Written by Nick Heer.

Understanding Apple’s Services

Tim Cook, as transcribed by iMore’s Micah Sargent, during Apple’s most recent earnings report:

Services revenue hit an all-time quarterly record of $7.3 billion, representing 22% growth over last year. We continue to see great performance all around the world, with double-digit growth in each of our geographic segments. Over the last 12 months, our services business has become the size of a Fortune 100 company — a milestone we’ve reached even sooner than we had expected.

The idea of Apple’s services branch being a Fortune 100 company is a statement that a few publications took far too literally, ignoring the context for its success and growth.

Jean-Louis Gassée in Monday Note:

But the biggest misunderstanding isn’t the theoretical placement in the Fortune 100 list, or the comparisons to Facebook. It’s the consideration of Apple Services as a self-standing business. Remove “Apple” from “Apple Services”…would this stand-alone “Services” company enjoy the same success were it to service Android phones or Windows PCs?

Apple Services is an important member of the supporting cast that pushes the volume and margins for the main act: Apple Personal Computers. These come in three sizes, small (iPhone), medium (iPad), and large (Mac). If rumors of the addition of a cellular modem are true, we may even see the Watch, today an iPhone accessory, added to the cast as the newest and smallest performer.

Everything else that Apple offers has one raison d’être: Fueling the company’s main hardware act without which Apple is nothing.

A counterargument that I could see for Gassée’s article is the availability of Apple Music for Android devices. Perhaps it serves a similar role as the iPod used to — a halo product to get people interested in the Apple ecosystem — but I think it’s more of a way to bolster the success of Apple Music due to the network effects of streaming services.

Either way, Apple Music is not a very strong counterargument because it’s not really the same kind of product as Apple’s other services. iCloud, for example, is available on Windows PCs and on the web, but you’d never consider using it on either platform without also having one of Apple’s devices as well — it’s just too clunky. Apple Music, on the other hand, works the same regardless of where it’s used; the advantages gained by using it on Apple’s platforms are mainly through its integration with Siri.