Apple revenues from iOS ecosystem should exceed $1 trillion this year, analyst says

Posted:
in iPhone edited January 12
According to independent analyst Horace Dediu, Apple's iOS hardware ecosystem and related services is on schedule to generate a cumulative $1 trillion sometime in 2017, a milestone for a consumer product.




As Dediu explained in a blog post on Wednesday, Apple is forecast to have sold about 1.2 billion iPhones by mid-2017, a gigantic number for a consumer electronic device.

Ten years in the making, iPhone's success has sparked an even larger secondary iOS device market that by Dediu's estimates will reach a collective 1.75 billion unit sales later this year. Given current trends the category, which includes iOS-capable equipment like iPad, iPod touch, Apple Watch and Apple TV, could exceed 2 billion units by the end of 2018.

Dediu's estimates put revenue from iOS hardware sales at about $980 billion by the middle of this year. Coupled with more than $100 billion in revenues from supporting services, including app content sales, the overall ecosystem's worth will come in well above the $1 trillion mark.

Those figures do not include payouts to app developers. Last August, Apple CEO Tim Cook touted a best-ever month for iOS app billings in July, saying developers had earned more than $50 billion since the App Store launched in 2008.

Describing what is perhaps the world's largest cottage industry, Dediu estimates Apple's rate of developer payments has reached some $20 billion per year.

As for the future of iOS, Dediu says that while past tech giants have seen precipitous falls from grace, included those directly disrupted by iPhone, he sees resilience in Apple's mobile platform.

Comparing the handset to those made by Nokia, whose dumbphones proliferated the 2000s market, Apple's product enjoys the stickiness of a full-fledged ecosystem complete with attached dependencies and services.

Android, the cheaper "good enough" iPhone, as Dediu puts it, was anticipated by many to put iOS on the ropes. While devices running Google's OS do enjoy a collective majority, Apple's premium products -- and premium, paying customers -- carved out a sizable chunk of the market too large to be pigeonholed as a niche.

The analyst notes users are now more likely to abandon Android for iOS instead of the other way around, as was once predicted. Indeed, Apple last July saw the highest level of iPhone switchers ever.

"As we look toward the second decade of the iPhone, the expectation isn't one of another 'big bang' but a process of continuous improvement," Dediu writes. "The market is nearing saturation so the goals must be to capture more switchers from Android. Apple has achieved this with the Mac: survival, persistence and eventual redemption."

Dediu wraps up by expressing excitement for upcoming technologies and products ancillary to iOS, including Apple Watch accessories, Apple Pencil and Apple's latest wearable, AirPods.

"The Apple Watch, the AirPods, Pencil and possible new wearables point toward a future where the iPhone is a hub to a mesh of personal devices. The seamless integration of such devices is what has always set Apple apart," he says.

Comments

  • Reply 1 of 17
    Rayz2016Rayz2016 Posts: 1,458member
    What I like about Dediu is that he wraps his arguments in figures and graphs. 
    watto_cobrajony0
  • Reply 2 of 17
    ksecksec Posts: 1,240member
    Rayz2016 said:
    What I like about Dediu is that he wraps his arguments in figures and graphs. 
     Yes, "independent analyst" is an under statement, it should be most accurate Apple analyst not only by numbers, but actually someone who deeply understand Apple.  
    asdasdStrangeDayswatto_cobrajony0
  • Reply 3 of 17
    blastdoorblastdoor Posts: 1,550member
    The past is impressive and the future has great (or at least good) potential. Apple has the financial resources and technical capacity to realize that potential.

     The only thing that could trip them up would be a failure of management.
  • Reply 4 of 17
    If that $1T in revenue is a milestone for a consumer product company, then why is Apple always said to be doomed?  It's not as though Apple doesn't have any cash resources to acquire whatever they need to move forward.  There was some article I saw telling how Apple's next iPhone MUST become the greatest iPhone Apple has ever made or the company is going to be in big trouble.  There's this idea that an amazing iPhone will somehow force consumers in poor countries to suddenly have an urgent desire to buy an iPhone they can't afford.  To me, that's like if Lamborghini came out with the most amazing vehicle on the planet, I would do anything to buy one.  Hardly.  No matter how amazing and innovative it is I definitely won't be able to afford it.

    Google is going in the opposite direction and I think their strategy makes more sense to promote smartphone sales.  Google is trying to make the entry level smartphone cost about $30.  (I thought Android One was already a failed strategy but maybe I'm wrong).  I can hardly imagine some smartphone that cheap but maybe that's all third-world consumers can afford to spend on a smartphone.  I don't know what group Apple is going to be able to convert unless it's to make current iPhone owners get a new iPhone.  I know they claim there are switchers from Android smartphones to iPhones but I'm thinking that market might already have reached its limit.  Those Chinese-manufactured Android smartphones keep getting cheaper and cheaper and they're always seen as a huge threat to Apple's iPhone business.  Those are the smartphones the Indian consumer will likely be buying.  If Apple isn't able to find a way to get at least a few more iPhones sold in poorer countries, the company will continue to be perceived as a failing company in terms of growth.

    I sincerely hope Dediu knows what he's talking about but I think it will be very hard to convince Wall Street that Apple will be able to survive the threat of dirt-cheap smartphones.  Everything Apple seems to do is viewed with doubt and great risk.  I'm almost ready to give up hoping Apple will convince skeptics.  Tim Cook simply doesn't inspire investor or shareholder confidence like other tech company CEOs do.  With buybacks and dividends and good fundamentals, Apple seems like a strong company, but Apple's share price seems to be somewhat stuck in a tight range and the doom and gloom articles are always aimed directly at Apple.
  • Reply 5 of 17
    He might be an "independent analyst" but I think it's safe to say he's usually pretty bullish on Apple. So it's not surprising he would say the future is bright for the company.
  • Reply 6 of 17
    mjtomlinmjtomlin Posts: 1,582member
    ...I sincerely hope Dediu knows what he's talking about but I think it will be very hard to convince Wall Street that Apple will be able to survive the threat of dirt-cheap smartphones.  Everything Apple seems to do is viewed with doubt and great risk.  I'm almost ready to give up hoping Apple will convince skeptics.  Tim Cook simply doesn't inspire investor or shareholder confidence like other tech company CEOs do.  With buybacks and dividends and good fundamentals, Apple seems like a strong company, but Apple's share price seems to be somewhat stuck in a tight range and the doom and gloom articles are always aimed directly at Apple.

    Premium brands almost always survive the onslaught of commodity devices. True they will never obtain the sheer unit sales numbers, but that's not the point of creating a premium product. The point is, to offer products to discerning customers. Those people who place value in something other than the sticker price; design, engineering, craftsmanship, service, support, etc. Over the past few years Apple has been working extremely hard to develop the underlying technologies in its products to enable them to have more control over what they're capable of doing. As they perfect these technologies, we will start to once again see more frequent product updates and releases.
    StrangeDayscaliwatto_cobra
  • Reply 7 of 17
    GovenourGovenour Posts: 1unconfirmed, member
    I happen to own a Apple IPhone 7 Plus since my previous last 4 IPhones. I am also a extremely fussy person when it comes to products that don't work correctly. All of my apple products have worked flawlessly. That includes my IPods, IPads, laptops, and Apple Watch. My business has been excellent because of the way I can display my products. Yes, Apple products cost more than any other tech company. I believe they can do things that a lot of us are not aware of. Let me throw this question out there to you. How many out there try to see on their own what their phone can really do? It is endless what the IPhone can do and it's just about endless that it is hard to foul up. Apple is going to find more ways and changes to make their products better for their customers. People are always looking for better products and changes that will benefit them. Apple knows that we risk or we rot, we venture or we vegetate.
    calibadmonkwatto_cobra
  • Reply 8 of 17

    Google is going in the opposite direction and I think their strategy makes more sense to promote smartphone sales.  Google is trying to make the entry level smartphone cost about $30. 
    So where does the Pixel fit in with that grand plan? That is hardly a $30 entry level phone now is it?
    We all know that there is virtually zero profit in very low priced devices unless you can persuade the users to buy Apps.
    The App revenue from Android is far lower than for iOS.
    That means that Google will have to make their advertising all the more intrusive.
    I hate all ads so Google can KMA.
    calibadmonkwatto_cobra
  • Reply 9 of 17
    It will be interesting how will platform develop when good shape used iPhone 6/6+ became commodity and be selling under 200 USD. Then most people will be able buy iPhone any size.
    watto_cobra
  • Reply 10 of 17
    That makes my shirt and credo suitable for framing so much better.......
  • Reply 11 of 17
    Android handsets annual sales numbers dwarf iPhone sales significantly.  There will always be new users, whose first phone they purchase was android, but possibly their second phone will be an iPhone.  Therefore, there will always be converters to iOS for Apple to capitalize on. 
    baconstangwatto_cobra
  • Reply 12 of 17
    MacProMacPro Posts: 16,013member
    blastdoor said:
    The past is impressive and the future has great (or at least good) potential. Apple has the financial resources and technical capacity to realize that potential.

     The only thing that could trip them up would be a failure of management.
    That or a few messages from the Moron In Tweet.
    watto_cobra
  • Reply 13 of 17
    nhtnht Posts: 3,368member

    Google is going in the opposite direction and I think their strategy makes more sense to promote smartphone sales.  Google is trying to make the entry level smartphone cost about $30. 
    So where does the Pixel fit in with that grand plan? That is hardly a $30 entry level phone now is it?
    We all know that there is virtually zero profit in very low priced devices unless you can persuade the users to buy Apps.
    The App revenue from Android is far lower than for iOS.
    That means that Google will have to make their advertising all the more intrusive.
    I hate all ads so Google can KMA.
    Android is a bit of a bust for Google in as much as in one of the big markets it wanted to spread to all it did was enable their competitors in China to build Android phones for non-Google services.  

    I bought two android phones for my kids recently because Screentime works so much better on Android than iOS.  For me iOS needs better parental controls...
  • Reply 14 of 17
    He might be an "independent analyst" but I think it's safe to say he's usually pretty bullish on Apple. So it's not surprising he would say the future is bright for the company.
    Ok, so what parts of his detailed analysis do you disagree with?
    watto_cobra
  • Reply 15 of 17
    MacPro said:
    blastdoor said:
    The past is impressive and the future has great (or at least good) potential. Apple has the financial resources and technical capacity to realize that potential.

     The only thing that could trip them up would be a failure of management.
    That or a few messages from the Moron In Tweet.
    I tend to look at most news related to Apple through the lens of international relations. Givien Apples huge exposure to China, we must not forget the Giant Panda standing in the way of these rosy prognostications/analysis.

    our Secretary of State in waiting has posited an unsettling scenario which may take place under Donald Trump. At his Senate hearing yesterday,  Tillerson was  Asked whether he supported a more aggressive posture toward China, he said: "We’re going to have to send China a clear signal that, first, the island-building stops and, second, your access to those islands also is not going to be allowed.”

    If in fact the new Administration does go forward with such a plan, or hint anymore strongly in this direction, either related to the South China Sea, THADD deployments, One China policy, Japan, North Korea, South Korea, then I predict that any rosy scenario for Apple, its suppliers, regional sales and long term health will be in serious disease.

    i imagine Apples logisticians being in a panic mode, trying to determine how to counter what looks to be a near term disaster for China dependent corporations such as Apple. 

    India please leave the lights on!
  • Reply 16 of 17
    brucemcbrucemc Posts: 900member
    He might be an "independent analyst" but I think it's safe to say he's usually pretty bullish on Apple. So it's not surprising he would say the future is bright for the company.
    Yes, according to your logic anyone who has a positive view on Apple is an "apologist" or "fanboy" that can't possibly be correct.  Only people who are negative or complain constantly have an unbiased view. 
    caliwatto_cobra
  • Reply 17 of 17
    brucemcbrucemc Posts: 900member
    If that $1T in revenue is a milestone for a consumer product company, then why is Apple always said to be doomed?  It's not as though Apple doesn't have any cash resources to acquire whatever they need to move forward.  There was some article I saw telling how Apple's next iPhone MUST become the greatest iPhone Apple has ever made or the company is going to be in big trouble.  There's this idea that an amazing iPhone will somehow force consumers in poor countries to suddenly have an urgent desire to buy an iPhone they can't afford.  To me, that's like if Lamborghini came out with the most amazing vehicle on the planet, I would do anything to buy one.  Hardly.  No matter how amazing and innovative it is I definitely won't be able to afford it.

    Google is going in the opposite direction and I think their strategy makes more sense to promote smartphone sales.  Google is trying to make the entry level smartphone cost about $30.  (I thought Android One was already a failed strategy but maybe I'm wrong).  I can hardly imagine some smartphone that cheap but maybe that's all third-world consumers can afford to spend on a smartphone.  I don't know what group Apple is going to be able to convert unless it's to make current iPhone owners get a new iPhone.  I know they claim there are switchers from Android smartphones to iPhones but I'm thinking that market might already have reached its limit.  Those Chinese-manufactured Android smartphones keep getting cheaper and cheaper and they're always seen as a huge threat to Apple's iPhone business.  Those are the smartphones the Indian consumer will likely be buying.  If Apple isn't able to find a way to get at least a few more iPhones sold in poorer countries, the company will continue to be perceived as a failing company in terms of growth.

    I sincerely hope Dediu knows what he's talking about but I think it will be very hard to convince Wall Street that Apple will be able to survive the threat of dirt-cheap smartphones.  Everything Apple seems to do is viewed with doubt and great risk.  I'm almost ready to give up hoping Apple will convince skeptics.  Tim Cook simply doesn't inspire investor or shareholder confidence like other tech company CEOs do.  With buybacks and dividends and good fundamentals, Apple seems like a strong company, but Apple's share price seems to be somewhat stuck in a tight range and the doom and gloom articles are always aimed directly at Apple.
    Not sure if you personally have a "dim view" of Apple's future, or that you think Wall Street will continue to view Apple as a poor investment.  For the latter, I would say "most likely", no matter what Apple does.  Apple hasn't been valued highly by Wall Street since the 80s (while Apple's valuation of course has sky rocketed as their profits have grown, they haven't been provided with a P/E above the S&P 500 average much in decades).  Yet Apple has been fantastically successful in that time period.  Clearly Wall Street "didn't get it" then, so you can't go just by what is considered collectively to be a good investment.  Wall Street's view of Apple has no bearing on whether Apple will or won't be successful going forward.

    You seem to define success as single metric - "number of units sold".  If it were the Olympics and that was how to win an event, then that does matter.  But in the world of business, that only matters if it translates into "lasting" profit & growth.  Either the units themselves have to be sold at a good profit, or there installed base makes an ecosystem that generates profits.  As the numbers published by different analytics firms will show you, Apple leads in profits (90%+) and profitable ecosystem.  The only other smartphone vendors that make money are Samsung, and perhaps some of the Chinese vendors (reporting always suspect there).  That has been the case now for 7+ years.

    The view that smartphones are now a commodity and "good enough" will dominate is a view that ignores reality.  Apple today is only about 15% market share, and the rest is already mostly lower end.  Those that buy Apple or other high end devices do so because they want a better product (performance, screen, responsiveness, applications and ecosystem, security, privacy, reliability, resell value, etc).  Why would the demographic that has valued these attributes today & in the past no longer value them in the future?

    Look at every other market.  Why doesn't everybody buy the cheapest car that is available?  Why are there things such as higher end fashion brands?  Why would anyone go to an upscale restaurant when McDonalds is cheaper?  Surely it is possible for you to think this one through a bit.  In fact, if you look into these markets, you will see that the number of units in the "upper tier" are growing - when people have the means, they wish to spend it on better products.

    Apple has spent the entire life of the company building a brand that represents "premium" - ease of use, experience, quality materials, reliability, security...  It makes absolutely no sense for them to pursue any avenue which would cheapen the brand.  That doesn't mean they can't introduce products which allow more of the population to enter into product category (e.g. iPhone SE at $399).  Apple's approach is to entice the consumer to move up to the Apple line.  Yes, the vast majority of the worlds population without a smartphone will buy a cheap Android product going forward.  Not much money to be made there - it isn't Apple's target.  But if the world's economy continues to grow, then a % of the population does move into the zone where they can afford to buy and Apple product, and some of them will.  Apple will make more profit on that one sale than perhaps 100 or even 1000 (or infinite...?) $30 devices.

    I think Apple is well positioned to grow the company going forward, but the growth in foreseeable future does seem like in the low double-digits or high single digits, given the amount of revenue and profit Apple already make.  That isn't a "failure" as Apple is the world's most profitable company by far at their current level.  Let's revisit what Facebook's P/E looks like when they double their revenue and then make only 10x less than Apple.  You think Amazon will be a trillion $ company - I am not sure even Wall Street would push their valuation that high when making less than $1B in profits in a year (what Apple makes in less than a week...).  Google is similarly seeing a slow down in revenue growth, but I do see that they of course could come out with some machine learning product that could lead to growth - question is though on how to monetize.

    Final comments - just because other companies in non-related industries are strongly growing (but also quite hyped), doesn't necessarily impact Apple.  Facebook being successful doesn't impact Apple.  Amazon being successful for the most part does not impact Apple (maybe a bit with some h/w, and in content, but both are relatively small).  Google is more of a competitive threat potential, but still not greatly impacting Apple right now (...because there would always be a low-cost smartphone market...Android is it now, but that market would have been filled by another).  You think that Facebook and Google will dominate?  They are both entirely funded by advertising, which itself is a finite resource (growing roughly a few % in its entirety per year).  No matter how good they get, there are only so many advertising $$ to go around, and while they will increase their share, they aren't going to get it all.  How does advertising monetize Google Assistant?  That is the reason for the Pixel - try to monetize it with premium h/w.  Not off to a good start, but it is early & we will see.  Going from advertising to selling premium stuff isn't easy - it is as hard as developing great products in the first place, and takes a lot longer.


    watto_cobra
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