Apple Services Continues Its Meteoric Rise
The growth in Apple’s services business continues to break records as well, growing to $15.8 billion this year, and this came even without any significant new Apple service offerings.
That said, Apple did begin offering its Apple One bundles in late October, which likely contributed to users signing up for additional services — the number of subscribers rose to 620 million worldwide, surpassing Apple’s 600 million subscriber goal — but since these bundles offer significant discounts, it’s probable that subscriber numbers increased more than revenue did; in some cases it may have even lowered revenue, in fact.
Apple Fitness+ also landed in mid-December, and early uptake of that would have contributed to Apple’s bottom line, particularly if it encouraged users to jump into an Apple One Premier bundle, but since Q1 2021 actually ended on December 31, it only had two weeks to add to Apple’s revenue stream.
Without going into detail, Apple indicated that the record-breaking areas within its Services business were the App Store, cloud services, Apple Music, AppleCare, and Apple Pay. The growth in AppleCare was lower than expected, but still surprising considering that Apple’s retail stores were largely closed during the quarter, although this was made up for by its growth in digital services, driven largely by more people being stuck at home in lockdown.
However, most of these areas are small potatoes. While Apple doesn’t break down its services category, it’s already been established that the bulk of its revenue comes from its multi-billion-dollar Google search deal and the 30% commission it takes from App Store sales. In fact, by most analyst estimates, these two line items alone account for around 50% of the entire services category.
Although Apple announced last quarter that it would be dropping the App Store commission to 15% for those developers earning under $1 million in revenue — a number that’s estimated to include around 98% of iOS app developers — this didn’t actually take effect until the very end of Q1 2021, so we won’t see the impact on Apple’s numbers until the Q2 2021 earnings call in late April.