CNBC’s clickbait title of “Apple is finally moving beyond the iPhone as the smartphone industry stalls out” is such a crock.
When I worked for Gateway Computers we had great success with expanding our “Beyond the Box” services. That is until we reached the saturation point for our installed base. After that, our services went up or down with the size of our hardware installed base. The same thing will happen to Apple and everyone will once again be wringing their hands over how many iPhone units were sold.
I thought this might be an opportune time to bring something up which I wrote back in August of 2018….
Apple Services Are Not True Diversification
Well, Apple’s primary services of Apple Music, iCloud, and the App Store are all dependent on iOS devices. Services are not a stand-alone business that is diversifying Apple’s portfolio. When the base of installed devices goes up, revenue goes up. And more importantly, when the base of installed devices goes down, so does services revenue.
This is in contrast with a company that is truly diversifying. For example, I used to work for the largest casket maker in the United States, Batesville Casket Company. Since casket sales are declining by about 1.5% every year due to rising cremation rates. The parent company, Hillenbrand, decided to diversify in order to offset that revenue loss. We purchased some industrial companies that manufacture highly-engineered pumps and processing equipment. These new businesses in a different industry were growing and able to offset the loss of revenue in caskets. This is true diversification. A drop in one business segment does not impact the other.
This is in stark contrast with Apple’s services business. If the installed base of iOS devices shrinks, the services revenue will dry up. This is exactly the problem I witnessed while working with the Gateway computer company. Our “Beyond the Box” initiative of increasing services revenue collapsed after we started closing our Country Stores and the installed base of computers began to shrink. —R. Perez 8/18/18
I thought this might be an opportune time to bring something up which I wrote back in August of 2018….
Apple Services Are Not True Diversification
Well, Apple’s primary services of Apple Music, iCloud, and the App Store are all dependent on iOS devices. Services are not a stand-alone business that is diversifying Apple’s portfolio. When the base of installed devices goes up, revenue goes up. And more importantly, when the base of installed devices goes down, so does services revenue.
This is in contrast with a company that is truly diversifying. For example, I used to work for the largest casket maker in the United States, Batesville Casket Company. Since casket sales are declining by about 1.5% every year due to rising cremation rates. The parent company, Hillenbrand, decided to diversify in order to offset that revenue loss. We purchased some industrial companies that manufacture highly-engineered pumps and processing equipment. These new businesses in a different industry were growing and able to offset the loss of revenue in caskets. This is true diversification. A drop in one business segment does not impact the other.
This is in stark contrast with Apple’s services business. If the installed base of iOS devices shrinks, the services revenue will dry up. This is exactly the problem I witnessed while working with the Gateway computer company. Our “Beyond the Box” initiative of increasing services revenue collapsed after we started closing our Country Stores and the installed base of computers began to shrink. —R. Perez 8/18/18
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