For years, Apple’s business model was based on the regular renewal of its flagship products: iPhone, iPad, Mac… The Cupertino company released new versions every year to encourage customers to renew their devices. But for some time now, we have observed a change in strategy. Apple now seems more interested in recurring revenue generated by its services than in hardware sales. Let’s analyze this turn.
Apple seeks post-annual hardware renewal
Apple is obviously still extremely dependent on hardware sales, in particular the iPhone which represents 50% of turnover. This is why the company has released one every year for almost 18 years without stopping despite the crises. However, the sale of physical products is no longer enough to satisfy Apple, especially as consumers slow down their renewal frequency.
In an increasingly saturated market, it is difficult to maintain growth solely on the basis of equipment renewal. Cycles are lengthening, innovations are less perceptible from one generation to the next. The September 2024 keynote is a demonstration of this. The iPhone 16 is a marginal hardware update compared to the iPhone 15, not to mention the Apple Watch Series 10 where you have to play the game of seven differences (and even then, the Series 9 did worse). It is not for nothing that Cupertino compares the iPhone 16 to the 12 on its website, aware that customers keep their smartphone much longer than before. Apple must therefore find new growth levers.
The main new feature of the watches, the sleep apnea detection presented on the Watch Series 10, is also available on the Series 9 and Ultra 2. The AirPods Pro 2, released in 2022, gain hearing aid and hearing aid functions. accessibility. Finally, Apple has not renewed its Max headset and its high-end watch (Ultra), not to mention the iPads which take years to be improved now. This is obviously a monumental step for the environment and sustainability, but Apple remains a company that must deliver growth to its shareholders. The equation is very complex.
A system to reinvent
We are reaching the end of hardware developments, in particular our smartphones. Every year they are slightly more efficient, brighter, better at photography… and that’s about it. Today, innovation is to be found on the software side.
In a mature market, we need to find new growth levers and generative AI is one of them. What is the real appeal of the iPhone 16? It’s Apple Intelligence. What is the main advantage of the Google Pixel 9? It’s Gemini. With a strategy different from its competitors (by using local AI) and a rare slowness of deployment, Apple is showing that it is counting on this technology while remaining extremely cautious. If the company is in such little hurry to deploy Intelligencebeyond its obvious delay, it is also because it knows that it is a major technology and which should not be missed. The sustainability of society is at stake.
Always more services
In addition to Intelligence, we know that Apple under the Tim Cook era is strategically very oriented towards services. The recurring revenues enabled by subscription plans are a gold mine for the company’s accounts, in addition to making users captive and dependent on the Apple ecosystem.
iCloud, Fitness+, TV+, Music, Arcade… we can no longer count the premium services launched in just a few years. This direction is also visible in the financial results where this category weighs increasingly heavily. It used to be that there was just iTunes and the App Store.
If this strategy seems profitable and coherent in the logic of Apple’s ecosystem, it will still be difficult to escape the very strong dependence on the iPhone which accounts for more than half of overall revenues each year.
The iPhone is not dead
The question is not when iPhone sales will drop, but by how much. And at that time, it is not certain that revenue from subscriptions and other services alone will be able to make up the shortfall. The other solution that comes to mind: produce even more luxurious devices, while offering a more consistent entry-level offering. Of course, sandwiched between the two, a standard iPhone for ordinary people, including mobile gamers, and an iPhone Pro, geared towards photo and video enthusiasts. But all this, every eighteen or twenty-four months.
Imagine an iPhone Fold, with a finish never before seen on the market, at €1,999 capable of being a phone and tablet when the time comes and, at the same time, an iPhone SE at €299 with everything you need to communicate and play most games. With an offer as wide as on Android, Apple could live out the next decade well. An idea to whisper to Tim Cook’s ear.
What do you think?
