How Apple Makes Money?
Apple is the most valuable company with a market cap of more than $2 trillion. While the company has made billions of dollars selling iPhones, its product line is robust than what many people think. In addition to making money through hardware, the company is also becoming a key player in service offerings.
Apple services business has become a key driver of revenues thanks to subscriptions and licensing deals that the company has signed backed by an array of services such as Apple Cloud and Apple Music. Similarly, the subscription business is poised to become a new revenue frontier helping shrug off any hardware side weakness.
In the first quarter of fiscal 2021, the tech giant posted $28.8 billion in net income on revenue of $111.4 billion. During the quarter, the company registered sales growth on both the hardware and services side of the business.
How Apple Makes Money
The tech giant generates a good chunk of its money from selling a wide array of hardware, from iPhones to Macs to iPads Home devices and accessories. In the first quarter of Fiscal 2021, Apple product sales accounted for more than 80% of the total money that the company generated in the quarter.
Despite Apple products accounting for more than 80% of total sales, margins have started to drop in recent years. The iPhone sales business is no longer as lucrative as it used to be. Stiff competition from other brands and smartphone saturation has been one of the biggest undoing’s in Apple’s push to grow iPhone sales rapidly as it did in the yesteryears.
Likewise, the iPhone maker has started reducing its reliance on hardware sales, with an increased focus on the services segment. While the services business accounts for less than 20% of the total amount of money that the company generates quarterly, it is seen as a more profitable segment given the high margins.
The segment on its own is worth more than $500 billion. The services segment brings in more money than the Mac, iPads and Wearable sales combined. The shift of balance is likely to continue as the tech giant increases its focus on service offerings by introducing new services that people can subscribe to.
The App Store and Apple music are at the heart of the Apple services business. In the Apple store segment, Apple makes money by charging people a fee for downloading and using some of the store’s apps. With millions of people owning Apple devices, the company makes billions of dollars quarterly on the Apple store fees.
Apple also makes billions of dollars on letting people stream music from its Apple Music. The company has inked licensing deals with some of the biggest artists and gets a share of whatever people pay to stream music from the music store. The music subscription services have more than 50 million subscribers.
Unlike the hardware segment, the service segment has higher margins and is more predictable when it comes to recurring revenue. The segment is mostly made up of the fast-growing Apple cloud, Apple Music, Apple Arcade, Apple TV, and content streaming.
In the first quarter of 2021, Apple generated 68% more money in services revenue as compared to the same quarter last year.
How Apple Makes Money Geographically
While Apple is a global company, some markets account for the biggest share of the total money it generates every quarter. The U.S remains the company’s biggest market, from where it generates a big share of its total sales.
The Americas, made up of both South and North America, account for nearly 40% of the total revenues that the company generates quarterly. The Europe segment, which includes India, the Middle East, and Africa, accounts for about 24% of the total money that the company generates quarterly.
The Greater China market, which includes China, Hong Kong, and Taiwan, accounts for about 19% of total sales, while Japan, on its own, accounts for about 7% of the total revenue.
In addition to making money from hardware and services sales, Apple also makes money from payments. The company operates one of the biggest digital payment systems in the form of Apple Pay Apple Pay is Apple’s native paying system that people use to make payments on purchases on websites and inside apps.
Likewise, Apple has added support to enable Apple Pay’s use for contactless payments in retail stores. For every transaction involving Apple Pay, the tech giant is entitled to a percentage of the fees charged.
Immediate reports indicate that the company makes about $0.15 in every $100 spent using the payment system. With more than 1.8 billion transactions made every quarter, the company does generate a substantial amount of money from the system.
Apple also makes money by letting companies build their services and offerings on the iOS ecosystem. For instance, it has inked a controversial licensing deal that allows Google to be the default search engine on the OS. Reports indicate that Google pays billions of dollars to remain iOS default search engine.