Apple's Future Isn't In Services

​Don’t mistake the fact that Apple is highlighting services as some kind of indication that Apple sees service revenue as being able to pick up the slack for the iPhone. While it may be true that their services are growing as a business, the guys at Apple are too smart to believe that it will ever replace hardware growth. They recognize that, unlike Google, their service business is an outgrowth of their hardware sales. 

​When the PC industry finally plateaued after decades of double-digit growth Gateway Computers launched a new internal initiative entitled “Beyond the Box”. The goal was to make up for falling hardware revenue by getting the customer base to sign up for services like software training, Internet services, wifi installation etc. Finally, after a year or two, we realized  that “if you don’t sell the box there is no beyond”. That was an actual quote from a VP whose name escapes me.  Without growing hardware sales, your service revenue will eventually start to shrink as well.
 
So why is Tim Cook stressing services so much? He has too. It is standard operating procedure for any CEO during a down quarter to try and shine the spotlight on whatever bright spot there may be. No matter how small it is. You don’t face Wall Street analysts after a revenue drop without a list of positives that also occurred. Tim has to try and take control of the narrative. I don’t blame him for that.
 
I think it's great that Apple’s services are doing well. But iCloud and Apple Music subscriptions may ultimately put more pressure on device sales as opposed to lessening the importance thereof. Eventually service revenue will plateau and when everyone asks “Why?” Apple will be back to where they started, explaining why device sales have stalled.