Thread by @_buildd

Apple's iPhone launch was iconic! As Steve Jobs said, they reinvented the phone in 2007.

Clearly, Apple is such a cult because of revolutionary products & marketing.

But Apple's future is NOT the iPhone, iPad or Mac. It's a SaaS business that makes 2x profits!

Let's find out🧵

Structure:
1. What are Apple Services?
2. Apple’s top SaaS
3. Services revenue
4. Vs iPhone
5. Vs Top SaaS companies
6. Why move from hardware to SaaS?
7. Will Apple no longer make hardware?

Thread continues below.

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1/ What are Apple Services?

Apple is known for iPhone, iPad, Mac etc. It’s why Apple is world’s most valued company.

But it’s always been supported by robust software. Ex. macOS, iOS, Notes.

So, Services is basically how Apple makes money on software that ships with devices.

2/ Apple’s top SaaS

A) Apple Music
- Think Spotify, but made by Apple
- How it makes money ⇒ Subscription fees, Partnerships

B) App Store
- Platform to download apps for iPhone, Mac, iPad
- How it makes money ⇒ Commissions on purchase or download

C) iCloud
- Think Google Drive, but made by Apple
- How it makes money ⇒ Subscription fees for add ons

D) AppleTV+
- Think Netflix, but made by Apple
- How Apple makes money ⇒ Subscription fees

E) Apple Pay
- Think Paypal, but by Apple
- How it makes money ⇒ Commissions

3/ Apple Services revenue

Apple makes ~$68bn in revenue from services in a year.

That makes it Apple’s 2nd largest revenue maker, next to only iPhone.

But here’s the best part — Apple makes ~64% profits on services vs. 32% on hardware devices!

4/ Apple Services vs. iPhones

A) iPhones
• Revenue: ~$192bn
• ~32% margin
• Profits: ~$62bn

B) Apple Services
• Revenue: ~$68bn
• ~64% margin
• Profits: ~$44bn

When you look at those profit numbers, the difference between the two looks much smaller!

5/ Apple Services vs. World’s top SaaS companies

Apple Services has more revenue than any of the world's top SaaS companies!

In fact, if I combine the revenue of Salesforce, Adobe & Zoom, I’ll arrive at the number of ~$39bn.

Apple Services alone makes >1.5x of that revenue🤯

6/ But why move from hardware tech to SaaS?

- Firstly, Apple can make a LOT more money (2x) from services than selling hardware products.
- More importantly, Apple’s hardware sales are stagnating. iPhone & iPad sales have dropped 10-15% every year from 2015 to 2019.

(contd.)

There’s strong competition in the phones & tablets market. Growing popularity of Chinese companies like Xiaomi & Huawei has been the primary reason for the drop in demand for iPhone & iPad.

7/ Will Apple no longer make iPhone, iPads, Macs? 😧

So now that Apple has an alternate revenue stream, will it stop making iPhones, iPads, Macs?

Or will Apple no longer launch amazing new hardware and spend on research?

Well, NO and NO

(contd.)

- Hardware products are the face of Apple - without them, the software is nothing
- Apple is also planning to rent out their hardware - more like “hardware as a service”

On top of this, although iPhone sales were consistently dropping, they peaked in 2020, beating 2015 numbers!

8/ In conclusion

It looks like Apple is doing well on all fronts (hardware & software) OR 2020 could just be an exception.

But overall, Apple’s move to SaaS is its need of the hour.

And it will surely be interesting to see how it shapes Apple’s business over the next decade!

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