Apple's Services penetration isn't high despite years of growth

Posted:
in AAPL Investors
Despite seeing its Services arm grow at a steady pace over the years, analysts believe Apple is still considered a device producer, with middling take-up of its various non-hardware elements by customers.

Apple Services
Apple Services


Apple's Services business is continuing to see year-on-year quarterly growth, with over 900 million users paying for subscriptions on Apple's platform as of October. Despite this, Apple's Services still aren't penetrating the user base as much as it should, at least according to Consumer Intelligence Research Partners.

In a report titled "Apple Services - Not as Dominant as Apple Hardware," analysts point out that there's penetration as high as 60% for paid iCloud storage for users, but then shrinking down to as low as 4% for some AppleCare options. To CIRP, Apple has "decidedly mixed results in selling services to device customers."

To consumers, CIRP believes they "think of Apple primarily as a hardware manufacturer."

The most successful element is paid iCloud storage, with its integration into iPhone, iPad, and Mac usage making it "relatively impervious to competitive services."

AppleCare, Apple's extended warranty service, is the least successful, with 4% of iPhone and 7% of iPad customers paying for it. CIRP reckons this is due to the "myriad of competitors in the extended warranty market," who also have an edge for selling iPhones with their services, such as mobile carriers.

Of Apple's other services, Apple Music is though to be used by just over a third of Apple customers. To grow in a heavily established market like streaming music, Apple "would need to persuade customers to switch from their incumbent service."

Apple TV+ lags behind Apple Music, at a 28% penetration rate. Again, substantial competition is a problem here, however since each service has its own exclusive programming, there is more opportunity for consumers to pay for multiple services.

Two other media offerings have also made inroads with customers. Approximately one in five Apple customers is now an Apple News subscriber, while just over a quarter subscribe to Apple Podcasts.

Each also has strong competition, with Apple News taking on a "wide range of national and local news outlets." Apple Podcasts now sees the same from Spotify.

Despite the view of being middling, it is said by multiple other analysts that Services is a key driver to growth for the company. In June 2022, Wedbush offered that Services can help Apple weather macroeconomic conditions via its Services growth for 2023.

Meanwhile in July, Morgan Stanley insisted an increased focus on subscriptions could add nearly $1 trillion to Apple's market capitalization.

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Comments

  • Reply 1 of 21
    red oakred oak Posts: 989member
    4% for Apple Care? My bullshi** meter just went off. There is no way it is that low I recommend you be more skeptical on reports. Or, at least fully understand the sample size and how they calculated the data
    applebynatureFileMakerFellerwatto_cobra
  • Reply 2 of 21
    red oak said:
    4% for Apple Care? My bullshi** meter just went off. There is no way it is that low I recommend you be more skeptical on reports. Or, at least fully understand the sample size and how they calculated the data
    Yeah this report is literally from 2 guys' Substack newsletter...Some of these numbers are obviously way off. I agree 4% AC is laughably wrong.
    FileMakerFellerStrangeDayswatto_cobra
  • Reply 3 of 21
    JP234JP234 Posts: 789member
    red oak said:
    4% for Apple Care? My bullshi** meter just went off. There is no way it is that low I recommend you be more skeptical on reports. Or, at least fully understand the sample size and how they calculated the data
    I think you either misread or ignored the statement, which reads, "as low as 4% for some AppleCare options."

    While I firmly believe in AppleCare, and buy it for our Macs, iPhones and iPads (and have saved thousands with it (including the time my wife dropped her 256GB iPad Air and smashed the screen: that iPad cost $800 with tax, and it was replaced with a new iPad for $49), there are some options I consider superfluous. Apple Watch. AirPods. HomePod Mini. Apple TV device. Three have no moving parts to fail, and are inexpensive enough to replace in the unlikely event something fails. The Watch, sure buy AppleCare, for some very active or clumsy people, or people who don't take them off to shower or swim, but not for me. They're a bit expensive, but not enough to justify AppleCare in my mind.

    So I'm sure that at least 3 of those 
    mentioned have very low AppleCare sell-through rates.
    williamlondonFileMakerFellerOferwatto_cobragrandact73
  • Reply 4 of 21
    JP234JP234 Posts: 789member
    And herein lies opportunity!
    watto_cobra
  • Reply 5 of 21
    JP234 said:
    red oak said:
    4% for Apple Care? My bullshi** meter just went off. There is no way it is that low I recommend you be more skeptical on reports. Or, at least fully understand the sample size and how they calculated the data
    I think you either misread or ignored the statement, which reads, "as low as 4% for some AppleCare options."

    I think you either misread or ignored the statement saying the 4% number was specifically for iPhones. That number is absolutely wrong. Do I have data from Apple to support that? No, and neither do these two newsletter authors.
    But it is absurd to believe only 4% of iPhone users get AC.
  • Reply 6 of 21
    DAalsethDAalseth Posts: 2,582member
    One way to improve the numbers would be to make AppleOne a la carte. If I could get a break on my iCloud by bundling it with Arcade and maybe one other service that would be great. iCloud costs X but a10% discount bundled with one other service, 20% for two and so on. But the way they have it split out, Apple Music with everything for example leaves me cold. It’s not a deal if l’m saving money on something I don’t want. 

    The other thing that would help is to add more tiers to iCloud. 200gb to 2TB is ludicrous. How about a 1TB level? How about selling it in 200gb chunks so you could get what you need. 
    edited January 14 dewmeOferwatto_cobra
  • Reply 7 of 21
    The only service I have is for cloud storage so I don’t have to delete any of my email history. If they ever offered an online version of Time Machine I would probably sign up for that.
    Oferwatto_cobrakitatit
  • Reply 8 of 21
    DAalsethDAalseth Posts: 2,582member
    The only service I have is for cloud storage so I don’t have to delete any of my email history. If they ever offered an online version of Time Machine I would probably sign up for that.
    Yes! Time machine to iCloud would be great. 
    Oferwatto_cobra
  • Reply 9 of 21
    eightzeroeightzero Posts: 2,774member
    DAalseth said:
    The only service I have is for cloud storage so I don’t have to delete any of my email history. If they ever offered an online version of Time Machine I would probably sign up for that.
    Yes! Time machine to iCloud would be great. 
    I kind of understand why Apple got out of the wifi base station business - it's kinda like the TV business, in that it is a race to the bottom of pricing. Still, times have changed, and it seems like a logical product to develop would be a refresh of the airport/time machine with not only iCloud backup, but an integrated Apple run VPN. Given Apple's flagship product is privacy, it seems this would be a natural. An iCloud time machine backup and a VPN service would be subscription revenue models.
    appleinsideruserDAalsethOferwatto_cobra
  • Reply 10 of 21

    To consumers, CIRP believes they "think of Apple primarily as a hardware manufacturer."

    Apple has embarked on a brand consolidation/unification strategy wherein everything they do is under the Apple brand (e.g., Music, TV+, etc.)

    The approach has a certain OCD appeal. But I predict this will be a bigger issue than we might all think. But ultimately it's an ego-centric vanity move that ignores how the consumer thinks.

    Apple would likely have been better off doing something like this:

    • Buy Beats by Dr. Dre (Done!) and maintain the Beats Music brand and expanded and market that. First, it's an awesome name that shouts "music" but in a cleverly branded way. Music? Eh.
    • Instead of creating TV+ from scratch, buy Disney for its amazing content properties. Buy out the remainder of Hulu Disney doesn't own*. Sell off the parks. Roll all of Hulu's original production under Disney and leave Hulu as streaming distribution only. Perhaps instigate the current TV+ production strategy under a new label under Disney management. Also, there's nothing to prevent Apple from bringing its UI/UX/design influence to the streaming service UI.
    • Buy something for gaming (and fitness, books, podcasts, etc.) to launch their gaming initiative. Again maintain that branding.

    *An alternative path would be to buy Netflix, buy Disney, sell off the stake in Hulu, roll all of Netflix's original production under Disney and leave Netflix as streaming distribution only. I suggest this mostly because Netflix has a killer brand position in millions of minds.

    NOTE: If they go the car route, they'd be advised to do something similar. They should either buy a brand or invent a new completely one. Notice that even Toyota (and Nissan, and Honda) did this when they launched a new luxury car. They were already in the car business...but not the luxury car business.

    The Apple brand has a certain position in people's minds that's centered around digital electronic devices (e.g., Watch, iPhone, iPad, Mac, etc.) They have risked diluting the brand and creating confusion in the consumer's mind. This is a dangerous game to play and one that has—more often than not—ended in failure.

    Al Ries and Jack Trout wrote about this over 40 years ago. While some of the specifics may have changed, the principles have not since their principles are based on the human mind, perception, psychology, etc. Those haven't changed in 40 years (or even 1000 years).

    P.S. I'd argue they should have done all of their audio initiatives (e.g., AirPods, HomePod, HomePod mini, etc.) under the Beats label. But that's a weaker position to defend.


    edited January 14 DAalsethwilliamlondonOfer
  • Reply 11 of 21
    dewmedewme Posts: 4,647member
    I’m definitely one of those Apple users where 200 GB was not enough but 2 TB is way too much. 

    I suppose that having the option of using all that excess of storage for an iCloud based Time Machine would make use of the storage I’m paying for, but it still feels like a concession intended to justify having all that excess storage sitting there idle and unused. I’m perfectly happy having my Time Machine on a local backup drive, along with a second bootable CCC backup. 

    Rather than fabricating ways to rationalize having all that unused capacity, Apple should simply. offer more options. There’s really no reason why they can’t offer a “Flex Storage” option that effectively has no min or max size and you only pay for what you actually consume rather than how much you reserve. This would also allow you to grow and shrink down your storage needs on the fly. 

    I’m sure Apple could come up with a way to figure out how to charge you based on actual storage consumption versus time, prorated to some minimum increment, like one day. 

    Say you consumed 2.5 TB for six months while working on a project, but once the project wraps you archive your data to a local or offsite backup and flush your iCloud Flex Storage down to zero. You’d still have your Flex Storage account but because you’re consuming zero bytes your cost would be some minimum carrying fee. The storage rates could still be tiered. If someone tries to crash the system by storing many petabytes of data they’d better have a huge pile of money for uploading and storing all that data. 

    I do like that Apple’s services play well across most if not all of their hardware products and platforms, but when evaluated in isolation against competing third party offerings, they don’t really distinguish themselves on a feature basis to the same degree that Apple’s hardware products dominate their competition. The iPhone, iPad., and Mac halos don’t extend beyond their hardware boundaries. 

    However, don’t sell Apple services short because they have proven to be reliable, secure, and unburdened by subversive privacy side effects like personal data vacuuming and breaches. Sometimes being competent, secure, and a little bland is good enough. Flashy failures are still … failures. 
    edited January 14 designrDAalsethFileMakerFellerwatto_cobra
  • Reply 12 of 21
    eightzeroeightzero Posts: 2,774member
    The more I think about it, I'm not  really sure I would need a different iCloud backup for my mac. macOS already has iCloud document storage, and all the apps are available from the app store. Local backups have advantages too, and Time Machine does have a nice index interface for previous versions. Maybe a one click restore is useful, but it isn't the disaster it used to be. What else needs to be backed up on macOS other than document or app specific files?

    And of course iOS already has an iCloud backup.
    designrdewmeDAalsethwatto_cobra
  • Reply 13 of 21
    Apple's Services business is continuing to see year-on-year quarterly growth, with over 900 million users paying for subscriptions on Apple's platform as of October. Despite this, Apple's Services still aren't penetrating the user base as much as it should, at least according to Consumer Intelligence Research Partners. 
    [emphasis added]

    Or, to paraphrase, "Apple is doomed if it doesn't follow the advice of random internet trolls who think they're worth listening to because they claim to be financial analysts."
    DAalsethwilliamlondonStrangeDayslolliverwatto_cobra
  • Reply 14 of 21
    Hey, its a hobby! 
    williamlondonwatto_cobraFileMakerFeller
  • Reply 15 of 21
    DAalsethDAalseth Posts: 2,582member
    eightzero said:
    The more I think about it, I'm not  really sure I would need a different iCloud backup for my mac. macOS already has iCloud document storage, and all the apps are available from the app store. Local backups have advantages too, and Time Machine does have a nice index interface for previous versions. Maybe a one click restore is useful, but it isn't the disaster it used to be. What else needs to be backed up on macOS other than document or app specific files?

    And of course iOS already has an iCloud backup.

    watto_cobraFileMakerFeller
  • Reply 16 of 21
    StrangeDaysStrangeDays Posts: 12,325member
    designr said:

    To consumers, CIRP believes they "think of Apple primarily as a hardware manufacturer."

    Apple would likely have been better off doing something like this:
    I read all the words but fail to understand why they'd likely be better off doing all that. AirPods by...Beats by Dr. Dre? Why? Just because it's different doesn't make it better.
    watto_cobraFileMakerFeller
  • Reply 17 of 21
    StrangeDaysStrangeDays Posts: 12,325member
    Apple's Services business is continuing to see year-on-year quarterly growth, with over 900 million users paying for subscriptions on Apple's platform as of October. Despite this, Apple's Services still aren't penetrating the user base as much as it should, at least according to Consumer Intelligence Research Partners. 
    [emphasis added]

    Or, to paraphrase, "Apple is doomed if it doesn't follow the advice of random internet trolls who think they're worth listening to because they claim to be financial analysts."
    Yeah I find reports like this silly. Apple is likely the most profitable public corp in human history. They're doing OK as-is. No need to claim they need to be wringing out even more.
    lolliverwatto_cobra
  • Reply 18 of 21
    designrdesignr Posts: 782member
    designr said:

    To consumers, CIRP believes they "think of Apple primarily as a hardware manufacturer."

    Apple would likely have been better off doing something like this:
    I read all the words but fail to understand why they'd likely be better off doing all that. AirPods by...Beats by Dr. Dre? Why? Just because it's different doesn't make it better.
    First, the AirPods by Beats was admitted as the weakest argument I made...so I didn't really make that one. (NOTE: It still might be a reasonable argument to have leveraged the Beats branding positioning as an audio + music brand, but I digress...)

    As for the rest, the argument is basically about positioning. A brand's/product's position in the customer's mind is vital. Many companies have screwed up by not recognizing this. Apple does not mean "music" to most people. It does not mean "TV/movies" to most people. It does not mean "gaming" to most people. It does not mean "fitness" to most people. There are other brands that already occupy a position in the customer's mind in each of these areas. Apple is quite likely diluting its brand position in customers' minds.

    I realize that among Apple loyalists this seems unlikely, even impossible. But there's a world beyond Apple. And Apple has the challenge to grow...a LOT. By attempting to unify everything under the Apple name/brand they have two profound risks: a) diluting what Apple means and has meant, b) not achieving gains in the other areas because they don't "own" those positions in people's minds.

    There was a better strategy for them to play.

    The Apple branding of everything was, frankly, an ego-centric vanity play. I think Apple is greatly over-estimating its "brand juju" here. Apple means iPhone, iPad, Watch, Mac in 99% of minds. It does not mean music, TV/movie streaming, etc.

    TL;DR: This is about positioning in the mind of customers. This is important. It affects g—in fact determines—rowth, profitability, and success in each of these markets.

    Hope that helps.

    P.S. Don't make the mistake of assuming that the billion or so people that own iPhones are mentally and emotionally part of the "Apple loyalty" group. They're loyal to iPhone but still might not view Apple as a lot more than that. Some do, sure. But not likely even a simple majority.



    edited January 15 macplusplusavon b7
  • Reply 19 of 21
    The figure of 4% may not be incorrect.  Over the years for my family and me I have probably bought approaching 50 iPhones and iPads.  However, none has been bought from Apple. I buy from my mobile operator which offers 0% finance and on occasion, a price cheaper than Apple. I don’t buy Apple Care for any of those products as they are insured anyway and none has ever been lost, stolen, broken or had any failure. As each device becomes older it is sold on.  I also have Apple TV, HomePods, Apple Pencil, Apple Watch and Mac Books of various sorts all of which have no cover.  Most never leave the house and have suffered no damage, loss, etc.
    designr
  • Reply 20 of 21
    designr said:
    designr said:

    To consumers, CIRP believes they "think of Apple primarily as a hardware manufacturer."

    Apple would likely have been better off doing something like this:
    I read all the words but fail to understand why they'd likely be better off doing all that. AirPods by...Beats by Dr. Dre? Why? Just because it's different doesn't make it better.
    First, the AirPods by Beats was admitted as the weakest argument I made...so I didn't really make that one. (NOTE: It still might be a reasonable argument to have leveraged the Beats branding positioning as an audio + music brand, but I digress...)

    As for the rest, the argument is basically about positioning. A brand's/product's position in the customer's mind is vital. Many companies have screwed up by not recognizing this. Apple does not mean "music" to most people. It does not mean "TV/movies" to most people. It does not mean "gaming" to most people. It does not mean "fitness" to most people. There are other brands that already occupy a position in the customer's mind in each of these areas. Apple is quite likely diluting its brand position in customers' minds.

    I realize that among Apple loyalists this seems unlikely, even impossible. But there's a world beyond Apple. And Apple has the challenge to grow...a LOT. By attempting to unify everything under the Apple name/brand they have two profound risks: a) diluting what Apple means and has meant, b) not achieving gains in the other areas because they don't "own" those positions in people's minds.

    There was a better strategy for them to play.

    The Apple branding of everything was, frankly, an ego-centric vanity play. I think Apple is greatly over-estimating its "brand juju" here. Apple means iPhone, iPad, Watch, Mac in 99% of minds. It does not mean music, TV/movie streaming, etc.

    TL;DR: This is about positioning in the mind of customers. This is important. It affects g—in fact determines—rowth, profitability, and success in each of these markets.

    Hope that helps.

    P.S. Don't make the mistake of assuming that the billion or so people that own iPhones are mentally and emotionally part of the "Apple loyalty" group. They're loyal to iPhone but still might not view Apple as a lot more than that. Some do, sure. But not likely even a simple majority.



    The Beats thing wasn't your weakest argument, you didn't make any arguments. An argument is a conclusion drawn from premises that support the conclusion. What you are offering is opinion which are self contradictory at times and detached from reality* at points. Someone disagreed with your opinions and rather than offer actual arguments and then tossed in a personal attack not related to what you were saying. 


    * Example of detached from reality. You said, "Apple does not mean 'music' to most people." You really think that? You think Apple hasn't built a strong connection with music in people's minds? I'm pretty Apple has a pretty solid track record when it comes to associating itself with music. iTunes Music Store, iPod, GarageBand, Logic are all examples. Hell, Apple used to host a yearly music festival. 
    muthuk_vanalingam
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