Apple: The Growth Thesis

Apple’s management is starting to tell a new type of story. Understanding this story is key to understanding their growth strategy. Listening to management and fitting what I heard into what I’m seeing globally in consumer markets, I believe Apple’s growth thesis is built on the following assumptions.

The Apple Experience as a Service

Apple is trying to paint the picture that they are not just a pure-play hardware company. At first blush, this sounds like a tough argument to make. However, it is essential they make it. Having studied the history of this industry, we can predict time and time again a market shift from value lying in hardware, then shifting to software, then finally moving to services. This is why a company like Google or Amazon, who started off as services companies, are valued the way they are. Wall St. doesn’t love hardware companies (see Fitbit and GoPro) but they do love software and services companies.

Apple makes most of their money in hardware but building the services narrative is central. This is exactly what they are doing by making the following points:

1) Our installed base is large and growing

2) Our customers spend a lot of money in our ecosystem

3) Our customers never (or rarely) leave us

Every one of these themes was part of an overarching story Tim Cook told on the earnings call and they are all true.

The services story compounds. Some time ago, a very smart executive told me the most brilliant thing Apple did was sell you a piece of hardware, the iPhone, and get you to spend $1 a day (on an app). That was early in the adoption cycle of iPhones when apps were all the rage. Now, Apple is looking to get you to spend a predictable monthly amount on everything from cloud services, like iCloud photo sync and storage, Apple music for $10, and eventually a TV service at $X per month, along with anything else.

So, look at the services story this way. Between subscribing to hardware and services, Apple can potentially offer a consumer the full Apple experience for $X per month. Let’s just say, beyond the hardware margin, Apple succeeds in having their base adopt Apple Music for $10, Apple TV for $20 per month or $50 per month for family (I’m just making these numbers up to make a point), and cloud storage and all data in sync for $5 per month. If they get 100m people, or less than 20% of their user base, to buy into this, well, You can do the math but that is significant revenue from services. And it seems modeling that at a family or individual level is not that much of a stretch given what we know about Apple’s customer base spend in the ecosystem.

One other area I have been thinking about is Apple’s services opportunity to enterprises. As iPhones, Macs, and iPads continue to increase in share of enterprise sales, perhaps partnering deeper with IBM or developing new business services can lead to revenue from the enterprise world as well.

Well Positioned as Consumer Mature

Another key thesis I believe Apple has about their products is related to markets as they mature. Apple has seen, as have I with our research, that as consumers become more mature in their technology needs, greater and greater percentages of people not only strongly consider Apple’s products but do in fact buy them. This is why the Mac keeps outperforming the continually negative PC market. As consumers PC needs mature, Apple is attracting more customers looking for greater value, product quality, customer service, longer life, lower total cost of ownership, and more.

This was framed by Tim Cook when he made a point about China LTE device penetration to be about 20%. A buyer of an LTE device is a more “mature” customer who is about to buy their second or likely third smartphone. This buyer will be more aware of what they want and what they don’t want and thus, Apple believes will be more likely to consider an iPhone. At 20% LTE device penetration, his point is there will continue to be a huge opportunity to compete for these customers.

Now China is a unique market. Even with the currency issues and foreign exchange, Apple sold more iPhones in mainland China than in any other December quarter. And even by the end of January, I still see continued momentum on the ground for sales in China. Other markets are much more difficult. While consumers in China are more tolerant of iPhone price increases due to foreign exchange, other markets are not.

Reading between the lines, what I gather is Apple believes they are well-positioned when global markets recover. iPhones and other Apple products will still not be the cheapest but, as India (a market Apple said was up 76% to approximately 800,000 to 900,000 unit sales for the quarter) further develops and their customer base matures and starts upgrading devices, Apple believes they will be competitive.

It is worth pointing out Apple is competing for replacement customers, not first-time smartphone owners. The thesis here is, as the customer matures and looks to upgrade their Android device for the full Apple experience, Apple will be competitive. This is where continued innovation in the ecosystem and hardware, software, and services layer to truly differentiate their experience from anything you get on competing platforms is crucial.

Modeling the growth of net new additions to the Apple ecosystem will be tougher than before. More importantly, predicting when macroeconomic issues resolve will be even more difficult. Even the best economists in the world are continually wrong in their predictions.

At a fundamental level, both these growth points are related. Apple is trying to be the first fully integrated hardware, software, and services player in consumer tech. From a growth standpoint, we and Apple’s investors, need to figure out if we believe the services growth story and that Apple can gain meaningful share from Android.

Lastly, while my main points on hardware are related to the iPhone, since that is the short term emphasis, the rest of Apple’s hardware should be viewed in this light as well. The Apple Watch is not only going to become a serious revenue contributor but also a deeper lock-in, attractive to a switcher, etc. Apple TV, Mac, iPad, and anything else becomes not just a hardware sale but a portal to a rich services ecosystem. All the pieces are there.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

58 thoughts on “Apple: The Growth Thesis”

  1. How about Apple expanding the iPhone upgrade program to other products. Call it Apple as a Service. Pick the products you want and pay a monthly fee with the option to upgrade or pay off the device and own if outright. Optional services like Apple Music could be included in this as well. Then report what the average monthly revenue per user is. maybe this is a crazy idea but I know if I could pay a monthly fee to Apple for all the devices and services I have I would.

      1. Any thoughts on why 60% of the install base hasn’t upgraded to the 6 series yet? Perhaps Apple overestimating the number of existing users that wanted larger screen phones?

        1. Probably a lot to unpack on this. I don’t personally believe a lot of it has to do with screen size. I did some research on this and found a higher level of contentment of 5s owners with their current device, most stating they didn’t feel the need to upgrade. However, the majority of 5s owners did indicate they would upgrade at some point and planned to move to the larger models..

          So there is a factor of a portion of the base not seeing the need. Also we have to remember how many iPhones Apple sells outside of US and China where the new devices were simply very expensive.. Often well over $1000. So my sense is price + not feeling immediate need to upgrade played a role. I’m confident this will happen, just a matter of when.

          Personally, hardware sales wise, I am willing to bet this Dec quarter ushers in a new super cycle.

          1. That makes sense.

            On CNBC Jon Fortt was expressing some skepticism on Apple’s abrupt transition to talking about install base and services. I still think Apple has a messaging problem and changing the story to services seems a bit confusing. Go back to the fall and the story was all about iPhone and iPad Pro. iPad Pro was hardly mentioned yesterday. The 60 minutes piece didn’t focus at all on software or services yet now that’s what Tim and Luca want us to focus on. And yet Apple doesn’t really have a services story to tell (yet). The biggest bulk of “services” revenue is App Store and iTunes sales. If Apple is pivoting away from hardware to services then I think they need to bring someone in to make that happen. I don’t think Eddy Cue is the guy, at least not on when it comes to cloud, machine learning, AI etc.

          2. Yep. Totally agree. Not sure if you saw Prof Galloway’s updated talk on the four hourseman, but he said the same thing. Apple’s biggest problem is one of articulation. Solve that and they are trillion dollar company easy.

          3. Probably why Jobs chose silence so often, too. Communicating less means less confusion (potentially anyway). That’s how Minimalism can be so strong.


          4. I like Horace Dediu’s tweet about everyone saying Apple needs a services story and then when they do pivot there everyone says they’re hiding behind services. Ha! Anywayi I’m not convinced Apple’s story needs to be services. At its heart Apple is a consumer products company. There’s nothing sexy about services and I don’t see how that changes the narrative that AAPL has become more of a value than growth stock.

          5. Apple needs services but not in the same manner that Google / MS need services. For the latter, they need their services on as many platforms / devices as possible because their business model is based on ads and / or selling services to enterprise customers.

            For Apple, services is about monetizing their user base by making iOS / OSX more valuable either through subscription services and now with wearables, starting with Apple Watch. It’s a slight but important difference.

            But generally I agree with you, services alone can’t be Apple’s story. It’s the integration of hardware + software + services. All are equally important.

          6. Which is why I think Apple’s pivot to services on the call was a mistake. Tim didn’t really set it up as ‘we think you should look at the company differently’ they just threw in a supplemental services slide and 1 billion device number. It came across more as iPhone numbers are crappy so let’s talk about this instead. But Apple doesn’t really have a services story; the growth in services is mostly due to App Store purchases which of course are tied to device sales. And I don’t see how pivoting the narrative to services makes Wall Street think this is a growth company again (if that’s what Apple is trying to do).

          7. The problem with Apple’s walled ecosystem is that they need a story on everything: hardware, software, services and every item in each of those categories… I think that’s a dire long-term issue, and it’s already proving challenging: devices no longer leading specs-wise, software bugs on the rise, a few glaring missteps (Maps, Music…)

          8. “higher level of contentment of 5s owners with their current device”

            But isn’t this another way of saying they don’t need or desire a bigger screen? As much of a driver larger screen was, it wasn’t a factor for 60% of current users.

            From another perspective, because of these factors, I am also dubious about a smaller iPhone (if it is released) being a “cheaper” iPhone. So a newer, small form iPhone has to have as many reasons to upgrade as a larger iPhone beyond the screen size. That doesn’t sound “cheaper” to me.

            That is not to say for certain markets that Apple shouldn’t release some form of cheaper iPhone like they do older models now. But maybe older models are enough if the 5s is such a satisfactory experience.

            Just depends on where they (or any smartphone maker these days) can actually improve the device. I imagine at some point it would become like the iPad market with fewer reasons for the user to upgrade since, even as old as an iPad 2 is, it is adequate for many uses/users.


          9. “But isn’t this another way of saying they don’t need or desire a bigger screen?”

            Not necessarily. If you live in a country where the price of an iPhone is high, especially relative to your income / wealth, then chances of you upgrading every year or even 2 years is small. You’re going to want to hold on to your device for as long as you possibly can.

          10. I do get that. But this was more to Ben’s point of high contentment with the 5s and users not feeling the need to upgrade. I don’t know what percentage of that 60% that would be.


          11. What I think it does say, is that they don’t need a high-end phone, yet are loath to switch platform for one that does offer low/mid range models.

            I’m curious to see if Android OEMs’ push to cuter phones will have an impact, come upgrade time.

          12. Android OEMs are now entering real pain.. Chinese guys are the only ones to be optimistic about and they are losing on home turn in China and have no legitimate shot in US yet. Both gigantic iPhone markets.

            What no one is recognizing is what is hitting Apple, in global consumer tech hardware slowdowns will hit every other android OEM as well. Only a few are positioned to survive.

          13. Apple Android is doomed !
            It does seem that sales are rising, share is rising, and even profits are rising ? There were always going to be winners (mostly unfamiliar new entrants) and losers (mostly more established firms, hence a perception skew) and consolidation. That bit of inner creative destruction isn’t bad at a macro level, probably good actually ?

            But I don’t think the question is so much iOS vs Android, as Luxury and High-end vs Low-Mid range. Apple have an incredible ability to extract more money from they users (higher prices, walled garden, piggyback warranties/update/financing, Pay, walled peripherals…), but they’re extremely dependent on luxury phones remaining a thing.

          14. I think you have seen me present the evidence that hardware money is harder and harder to come by in Android land.. That is why I wrote that think about Amazon looking ot get their hooks into it and offer OEMs some revenue share better than what Google can. Any pure play hardware Android OEM will not survive the winter.. (like my game of thrones reference :). This is why I like Xiaomi but even they are having trouble as they are losing to the sheer force of Huawei. Huawei is quite interesting in my mind and they are the new Samsung. If anyone can take top spot in annual smartphone shipments crown from Samsung it could be them.

            But again, I think any business which depends on hardware sales, not named Apple is in real trouble. Apple is fine as they don’t have a base showing any evidence to leave them, and while not massive numbers of actual unit numbers there is plenty of data to support the thesis that once consumer look to truly “upgrade” their experience, they start looking at iPhones. yes its too expensive for most people, but there is not a country on my list of 32 I study which does not rank the iPhone the highest in purchase consideration. Even depressed countries show how much they value the brand.. They simply can’t afford it.. yet..

            But to our idea, and Sameer’s via your comment on his post. There is zero data that Apple is losing to good enough.. They simply have a pricing problem they do not feel they need to resolve. If the iPhone 6s was $400 they would kill everyone else in sales by a significant margin… IMO

          15. Here’s what I think. In the advanced industrialized countries, when people want to buy something ‘luxurious’ that signals their status and makes them feel good every time they use, it they buy a Mercedes Benz or a BMW. Most people in the third world can’t afford a Benz or a Bimmer but they’re no different from you and me and are still subject to the same desires to splurge a little on ‘luxury’ items and feel good about their purchase. Given their lower incomes, that luxury item is the iPhone.

          16. As it stands now, OEMs at most can pre-install Amazon’s apps and appstore, they can’t use Amazon’s Android fork (or they’d lose access to all Google apps/services on all their devices in all markets). Given that Amz’s apps are available on Google’s PlayStore anyway, and that alternative appstores (Amazon’s in particular) are distinctively also-rans (fewer apps, older versions), I think it falls into the same “bit of noise, no action” category as Xiaomi’s “services” story from last year.

            Android OEMs are, and will be, pure hardware players. Maybe it’s sad for them, but they’ve had their chance; and being OEM-transparent is an important part of Android’s value proposition. OEMs can differentiate by hardware and branding, but software and services are both outside of their core skills and an ecosystem-wide value proposition. I do think Google could help by creating a tiered system of OEMs, for some reason they aren’t.

            To me, non-upgrades are an early sign about good enough. We’ll see, I guess.

          17. You can’t get Amazon’s app store on any Google certified devices yet. It is against their qualification policy for the official version to pre-install any third party app stores.

            The hardware business model just doesn’t work in modular environments, this is not going to change. Industry history has played out like a predictable movie every category we have seen. The value begins in hardware during the hardware cycle, then it moves to software, then to services and it stays in services. Apple is attempting to capture value in all three because they are integrated.

            Android OEMs will not survive on hardware only business models, even the chines ones who are running at 1% margin. This is where FinTech, cloud backup, video, chat, etc., whatever they can make on top of the hardware they will scratch and claw for. The harder Google makes this on them (because Google wants the money) the more interesting something like Cyanogen or an Amazon or even a Microsoft fork becomes.

            And, to be clear, I agree with you on a good portion of the 60% of iPhone base not upgrading due to either their current phone being good enough or the device being too expensive. The point, though, is they are not leaving Apple, they will upgrade. Just don’t know when. That is the real curse of consumer tech.

          18. Companies not only survive but thrive on making cement, sugar, steel. It’s not devices, it’s not even parts, it’s… stuff, barely branded stuff at that. I’m really convinced focusing on anything but hardware and branding is not only a red herring, but a fatal diversion of resources. Steve Jobs said so too.

          19. Interesting, thanks, and I stand corrected (been looking for a record of him saying the same about hardware, didn’t find it). But
            – Is that video anything but PR ?
            – Wouldn’t Jobs say that ? He’s the software/UX guy, MM. Wozniak and Ives are the hardware.
            – don’t buyers chose a switched-off iPhone over a switched-off anything else, because design+branding ?

          20. Tim Cook has said as much as well. I forget who was interviewing him at the time, but he had an iPhone laying on a table turned off and asked what the interviewer saw. Just a piece of glass and metal and some other components. It wasn’t an iPhone until it was turned on and the software made it such. OWTTE (ht:aardman).


          21. the counter to your point, is IBM not making hardware, dell/HP/Lenovo using client hardware as a mechanism (tiny margins) to make money on software and services. The list is long in this industry that supports my point..

            And just as an aside… Guess what the major topic of Huawei’s inquireies with me are related to… Not hardware.

          22. I’ll counter with quanta, foxconn, pegatron, which are probably as sound as businesses as IBM Dell and HP these days, and one step “below” branded-but-HW-only OEMs, whereas Dell et al are one step “above” those in the food chain ? Are you sure the “above” side of the equation is faring that much better ?

            Plus there’s money to be made in software and services… on the Entreprise side. PC OEMs bought into that when they had money from hardware (‘xcept IBM), and revealingly, the PC OEM currently most successful, Lenovo, didn’t. Not sure HP’s services make up for their inability to profitably sell PCs (both a pricing and costs issue).

            On the Consumer side, it doesn’t work that way: you don’t have company silos is which to sell your SW/Svces, you must go global because network effects, which you can’t get because competitors won’t sign up. You must be either Google or nothing. There’s no mid-level services (maintenance, deployment, integration) to sell and build a full-feature service layer on. Consumer’s services are Content (apps & media), ads, and Cloud: what OEM stands a chance there ? Financing and warranties, maybe…

          23. Not sure you can use ODMs as a comparable. Now if you told me one of those would start making consumer tech branded hardware then I’d buy it. On the basis that all the businesses are then related and margins are captured on both ends of the cycle.

            All healthy business need additional revenue streams to off-set downturn cycles. Intel’s margins in servers offsets the decline or losses in PC. Samsung’s components offset loses in mobile, even though both those units are struggling right now. Here again, Huaweir is interesting.. They sell high margin network and telco equipment everywhere but in the US. Huawei has many business to compliement and off-set.

            No enter all the chinese OEMs who I believe ultimatly own consumer tech hardware because of their ability to run on razor thin margins. These companies have the support of their gov for the moment to subsidize their losses. Essentially, smartphones are to China what corn farming is to the US. No one makes money on it but the gov subsidizes.

            This is why Xiaomi is building their strategy beyond hardware revenue. It is the right approach given everything I have laid out for a modular company to succeed.

          24. The frontier between OEM and ODM is fairly leaky: IIRC, HTC and Acer used to be ODMs; Asus and Pegatron are in the same conglomerate… I find it intriguingly sales-centric as opposed to manufacturing-centric to focus on OEMs so much more than ODMs. Isn’t the “making” stage more important the “selling” ?

            Specialization vs diversification… aka focus vs distraction… and is Apple that diversified ? They’re not 100% iPhone, but 60% iPhone directly and 80+% w/ ancillary (apps, watches, most services…). I’m sure entire forests have been sacrificed to books on the subject. If there’s a time to be focused and all-in, it’s probably right now with the market still structuring ?

            Is there any data on China’s subsidies ? Why would they be subsidizing Mobile more than heavy industry, cars, planes… and they can’t be subsidizing *everything*… Sometimes lower costs are just lower costs, with low wages, no social net, no IP laws…

            Are Xiaomi’s services” more than a talking point ? Last year revenues were a handful of percent, margins probably negative… They’re going for brand-building for sure, but services ?

          25. “You can’t get Amazon’s app store on any Google certified devices yet.”
            What do you mean? Mine sideloaded just fine.

          26. Here’s a somewhat related question. Apple announced they’ve hit the billion active devices mark. And in December (a month ago) Benedict Evans did say his estimate was 800 million for Apple’s users. Do we have any info that clears up whether Evans meant devices a month ago, or users? Obviously a billion active devices is not a billion unique users. Do you have some idea of devices per user?

          27. Right now Apple has 94% of smartphone profits, with Samsung taking the remaining 6%. Every other smartphone maker is either breaking even or selling at a loss. Let’s see how long that lasts.

          28. I haven’t seen figures in a while. This is from q2 2015:, with all OEMs except Lenovo making a bit of money.
            Moore recent graph here: , same story.

            Presumably, the unlisted, smaller, OEMs are making some money too.

            I’m sure once the illusion of an upside (linked to services ^^) fades, things will get cleaned up.

          29. Oh yes, I’m sure Apple customers will leave in huge numbers Any Day Now ™. I wonder if you’ve ever kept track of how many times you’ve trotted out some version of Apple is Doomed Because Thing X Will Happen Real Soon Now (copyright all rights reserved).

          30. Maybe, maybe not. 5s can still be seen as highend/premium, entry level. Many people are quite happy with their BMW 318i and don’t feel the need to go up to a 7 series.

            But a cheap 4″, I don’t see that happening in anyway that fits Apple’s positioning.


          31. Agreed on cheap not happening, that would be shooting themselves in the foot. I think Ben Bajarin has a bet on whether Apple will put out a 4″, my contribution was that if they did, they should price it the same as their 4.7″, otherwise they’re letting their users get away with paying less.

    1. The issue with that is the Detroit syndrome: that’ what Detroit did with cars, and because financial revenues cushioned the cars’ downslide, the very product on the back of which financing was making money was allowed to sink sink for a long time, and then there was nothing to service+finance.
      Ancillary revenues are fine, but they’re just that: ancillary.

  2. Apple Future as a service company is a pipe dream giving they do not know how to monetize their users base on their platform, (ie Iads) as only advertising can provide a good margin for a service company, which requires a different business model with different approach and priority that is totally different than selling hardware.

    They need a better partnership with Google to better monetize their users base through advertizer in exchange for greater $ cuts

    1. Your incorrect Kenny. Advertising is a flawed global model at an ARPU level and doesn’t scale beyond good margins outside the west. And you will see both Google and Facebook look to get more into commerce or transaction based services because of this. The trends and data we are seeing on advertising are pretty bad. Both those companies better figure out their play beyond text and display ads, and namely video. But you simply can not underestimate how desperate they will become and push ads to the point the experience becomes unbearable. Hence my ad blocking stats from a while ago. This is a true concern of them given my conversations with the companies.

      Your right Apple isn’t a services company, they are a hardware, software, AND services company. You have to be able to appreciate the holistic value and intertwining of all three components to see how this plays out.

      Services today for them is a $5b a quarter area and growing. Add the additional $20 or more per month per user and we are talking about serious revenue now, all because of the tight integration of hardware and services.

      I’m much more worried about many other companies given what is happening at a global level.

      1. As long as there are products to be made, and consumers to know about and buy, ad platform will always be the bridge that connect the two, and it will even become more important in the future due the low cost of entry in many industry and stiff competition.

        of All types of business model, advertising is one of the most stable, less competitive and more profitable with a winner take all dynamic than any other as long as you have a dominant platform with a huge installed base and a compelling moat and that is before even taking into account the huge chunk of advertising money that will move online from TV.

        commerce or transaction based services are also part advertising, it’s about putting company’s product in front of you user base in a form a direct ads for a big cut which is primarily what Google search is in a sense.

        When it comes to ad blocker know that you can never use technology to block another vital technology that help create and provide access to a vital content, because anytime you do that those with deep pocket such as Google and Facebook will always fund they way around it and when they do they will become even stronger and more dominant than they were before, giving that the blocking tool would have already killed the small player and force advertiser to turn to them, which may explain why these tech company aren’t that worry about ad blocker as much as small publisher and ad tech.

        two third of apple services are the App store and ITune, both of them are not that great as a standalone product with future potential and rely on hardware sell and integration to be compelling and provide very low margin on sell compare to ads funded one.

        When the developing countries become as rich as the west, the need for companies to spend money to promote their products will be as important as it is in the the developed one, online services company with ads based model as business will have a lot of room for future growth hence Google and Facebook market caps.

        1. Your last paragraph is the key one and relevant for Apple as well. However, most advertising-based business won’t be able to last how long it will take for less developed countries to develop and rise in GDP.

          1. Apple do not have any real destination platform nor the advertising tools necessary to monetize their user using the IPhone,

            most user aren’t spending the time on Apple app, Google and Facebook are the primarily beneficiary of that, and the more they try to open IOS for ads monetization the more Google and Facebook who are already the dominant App provider will take advantage of it to become even more dominant on OIS.
            ITunes is a dying business

            the App Store is just a complement to the IPhone with extremely low margin on sell. Apple pay, music, ICloud are not growing platform with High margin profit, their best bet is to partner wit Google or Microsoft to better monetize their user based.

  3. Many people doubt Apple can ever be good enough at being a “service company” to compete against Google/Spotify. I cannot help but to think back to Microsoft in their early days as an OS supplier whom got into applications late and were not very good, now we realized an incumbent who owns the platform and provide only good enough products can become dominant by doing just that.

    So I believe Apple, as an incumbent, does not need to be excellent at service, they only need to be good enough to win a dominant share of service money spent on the platform they control. Adding the fact they also have the best customers within their platform who are willing to spend, I think Apple will do quite well as a “service company” in the coming years.

    1. The issue is keeping the “best” customers with only “good enough” services. That puts a lot of pressure on the hardware and the branding.

      1. agreed. And because the iPhone is *so* lucrative, there will be TREMENDOUS competition on the iPhone by service companies

        AI/ML will increasingly make those services significantly better.

        Good enough won’t cut it for Apple

        1. Google Map is far better than Apple Maps, but the usage stats already shown a clear preference for default apps by iOS users.

          Many people think Spotify is better than Apple Music, but 10M subscriber in 6 months is quite impressive. I don’t know if Spotify breaks down their subscribers by platforms, if they do, I’ll love to find out how many iOS subscribers Spotify currently has and whether that customer base is decreasing over the last 6 months?

          And I won’t be surprised if iCloud is earning the most revenue for cloud storage on the iOS platform right now.

          I believe most consumers will be quite content with the default apps which are just good enough and probably use only 5% of the overall features anyway. The pro users will always complain.

  4. Hi Ben,
    I’m not sure I see a bright future for Apple in services – because of one underlying issue (and it’s not advertising):

    Data mining.

    Apple refuses to analyze data, this handicaps their machine learning ability (which must be done in the cloud & not on the device). which means, they will be terrible with AI.

    AI/machine learning/algorithms/data mining is Apple’s downfall in services. Sadly, AI will become increasingly important with VR, AR, self driving cars, services, and even content/media services like Apple Music & Apple News

    I’m not bullish on Apple going forward, because it seems highly likely they will fail with services

    1. The point of services is not that they are a pure play services company. Only that I’m stating they are not a pure play hardware company. To anlaze Apple you have to do so via the lens of integration. Their software is the single factor which allows them to charge high prices for their phones and get away with it. Their hope is they add services to this integrated pie and drive more value in the ecosystem.

      Also, a little appreciated point about Apple, is they can actually absolutely collect data about you privately and still give you deep data which is private and secure given the way they have architected their security at hardware and software level.. Perhaps even a software layer. Writing them off is a bad idea.

      1. yes absolutely they collect data. My point is, they don’t effectively mine that data because of privacy.

        I agree that Apple must be taken as a whole and services will be tied to hardware. But here’s why Apple needs to pivot to make services their main focus:

        Their services will increasingly be marginalized because they’re simply not good enough (AI backed services will make Apple services more of a joke).

        If Apple hardware is targeted to high-end/engaged. More & more Apple users will increasingly rely on other services.

        Services on the iPhone will only become *MORE* competitive. And AI backed services will simply make Apple’s services – not competitive.

        1. So two points there, and I want to say I agree they need to put a much higher priority on services and I believe they are and will, but look at two companies they are very close with who are very good at services both on the cloud side and on the AI machine learning.. Microsoft and IBM. Expect deeper alliances, maybe even more acquisitions as well for Apple in these core spaces etc. This is a LOONNGGG game. But competing in the next paradigm shift of computing is key and Apple is not blind to these areas. They are also not near term mass market but Apple does need to be serious about them behind the scenes.

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