What it is: Apple Services has continued growing, earning up to 13% of Apple’s total revenue.
Apple is more than just an iPhone company. While people eagerly buy the latest iPhone, Android smartphones dominate the market place. The big difference between Android and Apple is that Android device makers only make money selling hardware. In comparison, Apple makes money selling iPhones and then they make a continuous stream of profits selling services such as iTunes downloads, Apple Music subscriptions, and App Store purchases.
That’s why Android rarely gets updated on smartphones because it costs time and money for manufacturers to test the latest Android updates on their older devices. Even worse, they don’t make any money testing the latest Android updates on their devices. The only way Android device makers can make money is by selling you a new device so their incentive is not to update their devices.
Apple, on the other hand, makes money selling you iPhones and then makes a steady stream of profits from their Apps Store, iBooks, iTunes, and Apple Music. Apple has a huge incentive to make sure the latest iOS update runs and works on as many devices as possible because they’ll make the money up in services. Tim Cook recently boasted that Apple’s services division will soon be a Fortune 500 company on its own if it were independent of Apple.
Services is what will keep Apple profitable long after iPhone sales flatten. Apple doesn’t necessarily need to capture a huge market share of smartphone sales to be profitable. They just need to capture a small percent of the market share because they’ll make more peony selling services to those existing iPhone owners. Services will become so important that eventually Apple could make more money on services than on actual hardware sales.