A year after media doubting, Apple's Services save a difficult year

In March, analysts and tech bloggers threw arrogant contempt for Apple’s latest introduction. This year, these new offers helped save Apple’s profits in the second quarter and should strengthen its performance in the June quarter despite the pandemic.

Experts Did Not Really Understand What Apple’s March 2019 Event Was Talking About

Cynical doubts for the best performing and most competent company in consumer technology

You could easily be forgiven for thinking that the new products in question were MacBooks with exaggerated keyboard problems, or new $ 999 + iPhones, or Macs without a touchscreen, iPads without a mouse, or HomePod, or Apple TV. , or Apple, or virtually anything else the company has ever introduced and quickly turned into a profitable multi-billion dollar business.

Cynicism imagining an imminent fate for Apple is a familiar script that wears out a little more each time Bloomberg, Nikkei, Wall Street Journal and The New York Times express their opinion on what Apple is doing right now.

But here we are specifically looking at the new services that Apple debuted in March 2019 during an event at the Steve Jobs Theater at Apple Park. These included subscriptions for Apple Arcade games, a revamped set of News + digital journals, the introduction of Apple TV + original content, and a new Apple card integrated with Wallet and Apple Pay.

For any other company, these new services could have been launched with a single press release, or in a series of press releases through 2019 delivered only when each of these new offers became available.

In fact, the company’s services event last year was unusual even for Apple, as it was not anchored at all to a hardware product introduction and included several “previews” of initiatives that the company would not make available before several months. The Apple card was not available until August, Arcade opened in September and TV + in late October.

Why 2019 services were announced so far in advance

Apple rarely announced new products long before they were actually available for sale, with a few notable exceptions. One was last year’s Mac Pro – which was detailed in its summer WWDC19 after being promised in general terms years earlier. This advanced telegraphy of his plans was clearly made to reassure the Pro market and spark anticipation for the type of new high-end Mac that Apple hadn’t sold for years.

Another example of pre-advertised hardware was the original Apple TV, which Steve Jobs detailed a few months before the iPhone was unveiled in early 2007, and which was actually launched in the shadow of this iPhone announcement. The iPhone itself was also presented several months before being available.

In all of these cases, Apple was more interested in generating interest in its upcoming new products than in maintaining the kind of secrecy that the company usually maintains in order to launch new products upon purchase. Apple’s legendary secret has long been used to prevent competitors from copying their work and rushing their own copies to market faster than Apple. But in the case of Apple TV, iPhone, Mac Pro and new services from last year, there was little that competitors could do to steal the show from Apple.

Rather than fueling competition, Apple’s new offerings have instead helped fill up unexpected partnerships. The company previously announced plans with TV manufacturers, including Samsung, to integrate AirPlay 2 streaming and iTunes movies with third-party hardware.

Apple TV + has delegated cheap TV dongle hardware to existing players to focus on premium Apple TV hardware

This was first falsified by cynicism as an admission of the failure of its own television hardware and a desperate attempt to put its content on third-party boxes from Roku, Amazon and others. This steaming “hot plug” has been touted as something entirely new to Apple, despite the fact that the company has maintained iTunes for Windows PCs and Apple Music for Android for almost as many years as it did on its own. platforms.

Apple also hasn’t given up on its own Apple TV hardware – rumored to be delivering a new model powered by A12X soon. Instead, Apple is obviously expanding its ecosystems in all directions that make sense, putting iTunes, Apple TV + and now Apple Music wherever it can in order to get users to stick to the standard. higher quality that defines all its offerings. . If your new TV is equipped with AirPlay 2, you will be more likely to continue to buy other iOS, Mac, HomePod and tvOS devices that can enjoy its transparent and easy-to-use multi-room audio.

Apple Arcade
Apple Arcade was not only a way to sell games; he extended games on Mac and Apple TV

Why 2019 services alone deserve an Apple event

Apple’s various new services in 2019 were a mix of familiar and new; a continuation of games on the App Store, an expansion of original content that has started to appear on Apple Music, an improvement on a series of previous attempts to introduce periodicals to the modern digital world with a more attractive format, and a expansion of previous investments with Apple Pay in cash, NFC wallet functionality and funding for new products.

What unified this collection of various new services and made the collection of introductions worthy of an Apple event in its own right was the fact that these were features designed to bring unique value to the Apple’s ecosystem and leverage the latent purchasing power of Apple’s vast network. a user base set up to demonstrate a new economic activity in a demonstrable way in a way that third parties could not alone.

Apple was proving that it had unlimited growth paths, each of which could become major new businesses. He approved his plans thanks to the participation of various celebrities, artists and business partners who would be reluctant to join a similar initiative of a company that did not seem able to carry it out. Apple was whispering an answer to the question “what is the company doing after the iPhone?”

The very people who asked for an answer to this question were not at all impressed. GV partner and former Tech Crunch expert MG Siegler wrote that Apple’s introduction of new services was “really weird” and “weirdest”, then thoroughly disparaged everything that was billed as “silly” to “slightly pathetic”.

Writing for Appleinsider, William Gallagher summed up the industry’s overall reaction as rocky. The New York Times has classified the event as “charm and glare,” which appears to be a circular definition of a press event. Should Apple “disappoint and not impress”?

HSBC analysts have imagined that Apple’s services would provide sources of income with lower margins than the company’s investors were used to. He said, “We don’t expect these services to move the needle significantly,” complaining specifically that the Apple card was “too late for the game.” He set a price target of $ 180 on Apple stocks and told customers to “reduce” their holdings. This turned out to be very bad advice, given that even with the current pandemic, Apple’s shares are now trading above $ 300 a little over a year later.

The real result of last year’s Apple’s Services event was to get people talking about what they did for the rest of the year. It did work. Even perhaps the least exciting of its new services – a new Apple-branded card that worked like other credit cards but offered new modern features, deep integration with Wallet and featured a fancy metal legacy card – managed to generate significant anticipation and surprising attention when it was finally launched. This would not have happened if Apple had launched its new credit card offering only in a press room announcement.

Apple Card
Apple Card Helped Sell Users on Apple Pay, Helping Company Eliminate Google and Samsung Alternatives

New services have pushed Apple beyond expectations

More important than the show that Apple has maintained for its new services throughout 2019 has been the continued expansion of its high margin service revenues to which it has continued to draw attention as a package since the Apple’s chief executive began touting services in 2014.

In his last call to results, Cook said, “Our long-term investment in our service strategy is successful. This business is growing and reflects our large and growing installed base.” So much for the media narrative that Apple’s focus on services was a delusional, senseless and incomprehensible decision made in a desperate attempt to divert attention from the slowing growth in sales of iPhone units.

After seeing a slowdown in sales of blunt material from stores closed in the March quarter, Cook contrasted: “Service revenues followed a different pattern with very strong annual growth of 17%. We established a new record revenue of $ 13.3 billion with absolute records in many of our service categories and in most of the countries we track. “

Apple’s services have provided the company with an additional and resilient source of income, significantly more profitable than its hardware business. While its overall gross margin was 38.4%, the gross margin of Apple products was 30.3% while services generated a gross margin of 65.4%, more than double the profitability of its sales of material.

In his own comments on the financial condition of the Apple services segment, Maestri noted that “we believe that the recent very good performance of the App Store, video, music and cloud services will continue throughout throughout the June quarter “.

The worst news for services: repairs and announcements

Maestri highlighted two service-related areas where Apple expects performance to deteriorate in the next quarter; no subject has been identified by experts either. The first is AppleCare, both related to managing repairs in closed stores and selling new support contracts. As customers quickly moved their purchases of hardware online, Apple had a harder time reselling buyers with AppleCare without the help of retail staff detailing the value of that additional purchase.

Apple’s second weak point is advertising, which the company sells in the App Store as search ads and in News as display ads. Since the ad is sold to other advertisers – making users “the product,” the economic downturn and tightening should hurt Apple’s advertising business as other companies cut back on their promotional budgets. Advertising is one of Apple’s least important companies and it’s one area that modesty has not really identified as something that companies need to worry about.

Many of Apple’s competitors rely heavily on advertising. Google and Facebook rely primarily on advertising for the majority of their revenue, and the two have repeatedly failed to enter the hardware business alongside Apple. Amazon, Samsung, and other manufacturers of tablets, PCs, TVs, and set-top boxes also rely on ad tracking and monitoring to offset the minimum profit margins on hardware sales. This indicates that the rest of the industry will have a more difficult path until 2020 than Apple.

As we expected.

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