Apple just had a really poor Q3 earnings report, with hardware sales falling off as people figure out that they just don’t need to get a new phone every year or so; writing in Bloomberg, Leonid Bershidsky tries to soothe investors by pointing out that Apple is still seeing growth in “services” and that there’s plenty more growth to be realized there.
Bershidsky is refreshingly honest in his description of these services: he refers to repairs, sales through the App and iTunes stores, and cloud services as “collecting rent” on Apple customers and its suppliers.
As Bershidsky points out, long-term Apple users are rather locked into its ecosystem by the tedious and potentially risky process of extracting their photos, music, etc. to a rival platform. That means that the suppliers of things like music, ebooks, and videos are also locked into Apple’s stores, unlikely to win a battle to establish rival stores that interoperate with Apple’s iTunes and other apps, but which take a smaller commission on the sale of their products. Apple has inserted itself into the transactions for copyrighted works for the foreseeable future, passively creaming off a substantial portion of the profits from the sales, not because their store is the best, but because they have used DRM and other proprietary tactics to lock out competitors.
The fetishization of paid services as a panacea for the woes of surveillance capitalism mistakes the nature of the problem. Google doesn’t spy on us like crazy because they’re creepy spies: they spy on us like crazy because the lack of competition lets their creepy spy-nature run amok, and the size of Google and its surveillance capitalism breathren allows it to purchase regulation and laws that fail to meaningfully limit surveilling us.
The harms of being “the product” in monopoly walled-garden capitalism are different in kind, but not degree, from being “the product” in monopoly surveillance capitalism: you pay lots more, while the world drowns in e-waste. Your access to artistic works is limited by arbitrary and self-serving ways – and walled gardens are an autocracy’s best friend.
…even with its weak growth figures, Apple is still a vastly profitable company. Being forced to give up on blocking competing stores, service, parts, and add-ons would not put the company out of business: it would merely shave a few points off its quarterly profits – while diverting that income to other companies, from the small mom-and-pop service depot on your corner, to the indie app vendor who could sell software to iOS users direct and pocket the 30% Apple would have creamed off of their margin.
The future is not a choice between one kind of monopoly and another: it’s a choice between monopoly and anti-monopoly. The choice between surveillance and walled gardens is no choice at all.
For years, analysts and journalists watching Apple Inc. have talked up the growing importance of services, as opposed to hardware sales, to the company’s top line. But it’s only now that Apple’s business model truly appears to be shifting toward collecting rent from the company’s ecosystem and increasingly relying on gadget sales to perpetuate this rent rather than drive growth. Apple’s decision to stop reporting iPhone unit sales underscores the shift.
Apple, of course, is still predominantly a hardware company. It’s increasingly clear, however, that the iPhone is no longer a reliable growth generator.
Apple has only extracted revenue increases from the iPhone lately because it raised the prices steeply; in the fourth fiscal quarter, which ends in September at Apple, the average selling price of an iPhone reached $793, compared with just $619 in the same quarter two years ago.
The reason Apple can raise the prices, though, also explains the growing importance of services. Apple is milking its essentially captive audience.
As far as services go, only two steady contributors of revenue streams keep swelling without Apple having to charge subscription fees. One is the money paid by Google parent Alphabet for searches made through Apple products such as the Safari browser and Siri.
The other source of revenue that Apple doesn’t directly extract from end consumers comes from paid apps and in-app purchases in the App Store. There, outside developers do all the work, but Apple’s revenue keeps going up both in absolute numbers and on a per-user basis. Only the strongest developers, such as Spotify, have the market power to charge subscribers directly rather than pay Apple a cut.