Apple's secret Services sauce sells systems

Posted:
in iOS edited August 10
Despite making the hardware business look easy, Apple hasn't always been incredibly successful in introducing new devices. But comparing its biggest hits with its worst misses helps to isolate a secret sauce that is driving demand for the company's products globally.

Apple Software Sells Systems 1979
In 1979, John Couch was in charge of all software at Apple Computer. He commissioned this poster: Software Sells Systems

Service As A Sauce

The most apparent reason underlining the hardware success of iPod and iPhone (in contrast to the relative flops of Xserve and the Mac mini in the same decade) was that both of the former were tied to a content Store selling music, games and then software. This allowed Apple to materially participate in the success of those platforms as their ecosystems grew -- a factor that the Mac platform itself did not get at all until 2010.

When I wrote a book on MacOS X Server back in 2009, it struck me as odd that Apple never attempted to create an App Store for third party server applications, despite having seen incredible success with the iTunes Store on iPod and the beginnings of the iOS App Store for iPhone. Instead, it eventually discontinued Xserve as a hardware lineup in 2011.

Since then, macOS X Server has limped along quite unremarkably as a software app, still without any sort of store for third party server applications. Lacking a commercial market for its ecosystem certainly hasn't helped Server to develop as a product.

On the other hand, in 2010 Apple expanded its iOS App Store-driven hardware with iPad, and brought its Walled Garden software model to the Mac via a desktop App Store. These platforms, along with Apple Watch, Apple TV, AirPods and HomePod, are also deeply integrated with a new type of platform Services in the shape of subscriptions, including Apple Music and iCloud.


The new Mac App Store in macOS Mojave incorporates lessons learned on iOS


Pretty clearly, Apple's platform-related Services are not just a way to extract some extra revenues from its existing hardware buyers (as clickbait content generators like to cynically complain), but a key value add that spurs initial hardware purchases and invites new buyers deeper into the Apple fold.

HomePod's subscription sauce is Apple Music, not Siri

Think specifically about HomePod. While pundits trying to view Apple through the lens of "Amazon Rose" colored glasses can only think of HomePod as a "Siri Speaker," it's really an Apple Music Speaker.

People who subscribe to Apple Music are far more likely to buy HomePod than a rival speaker. And while plenty of clickbloggers see Spotify streaming as a "missing feature" of HomePod, the more important reality is that Apple Music streaming is not supported by rival speakers.

Apple Music has more subscribers among Apple's premium installed base, which also represents the overwhelming majority of the high-end market for consumer electronics in general. In contrast, Spotify is currently trying to partner with cheap WiFi mics from Amazon and others, and making deals with Samsung, a company that has largely just failed in mobile, tablets, PCs and peripherals outside of smartphones (where its sales are concentrated on the middle and low-end). Spotify's predicament appears more inviable than enviable.

HomePod
HomePod is a high-end home speaker for Apple Music subscribers


Like HomePod, Apple's other significant audio products, AirPod, Apple Watch, and CarPlay, also support Siri for handsfree navigation. But both also sell themselves as the ideal clients for Apple Music. If you're a subscriber, you're more likely than not going to seek out Apple-branded hardware designed to integrate with Apple Music rather than shop around for alternatives that require more work to stream the music you pay for.

Apple has made its hardware lineup compelling enough to cause some Spotify users to switch. Can the same be said of Samsung, Amazon Echo or Google Home? I doubt Apple Music is worried about it.

Software Sells Systems

Back in 1979, John Couch (the soon-to-be head of Apple's Lisa project) was in charge of all software at Apple Computer. He commissioned the above poster "Software Sells Systems," to remind employees of the critical importance of software to drive sales of hardware. In fact, it was Apple's human interface guidelines team that later coined the term "application" as a more approachable and meaningful term for "executable code." Software literally facilitated a practical application of users' hardware.

It took Apple another twenty years to figure out that it should be materially participating in that software market, not just as a first party developer but more importantly as a curator and marketer of third party software and other content, including music, movies, podcasts, books and subscription services.

Microsoft appeared to figure this out before Apple, yet the company was unable to successfully establish a model for exclusively selling software for Windows. Its attempt to lock down Windows PCs to only run verified software approved by Microsoft (an ambitious research initiative known as "Trusted Computing," which began in the late 80s and was eventually announced under the branding "Palladium" in 2002) was rejected by the market, despite a friendly marketing introduction exclusively channeled through Steven Levy in the pages of Newsweek.

By 2002, Microsoft wasn't trusted by even many of its partners; nobody wanted to cede more power to the company that already owned a near monopoly on computing. Palladium was equated with exploitive DRM and seen as a tactic Microsoft could use to expand its power over the PC industry (in tandem with Intel, which was also a key supporter of Palladium because it required new support in silicon).

Once Palladium was canceled, it stood as one of the biggest mega-research flops to ever hit personal computing during the Microsoft Era, right up there with the overhyped VLIW Itanium, Bill Gates' Tablet PC, and the industry-wide "microkernel" delusion that went supernova before collapsing into a black hole.

As Palladium was roasted to death by critics, Apple was able to incrementally convince music labels, then movie studios, to trust it to distribute their content on iTunes using FairPlay DRM. In 2005 it worked with select developers to distribute encryption-signed video games for iPod. In 2007, when Apple released iPhone without a third party market for software, developers essentially begged the company to let them sell native apps for iPhone, rather than being forced to build web apps that iPhone users could access from the phone's browser.


The App Store opened in the summer of 2008 with 500 apps, essentially as an extension of iTunes


When Apple opened the App Store in early 2008, it was flooded with third party attention, despite Apple's restrictions on content, security precautions, and its merchandising fees for paid apps sold in its store. Apps for iPad similarly embraced the platform a few years later. The iOS apps model bears a lot in common with Microsoft's design for Palladium, including its trusted kernel and hardware-based security designed to only run known, signed code.

Apple's Palladium App Store

Because of Apple's reputation for generally doing things in the interest of its customers-- to win and retain their business (something that's currently a novel and unusual concept in the tech world!)-- it was able to do what Microsoft had only dreamed of doing. That's because Gates' Microsoft had a different reputation-- one that only ever sought to benefit Microsoft itself in the same ambitiously greedy, amoral, unprincipled and transparently phony corporate behavior now on display at Google, Samsung, Twitter, Facebook, and Youtube.

Apple's App Store has since become a massive, multibillion business on its own, far more successful than other software markets, notably Google Play for Android and even Apple's own Mac App Store, neither of which serves as the exclusive way to sell software on those platforms. The App Store wasn't just adding value to iOS-- it was creating its own weather: a storm front of new demand for iOS devices.

Consider that in order to play today's most popular mobile game over the last year, Epic Game's "Fortnight Battle Royale," you needed a modern iPhone. Also, once the title leaves beta on Android, it won't come to Google Play. It will need to be side-loaded. That's an exceptional example of how powerful the App Store is, despite the fact that iOS doesn't exert anything close to a monopoly over mobile OS software the way Windows did in PCs two decade ago.

Fortnite Battle Royale
Fortnite Battle Royale is one of the most recent exclusive games that's been selling iOS devices


The value of software to stoke demand for new hardware was as old as personal computing itself. Everyone in the industry was already aware that Apple II systems first sold in the 1970s because of VisiCalc; that PageMaker had initially driven sales of Macs in the 1980s, that Office had primed Windows PCs in the 1990s.

But Apple's new App Store began accomplishing something entirely new, beyond just providing a software market for mobile devices (something Danger, Palm, Microsoft, Sun Java, Symbian and many others had already accomplished on some level). The next segment will examine what this essential factor was, tomorrow at 2:00 PM Eastern Time. The previous segment examined Apple's history of hardware.
watto_cobra
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Comments

  • Reply 1 of 27
    steven n.steven n. Posts: 1,037member
    100% agree. I have long advocated Apple is neither a hardware nor a software company but rather a highly skill Systems design house. 
    redsnowdropGeorgeBMacwatto_cobradragan0405jony0
  • Reply 2 of 27
    nunzynunzy Posts: 525member
    Apple gets people to give them money every month, year in and year out. Smart!
  • Reply 3 of 27
    This organizing shell also lets us see why Apple is in some hardware business lines for a while, and then bow out of those lines. Printers? Very useful in the beginning (original Laserwriter got me to buy my first Mac), less useful as time went on and the industry adopted universal connection standards and conventions (in part because Apple pushed). So no more Laserwriters and Imagewriters, because there's no software, firmware, or peripheral hardware connection back to core hardware sales to Macs, iPhones and iPads. We're seeing the same thing now with Airport -- universal standards and connections allow us to use whatever we want, and more importantly, Airport (and Airport Utility, the software side) no longer brings a compelling advantage to Apple in incremental sales. Whenever someone says, "why doesn't Apple sell x?", the answer likely is, 'x' doesn't drive hardware sales. If it did, Apple would be there.
    StrangeDaysbaconstangwatto_cobrajony0
  • Reply 4 of 27
    FolioFolio Posts: 337member
    "Because of Apple's reputation for generally doing things in the interest of its customers-- to win and retain their business (something that's currently a novel and unusual concept in the tech world!)-- it was able to do what Microsoft had only dreamed of doing. That's because Gates' Microsoft had a different reputation-- one that only ever sought to benefit Microsoft itself in the same ambitiously greedy, amoral, unprincipled and transparently phony corporate behavior now on display at Google, Samsung, Twitter, Facebook, and Youtube."

    Probably a big reason why you continue to see so many gung-ho enthusiasts for that gargantuan corporation in Cupertino. (That and despite Apple's colossal size, it's still an underdog in many areas.) One area kind of epitomizes part of your story is the left swipe on your iPhone's home page.  This really is Apple's Page more than any other. A vision of things to come. You see it's Apple becoming more aggressive in services, but still in a helpful and collaborative way, that's not off putting.  
    watto_cobradragan0405
  • Reply 5 of 27
    rogifan_newrogifan_new Posts: 2,998member
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    edited August 10 1983
  • Reply 6 of 27
    radarthekatradarthekat Posts: 2,471moderator
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Really Apple sells experiences.  Apple Music, for example, or any streaming music service, is a much better paradigm for music consumption versus purchasing and maintaining your own music collection.  Streaming services provide discovery, curation and the entirety of the provider’s library.  Collecting tunes on your own requires you to do discovery, often able to listen only to a segment of a track before purchase, it requires you to curate and create playlists, and it’s very expensive to [legally] build a music library and then refresh as new music comes along and you tire of what you once thought was worthy.  You can stream music for a lifetime at $120/year for the initial cost of a 6000 track music collection.  

    So Apple Music is every bit as valuable as those physical products that Snell refers to as Apple’s soul.  
    racerhomie3roundaboutnowStrangeDayswatto_cobra
  • Reply 7 of 27
    TomETomE Posts: 92member
    Software Sells Systems - Perfect , No Software, No Need for the Hardware.
    Take away the Software People have built their office or business on , Literally ticks them off.
    I am getting tired of being ticked off - cannot afford it - too much trouble. 
    Keep it simple, add features, don't discontinue the software, just add to it. 
    Software Sells Systems to Me and Others

    dragan0405
  • Reply 8 of 27
    dewmedewme Posts: 1,490member
    Another brilliant and insightful article. One common theme of most of DED's article's, which I would classify more precisely as concise white papers, is the futility in trying to force Apple to fit other people's or group's ideologies, business models, ways of connecting with customers, competitive strategies, etc. Apple is and always has done its own thing by playing by its own rules. Once you start trying to fit Apple into your world, Google's world, Microsoft's world, industry pundit's world, or even so-called conventional wisdom, you've already missed the point and are spinning false narratives that bear little or no resemblance to what Apple lives and breathes every day of its existence. Case in point, the so-called "walled garden" metaphor that's foisted upon Apple in a derogatory manner. If Apple was only a hardware company or only a platform company then the notion of a garden, walled or open, may very well apply. But Apple is as much a software company as they are a hardware company. Oh, they are also a services company. Add in education, entertainment, and creative arts and science. Apple has skin in all of these games, indivisibly and inseparably, so the whole notion of creating an empty, dimensionless, context independent space, i.e., garden, that others can step into and sow with their own wares without Apple's purposeful care and influence binding these wares back into Apple's full set of core concerns never made sense for Apple and never will. Apple will never cede its influence and control over the things that it cares most deeply about. This is what makes Apple unique, special, and based on market measures, the most valuable company that exists.

    Thank you DED for painting the picture so clearly with your words.
    hubbaxradarthekatStrangeDayswatto_cobraAlexMorellojony0
  • Reply 9 of 27
    rogifan_newrogifan_new Posts: 2,998member
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Really Apple sells experiences.  Apple Music, for example, or any streaming music service, is a much better paradigm for music consumption versus purchasing and maintaining your own music collection.  Streaming services provide discovery, curation and the entirety of the provider’s library.  Collecting tunes on your own requires you to do discovery, often able to listen only to a segment of a track before purchase, it requires you to curate and create playlists, and it’s very expensive to [legally] build a music library and then refresh as new music comes along and you tire of what you once thought was worthy.  You can stream music for a lifetime at $120/year for the initial cost of a 6000 track music collection.  

    So Apple Music is every bit as valuable as those physical products that Snell refers to as Apple’s soul.  
    The majority of Apple’s services revenue is not Apple Music.
    AlexMorello
  • Reply 10 of 27
    quinneyquinney Posts: 2,509member
    Clearly AI has hired Sylvester the Cat to write its headlines.
    baconstangroundaboutnowchunkpylonAlexMorellojony0
  • Reply 11 of 27
    radarthekatradarthekat Posts: 2,471moderator
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Really Apple sells experiences.  Apple Music, for example, or any streaming music service, is a much better paradigm for music consumption versus purchasing and maintaining your own music collection.  Streaming services provide discovery, curation and the entirety of the provider’s library.  Collecting tunes on your own requires you to do discovery, often able to listen only to a segment of a track before purchase, it requires you to curate and create playlists, and it’s very expensive to [legally] build a music library and then refresh as new music comes along and you tire of what you once thought was worthy.  You can stream music for a lifetime at $120/year for the initial cost of a 6000 track music collection.  

    So Apple Music is every bit as valuable as those physical products that Snell refers to as Apple’s soul.  
    The majority of Apple’s services revenue is not Apple Music.
    But it’s an example of how Apple sells experiences.  Which are not entirely provided simply in hardware.  The reason why Apple doesn’t sell TVs, for example; there’s not much way to enhance the experience with the screen as that component isn’t what creates a differentiated experience one vendor to another.  The streaming box, however, because of the UX delivered via its software and services, is where Apple can do its thing to provide a differentiated experience.  

    The App Store, maybe not the first of that concept (remember Symbian?) but a service that Apple created which changed the entire paradigm of software distribution.  A much better experience versus the Wild West of in-line app delivery that exists outside app stores.  
    edited August 10 watto_cobra
  • Reply 12 of 27
    quinney said:
    Clearly AI has hired Sylvester the Cat to write its headlines.
    thufferin' thuccotash!
    AlexMorello
  • Reply 13 of 27
    Homepod is the best music speaker i've ever experienced. It's awesome V Sauce & i love it ;)
    watto_cobra
  • Reply 14 of 27
    GeorgeBMacGeorgeBMac Posts: 2,507member
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Really Apple sells experiences.  Apple Music, for example, or any streaming music service, is a much better paradigm for music consumption versus purchasing and maintaining your own music collection.  Streaming services provide discovery, curation and the entirety of the provider’s library.  Collecting tunes on your own requires you to do discovery, often able to listen only to a segment of a track before purchase, it requires you to curate and create playlists, and it’s very expensive to [legally] build a music library and then refresh as new music comes along and you tire of what you once thought was worthy.  You can stream music for a lifetime at $120/year for the initial cost of a 6000 track music collection.  

    So Apple Music is every bit as valuable as those physical products that Snell refers to as Apple’s soul.  
    There was a discussion in a recent thread about all the issues arising from Apple Music replacing a user's personal library with streamed versions of its songs because:   Many songs are lost and many more are changed because Apple replaces them with a different version.

    Yes, music streaming via Apple Music is good.
    Yes, having your own library of favorites is good.

    I want both.  There is no reason for it to be either/or.
    williamlondon
  • Reply 15 of 27
    GeorgeBMacGeorgeBMac Posts: 2,507member
    I totally agree!

    As a hardware only company Apple would have been long gone.  Yes, they make great hardware and its often better than anything else on the market.  But, in maturing market places, Apple cannot rely on superior hardware because 6 months later somebody will have something better and/or cheaper.

    But neither is Apple a software company -- and it can't survive as a software only company.

    Instead, Apple is an integrator of hardware, inhouse software, outhouse software, services and support -- all of which come together in an interconnected web where every piece is connected directly or indirectly to another piece.  And, they all work synergistically to complement one another.

    But, most media reviews continue to try to compare one of those interconnected pieces to a piece from a competitor and declare "A Winner!". 

    The fact that phone XYZ has a better camera doesn't make it a better product.
    The fact that phone ABC has more memory doesn't make it a better product.
    The fact that phone DEF has a higher resolution screen doesn't make it a better product.

    As an analogy:   T. Colin Campbell is a nutritional researcher and states the issue well:   People, companies and researchers try to break things down into component parts and compare those component parts individually ("This food is better because it has more vitamin C").    He calls that "Reductionism".   Instead, he advocates looking at the Whole food because in whole, unprocessed foods the Whole is greater than the sum of the parts.
    muthuk_vanalingamwatto_cobra
  • Reply 16 of 27
    k2kwk2kw Posts: 1,300member
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Really Apple sells experiences.  Apple Music, for example, or any streaming music service, is a much better paradigm for music consumption versus purchasing and maintaining your own music collection.  Streaming services provide discovery, curation and the entirety of the provider’s library.  Collecting tunes on your own requires you to do discovery, often able to listen only to a segment of a track before purchase, it requires you to curate and create playlists, and it’s very expensive to [legally] build a music library and then refresh as new music comes along and you tire of what you once thought was worthy.  You can stream music for a lifetime at $120/year for the initial cost of a 6000 track music collection.  

    So Apple Music is every bit as valuable as those physical products that Snell refers to as Apple’s soul.  
    The majority of Apple’s services revenue is not Apple Music.
    But it’s an example of how Apple sells experiences.  Which are not entirely provided simply in hardware.  The reason why Apple doesn’t sell TVs, for example; there’s not much way to enhance the experience with the screen as that component isn’t what creates a differentiated experience one vendor to another.  The streaming box, however, because of the UX delivered via its software and services, is where Apple can do its thing to provide a differentiated experience.  

    The App Store, maybe not the first of that concept (remember Symbian?) but a service that Apple created which changed the entire paradigm of software distribution.  A much better experience versus the Wild West of in-line app delivery that exists outside app stores.  
    I would like to see Apple sell a high end Camera that is all AutoFocus (or via App based Menu)   should be able to use APS-C size sensor(s) with iOS based OS.   Should be able to start at $2,999.99.   Apple customers are usually richer and will pay a premium for an integrated experience.

    Not a fan of Siri and have avoided HomePod because of it but expect that in a few years Siri will be much better.    Amazon will then have a hard time holding on to their Alexa users as more switch over to Siri.    Alexa will be seen a place holder that kept Google Assistant out of homes but warmed people up to Siri. 

  • Reply 17 of 27
    rogifan_newrogifan_new Posts: 2,998member
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Really Apple sells experiences.  Apple Music, for example, or any streaming music service, is a much better paradigm for music consumption versus purchasing and maintaining your own music collection.  Streaming services provide discovery, curation and the entirety of the provider’s library.  Collecting tunes on your own requires you to do discovery, often able to listen only to a segment of a track before purchase, it requires you to curate and create playlists, and it’s very expensive to [legally] build a music library and then refresh as new music comes along and you tire of what you once thought was worthy.  You can stream music for a lifetime at $120/year for the initial cost of a 6000 track music collection.  

    So Apple Music is every bit as valuable as those physical products that Snell refers to as Apple’s soul.  
    The majority of Apple’s services revenue is not Apple Music.
    But it’s an example of how Apple sells experiences.  Which are not entirely provided simply in hardware.  The reason why Apple doesn’t sell TVs, for example; there’s not much way to enhance the experience with the screen as that component isn’t what creates a differentiated experience one vendor to another.  The streaming box, however, because of the UX delivered via its software and services, is where Apple can do its thing to provide a differentiated experience.  

    The App Store, maybe not the first of that concept (remember Symbian?) but a service that Apple created which changed the entire paradigm of software distribution.  A much better experience versus the Wild West of in-line app delivery that exists outside app stores.  
    I’m just saying right now ‘services’ don’t excite me like new hardware does. I think that’s what Snell was saying too. Obviously Cook wants Wall Street to think of Apple as not just s hardware company and so when hardware sales are flat or down he focuses on services. Wall Street might love higher and higher ARPU but it’s not something consumers get excited about. When I’m paying $1K for a phone the last thing I want to hear about is how Apple is extracting even more money from me.
  • Reply 18 of 27
    GeorgeBMacGeorgeBMac Posts: 2,507member
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Really Apple sells experiences.  Apple Music, for example, or any streaming music service, is a much better paradigm for music consumption versus purchasing and maintaining your own music collection.  Streaming services provide discovery, curation and the entirety of the provider’s library.  Collecting tunes on your own requires you to do discovery, often able to listen only to a segment of a track before purchase, it requires you to curate and create playlists, and it’s very expensive to [legally] build a music library and then refresh as new music comes along and you tire of what you once thought was worthy.  You can stream music for a lifetime at $120/year for the initial cost of a 6000 track music collection.  

    So Apple Music is every bit as valuable as those physical products that Snell refers to as Apple’s soul.  
    The majority of Apple’s services revenue is not Apple Music.
    But it’s an example of how Apple sells experiences.  Which are not entirely provided simply in hardware.  The reason why Apple doesn’t sell TVs, for example; there’s not much way to enhance the experience with the screen as that component isn’t what creates a differentiated experience one vendor to another.  The streaming box, however, because of the UX delivered via its software and services, is where Apple can do its thing to provide a differentiated experience.  

    The App Store, maybe not the first of that concept (remember Symbian?) but a service that Apple created which changed the entire paradigm of software distribution.  A much better experience versus the Wild West of in-line app delivery that exists outside app stores.  
    I’m just saying right now ‘services’ don’t excite me like new hardware does. I think that’s what Snell was saying too. Obviously Cook wants Wall Street to think of Apple as not just s hardware company and so when hardware sales are flat or down he focuses on services. Wall Street might love higher and higher ARPU but it’s not something consumers get excited about. When I’m paying $1K for a phone the last thing I want to hear about is how Apple is extracting even more money from me.
    You're far from alone in that!
    And, that's a problem -- because the media caters to what is exciting and over emphasizes hardware features -- the glitzy stuff -- and ignores the fundamentals that make Apple products great!

    For me:   I like boring!  Boring things that "just work"
    watto_cobra
  • Reply 19 of 27
    Quit reading clickbloggers altogether. WSJ, The Verge, and the like have long turned into tabloids...
    StrangeDayswatto_cobra
  • Reply 20 of 27
    StrangeDaysStrangeDays Posts: 5,094member
    I’m with Jason Snell on this. It will be kind of depressing if Apple becomes all about increasing ARPU. To me Apple is best as a product company not a how much money can we make off of IAP and iCloud storage company.

    https://sixcolors.com/post/2018/07/the-good-great-and-mac-of-apples-record-quarter/
    As someone who’s interested in products, I find the focus on Services revenue to be a bit dispiriting. I get excited at the prospect of new products and seeing how consumers are accepting or rejecting products in the market. But the discussion of Services, especially in a financial context, is essentially a conversation about how Apple can grind more money out of every single person who uses an iPhone, iPad, and Mac. (At least the Other Products line, which is also growing rapidly, contains real products like AirPods and the HomePod and the Apple Watch.)

    It’s not even that the individual products aren’t good—in point of fact, I’m a happy Apple Music user, I sync my photos with iCloud, and I’ll get in line to give Apple my money for the new video service when it arrives. But to me, in its soul Apple is a company that makes products—the amalgamation of hardware and software—and it will rise or fall based on its competency in those areas. 

    Apple needs to keep growing Services revenue because this is the world we live in. You’ve got to play that game, and if you had told me a decade ago how well Apple would seem to be doing at it, I wouldn’t have believed you. (To be fair, a huge portion of the Services line is the App Store itself, and that’s not just to Apple’s credit, but to the credit of everyone who sells apps.) But Services revenue is the add-on, not the core. Let’s never forget that—and hope Apple never does either.


    Apple is a hardware based product company. That they also sell services is OK. Are you depressed about how Dropbox sells cloud services?

    iCloud is cheap. 
    watto_cobra
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