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Home / Technology / The iPhone's stratospheric growth is over. Apple's future is in services

The iPhone's stratospheric growth is over. Apple's future is in services

Apple's Phil Schiller, Senior Vice President of Worldwide Marketing, Reveals iPhone XS

Getty Images / Bloomberg / Contributor

Apple revised its revenues for the last three quarters of 2018. It estimated $ 89 billion, but is set to earn $ 84bn. The $ 5 billion deficit represented a five percent decline. But in its usual histrionic style, stock prices took a bigger dive, which dropped by 10 percent after the announcement.

This raises some questions. Why? How does Apple come back from this? And if we want to be as dramatic as the stock market, is Apple's days as the global smartphone super-numbered?

The first point to note is that since the big drop on January 3, Apple's shares have recovered, if only a little. And while the first news may have been shocking for some iPhone buyers, it won't have shocked Apple. It foreshadowed all this last year.

In November, shortly after the release of the current generation of iPhones, Apple announced that it would no longer release device sales data for the hardware. This move means that quarterly reports are assessed on profits and sales, without direct reference to units sold.

Many have blamed Apple's earnings shortage for the high prices of the latest iPhones. But this exact strategy, to further maximize the profits and revenues of every hardware sold, seems tailor-made for a market where growth has weakened or stopped.

It doesn't take an MBA to understand this trend. Write a graph of iPhone sales from 2007 to the end of 2018, and it will show great growth until 2016, and then an almost complete termination. There were probably fewer successes in recent years to earn Apple's many positive-sounding headlines. But the stratospheric iPhone sales growth that seemed to Apple's standard mode for many years is history, and quite a distant story on it, technically.

Apple CEO Tim Cook owed the latest loss to China's poorer than expected performance. On paper, this may sound a feeling worthy of today's US president, but Cook was always measured and evaluated with his words. "We did not predict the size of economic deceleration, especially in Great China," Cook said.

In fact, it did not. Nor could anyone. In November, there was a staggering 71 percent drop in sales tax – effectively a cut in consumer spending in China. This has, of course, had dramatic loss effects all over the world, and although Apple expected a slow decline in China, an economic event like this is almost impossible to predict.

"Apple is like the cannula in the coal mine," offers Horace Dediu, analyst and founder of Asymco.com. "It's very accurate to make predictions and forecasts – always within 2 percent over the past 10 years. So something really strange happens."

The effect is not specific to Apple. In Q2 2018, Samsung's Chinese sales fell by 10 percent. This did not seem as dramatic at the time when Samsung phones have not been as popular in China as they are in the West. Conversely, China accounts for up to 18 percent of Apple's revenue.

However, Apple seems to have some growing image problem in China. According to research by the San Francisco-based company prophet, who conducts annual reports of the country's "favorite" brands, in 2017, Apple was ranked fifth. In 2018 it fell to 11th position.

Huawei moved from 12th place to fourth in the same interval. Huawei's impressive rewards in the West with phones like Huawei P20 Pro and Mate 20 Pro are perhaps surprisingly enhanced at home.

It is not difficult to find other reasons for this enhancement in the news. Huawei phones are "banned" in the United States for fear that they would be used to collect data and steal information. Huawei CFO Meng Wanzhou was arrested in Vancouver, Canada in December 2018 at the request of the United States. And these are just symptoms of the growing excitement and paranoia between China and the United States.

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As far as global technology companies like Apple might be left out of political disputes, especially as to how it is published on Twitter by President Trump and his allies, Apple – for many – is emblematic of OSS. It has not started any trade wars, but it is implicated, especially when the main rival is home-made Huawei.

However, it may not be helpful to perhaps focus too much on the "China question" if what we are interested in, emphasizes Apple's long-term strategy. "The problem in China is macroeconomic," says Dediu, suggesting that Apple must continue to exploit its strength for years: brand loyalty and a strong ecosystem through services.

"Services increased by 27 percent last year, the second highest growth after 31 percent earlier in the year, says Deidu. "Apple is ahead of its doubling schedule over four years. App revenue alone is now higher than worldwide boxing revenue for the entire movie industry. I don't know if they need to do much to accelerate what is already growing faster than expected and the fastest growing business in the world. technology. "

Revenue from Apple Services, which summarizes the numbers from the App Store, Apple Music, iCloud subs and others, amounted to nearly $ 10 billion in the fourth quarter of 2018. It takes 30 percent commission from the App Store sales on subs over a years old. This may sound a lot, but it matches the frequency of the game platform Steam (although the more money a publisher does, the less the percentage of Steam takes), and is based on the predominantly sound concept that this frequency is lower than traditional retail.

The ideal Apple customer is gradually connected to more hardware and increasingly services through positive experience. It's a story that's old as iPhones. But a new development shows that Apple's second strength, apart from loyalty and hardware and software integration, is in control.

Did you know that if you subscribed to Netflix through the iPhone or iPad app, Apple took 30 percent cuts every month in the first year? It did. Things like this have encouraged the growth of Apple's service revenue. But on January 2, Netflix removed this option to get more people to subscribe directly.

Again, the Apple formula for long-term profitability is control. And this is why the long-rumored Apple movie streaming service is anything but vapourware. Some believe that this service can see a launch in the first quarter of 2019, and Netflix's decision can even be a preferential right.

No one expects an Apple streaming service to arrive and settle Netflix. It didn't happen with Apple Music. In May 2018, Apple Music had 50 million paying subscribers worldwide. From June 2018, Spotify had 83m. Apple's growth is impressive, but it's still not the market leader.

Apple movies and music services could cross-check, though. Apple Music costs the same as Spotify. "Apple Flix" can cost the same as Netflix. But will you be tempted to swap if it offered a few pounds discount for a double subscription? Apple would have to invest tens of billions of dollars in its original programming over the next few years to compete. But it may not be fatal to be late for this particular game.

Apple has not had a clear content strategy and has traditionally been cautious about the risk factor for producing it. But the subscription model for Netflix et al sees this risk reduced. Of course, there has been a grip on talent, and Amazon and Netflix have got their first. Apple will no doubt stumble sometimes as its characters release this new world, but it should be emphasized that potential revenue will not be in relation to apps.

"Whole Hollywood is like pimple on the ass of apps," Dediu says. "Follow the dollars and the app economy is a big thing. Fornite makes millions of dollars selling virtual outfits and trinkets – more than top-notch movies – and in this sense, Apple is still in the top position in terms of revenue." [19659004] Despite appreciating customer privacy over the other major technology companies, Apple gathers and collects data in similar ways to Amazon or Google, adding it to an ad network to make billions of dollars a year. "Apple has all the data it needs and none of the data it doesn't need to serve customers," says Dediu. "Privacy ethos is a consideration that customer data is useful to the extent that it helps the customer. It is contrary to the assumption that data should be used for service by anyone other than the customer."

This claim has not proven to be true True Digital Assistants provide a legitimate use for unpleasant personal data, and this is partly why Siri seems so much less intelligent than Google Assistant. Siri is almost a stranger to the stalker who is Google Assistant.

It also helps explain why Apple has not turned to the smart home more enthusiastically to compensate for an iPhone lull. Where is the money in this area if not in collecting data, when rivals can effectively subsidize prices with the same data collection? And we should honestly say Apple does not change its policy as it digs deeper into consumer technology health monitoring potential.

Anonymized Apple Watch data can be great for giant, if there is a little guard, headline attempts to measure behavioral habits in nations. But in order to "release" the use of the data in an insurance-based healthcare system, which the UK seems to be more likely to be in the longer term, is a scary prospect.

Unless Apple discovers the "next iPhone" area of ​​technology that will restore that type of growth in the 2007-2016 period, the days of stratospheric annual performance increases are paused – but only for now. And we should be grateful that today's current strategies are still entertaining and inspiring, if often only with shining expensive things, without much more sinister work in the background.

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