Like Apple Stores, Services are part of the > ecosystem. Such is the satisfying simplicity and robustness of Apple’s > business model. > > History provides another interesting angle — and shows how the Services > “giant” was long in coming. > > Apple’s modern services efforts were born when the company acquired SoundJam > MP <https://en.wikipedia.org/wiki/SoundJam_MP> in 2000 and rebranded the > music synchronization program as iTunes > <https://en.wikipedia.org/wiki/ITunes> the next year. iTunes introduced to > two key innovations: Selling music “by the slice”, once song at a time versus > the age-old album bundle; and “micro-payments”, 69 cents for each downloaded > song. Apple funded your purchases until your balance reached the credit card > company’s minimum charge amount — typically $2.50 to $5. (Rumor has it that, > in the beginning, Apple may have eaten the card transaction fees for low > purchase amounts in order to get iTunes music sales going.) > > In October 2001, just a few months after the iTunes launch, the iPod > <https://en.wikipedia.org/wiki/IPod> appeared. Apple had created an > ecosystem, a virtuous circle of downloadable music that fueled hardware > sales, while increasing iPod numbers fueled iTunes revenue. By 2006, iPod > revenue reached $7.7B, surpassing the Mac’s $7.4. (As reported that same > year, Music plus Software and Services already reached $3.2B — but these > numbers are imprecise, they include some accessories.) > > It’s sometime difficult to recall, but at the time, Apple was still > struggling: Windows PCs outnumbered Macs nearly 20-to-1. Also fading from > memory are the names of the other big players at the time: > > Gartner has the top four players in the U.S. PC market as Dell (32 percent), > HP (18.9 percent), Gateway (6.2 percent) and Apple (4.6 percent). > - Macworld <http://www.macworld.com/article/1051932/marketshare.html>, July, > 2006 > iPod numbers provided a welcome contrast to Apple’s image: Winning big in a > highly visible product category. > > And there was something else that was even more important, something that no > one knew at the time: the iPod was a dress rehearsal for the iPhone. > Increasingly smaller iPods helped Apple master the process of miniaturization > and put in place the institutional knowledge and partnerships that were > required the manufacture large numbers of the stunningly small iPhone. > > After preaching the Web Apps gospel out of necessity, Apple soon disclosed a > Software Development Kit for native iPhone apps and, in the Spring of 2008, > the App Store opened its doors…or floodgates. In a neat alignment of past and > future, iTunes’ micro-payments formula and data delivery system became the > backbone of the App Store. Music, movies, apps…they’re all just ones and > zeroes, and iTunes has been delivering bits since 2001. > > Apple Services is a key component that ensures the durability of Apple’s > personal computers business. But the “Next Big Thing”? It’s big, but it’s not > new and it’s not a ‘thing’. > > — j...@mondaynote.com <mailto:j...@mondaynote.com> > One last note: Tim Cook has opined that Augmented Reality will be big > <https://www.cnbc.com/2017/08/01/tim-cook-augmented-reality-will-make-iphone-even-more-essential.html>, > a nice way to make iDevices more attractive, more helpful, and more fun. I > agree. The ARKit running on the company’s large installed base (100M or more) > of “unfragmented” iPhones is a way to generate more Services revenue (apps, > mostly). But, again, it’s not the Holy Next Big Thing. > > > Misunderstanding Apple Services > <https://mondaynote.com/misunderstanding-apple-services-58b1aa248590> was > originally published in Monday Note <https://mondaynote.com/> on Medium, > where people are continuing the conversation by highlighting and responding > to this story. > > > > > https://mondaynote.com/misunderstanding-apple-services-58b1aa248590?source=rss----c537d80ed0a---4 > > <https://mondaynote.com/misunderstanding-apple-services-58b1aa248590?source=rss----c537d80ed0a---4> > Sent with Reeder <http://reederapp.com/> > > > Sent from my iPhone > _______________________________________________ > MacGroup mailing list > Posting address: MacGroup@erdos.math.louisville.edu > Archive: <http://www.mail-archive.com/macgroup@erdos.math.louisville.edu/> > Answers to questions: <http://erdos.math.louisville.edu/macgroup/>
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