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Apple Inc: Focus on Services to Grow User Base

6/6/2022
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According to Euromonitor International’s latest report on Apple Inc in Consumer Electronics, the company’s shift to services is increasingly visible in its daily business and product portfolio. These services, which include revenues from the company’s App Store, Apple Music and Apple TV, continue to grow rapidly, as its huge user base continues to expand. This is because Apple keeps its operating systems closed, not allowing the use of Apple software through non-Apple devices. Although Apple achieved its highest ever sales in 2021 amidst an ongoing challenging economic situation, the company continues to shift its business to services to avoid dependency on sales of iPhones and other products, such as wearables and tablets.

This shift is important, because it unifies many of the company’s other strategies in recent years. These include strategies to pull more consumers to the iOS platform through subscription payment models and the introduction of cheaper models. For players in the consumer electronics industry, particularly those that are hardware-driven, this means more pressure and higher competition on prices. For consumers it might offer the opportunity to become part of the Apple environment without paying premium prices for the hardware.

New financial models to attract new Apple users 

One way in which Apple intends to expand its user base and sell services is through new financing models which offer consumers the chance to buy Apple products via a monthly fee instead of a one-time purchase. The more consumers that own an Apple device, the higher the likelihood of them purchasing an Apple service afterwards. This also reflects an important global trend of “buy now pay later”. These moves allow Apple to appeal to consumers who were unable or unwilling to pay premium prices for their hardware through a one-time purchase.

Taking this one step further, Apple may also give away hardware free through the cost of services, offering all-in-one service subscriptions which would cover the hardware entirely. These steps are feasible only for Apple, given that it runs its own operating system. It also increases the pressure on Apple’s competition and challenges the installed base of iOS vs Android, where hardware producers using the Android platform have limited possibilities to generate income through services.

Apple Inc: Sales in Consumer Electronics 2020/2021Source: Euromonitor International

Apple is increasingly focusing on different price segments, especially with the introduction of its SE models, as well as making models such as iPhone 13 and iPhone 13 Pro more price-competitive. The increased variety has paid off, with sales growth of 20% in 2021. However, while Apple‘s transition from hardware to software is in full swing, all products showed positive growth between 2020 and 2021, which favours Apple’s plan to enhance its customer base and pull more consumers to iOS.

New and lower priced models

A way of becoming more attractive to more consumer segments is by offering more affordable models. Apple followed this trend with the introduction of the third generation of the iPhone SE in 2021, the Apple Watch SE in 2020, and several other products throughout consumer electronics, including MacBook and iPad. In addition, Apple introduced self-service repair in 2021 for the iPhone 12, which was previously unavailable. This change also proves the shift from hardware to software, especially since the former message ingrained by Apple was that consumers should not be able to do anything themselves on their devices, not even change the battery. Subsequently, the future might hold less frequent new product introductions compared with the last 20 years, but rather a longer replacement cycle, as well as new offers when it comes to repair and refurbishment.

Sustainability and the future

This is also in sync with Apple’s announced long-term goal of net-zero climate impact by 2030. Even though Apple registered a record year when it came to products sold in 2021, the company keeps shifting towards a more service-driven and more environmentally-friendly future, where third-party players can repair products, accessories are minimised, and sales of new products are compensated for.

This sets the company up for a dynamic future in consumer electronics. It could be argued that the future of Apple is not about hardware sales any longer, but about service sales. With Apple as a leader, this strategy will also challenge its competitors to rethink, while for consumers, the future of usage of consumer electronics might be rather about subscription-based payment models rather than one-time purchases also when it comes to other devices, such as laptops or TVs. In this scenario, more consumers will be able to afford high-quality devices, while at the same time companies can generate more steady revenue streams through subscription.

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