Is Apple still a product company?

Apple is a company with one foot in the past, another in the future.

Apple, iTunes, iPhone, Apple Pay, iCloud, innovation
Nikoretro/FLickr (Creative Commons BY or BY-SA)

However, its reliance on creating successful new products means it faces constant risk. One false move and Apple is doomed’ naysayers will start chanting their nonsense again. What can Apple do?

It already did it...

Apple has changed its game, creating those regular, predictable and recurring incomes Wall Street analysts and investors love. You may not have recognized them when those steps took place, but they help mitigate the risk of its product-led strategy.

The Innovation Hub puts it thus: “While its rivals were focusing solely on product, Apple was thinking ahead, transforming ownership into membership, a business innovation that in the long term may matter almost as much as designing a great phone, for the simple reason that it makes it easier to buy one.”

Just 4 proof points

Annual iPhone

For a monthly $32 fee Apple will let you have the latest iPhone as and when it ships. This frees users from carrier lock-in and enables all of us to have the latest device at a predictable price. It’s also good for Apple as each iPhone user who joins the scheme will be handing over a predictable amount of money each year. With customer satisfaction scores of 90 percent or more, it’s clear some customers will end up paying a monthly fee for years, decades or more.

iTunes Match and Apple Music

I won’t argue the merits of Apple’s music services. I’ll just observe that the nature of these services as some “Spotify killer” is utterly inconsequential in comparison to their importance as steady Apple income streams. It doesn’t matter if the fee is $10 a month or $30 a year, it soon mounts up when you have ten million users. Even a million users will contribute $120 million a year. Ten million hits a billion. A nice regular income every month to shore up the bottom line.

iCloud storage

Perhaps my least favorite way Apple has wormed itself into our wallets, iCloud storage isn’t just a ‘magical’ service, it’s a magical way to rain cash on Cupertino. OK, you do get a (miserly) 5GB of free space, but that’s soon eaten up over time and as you acquire more Apple devices – and if that’s not enough to convince you to purchase more storage, Apple adds new space-devouring features, services and applications to its offering each and every year. The result? Yep, you guessed it, yet more regular income for Apple.

iTunes and the app stores

Someone at Apple knows exactly how much each customer on average is making the company from using these online services. While it’s true these don’t quite give it the predictable recurring income of the other services, they do help (and in-app subscriptions and things like Newsstand do contribute a few dollars). Apple has lots of these money-making hooks built into its ecosystem, also including photo printing from Photos. It soon adds up.

Apple Pay

And in case you ever do want to buy something somewhere else, Apple Pay lets Cupertino make a cent or two from that.

By design

I hope you see my point. To be fair, Apple has worked hard at this (and with so many of these services coming out of the iTunes team, you can see why Eddy Cue got his board seat). Even in 2010, Piper Jaffray analyst, Gene Munster observed: "Apple is effectively building a recurring revenue stream from a growing base of iPhone users that upgrade to the newest version every year or two."

So does it all add up? In 2011, Asymco’s Horace Dediu estimated the annual revenue per iPhone user. I would like him to return to those figures across the next few months, as I suspect he’s going to find the revenues per user per iPhone has climbed considerably above the c.$240/iPhone user he identified then. Conservatively, I suspect this may have tripled, or more. With over one billion iOS devices, that’s a license to print money.

So is Apple still a product company? Let me know below…

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