Apple’s Latest Earnings Reveal iTunes’ Silent Genius


In the past, I’ve been outspoken that I’m not a huge fan of iTunes, Apple’s once-revolutionary music software. I’m speaking somewhat hyperbolically, but I think iTunes has turned into a media management nightmare – with a disjointed style and convoluted menus that try to “organize” my media in a way I don’t. I never wanted. But while the program sometimes makes me long for the days of my tidy CD collection, I have a newfound respect for its purpose and what it does for Apple.

After Apple’s earnings report last week, there’s no denying that in iTunes, Apple has an incredible golden hen. Apple reported that the “services” business – known to most people as “Things iTunes controls” – brought in just under $6 billion (about Rs 40,038 crore) in the last quarter. and increased by 19% compared to the same period last year. And the services have earned Apple $23 billion (about Rs 1,53,492 crore) so far this year.

It’s quite impressive.

Additionally, Chief Executive Tim Cook said the company expects its services business to be making as much money as a Fortune 100 company by the end of 2017. That seems like a bold claim — but Northwestern Mutual , at No. 100, pulls in $28 billion in annual revenue. And if you think about iTunes and the companies the service industry has managed to disrupt, that’s actually a pretty believable claim. There’s a reason iTunes has become a sprawling behemoth of a program. This is because it competes with so many companies. It’s music, sure, but it’s also movies and software (in the form of apps) as well as iCloud.

It’s a bit difficult to gauge how Apple ranks in all of these areas. But even without knowing exactly what Apple does in, say, movie purchases and rentals, it’s worth noting that Blockbuster made $6 billion in revenue a year. For a more timely comparison, Netflix made $6.78 billion in revenue in 2015.

The emphasis on services seems to represent a shift in how Apple views its own products. Apple is notable for controlling both hardware and software on its iPhones, iPads, and Macs. Hardware has always been the main driver of the company. But with phone, tablet and computer sales slowing, that relationship is starting to turn around. If fewer people plan to rush out and buy a phone each year – as has been the trend for about a year – Apple must continue to make money from phones already sold.

That doesn’t mean Apple should forego the hardware altogether, nor is it something one would expect. But it helps explain a shift that consumers may have noticed. Take, for example, the evolving rumors surrounding Apple’s as yet unconfirmed (but totally assumed to be true) automotive program. Now, reports suggest that Apple is more interested in creating car software. This is a stark departure from years of reports that we would see an Apple-made car, or iCar, designed and produced by the company itself.

But that’s a lot of investments that wouldn’t make as much money as usual – certainly not at first. Apple would likely only make one or two car models, as a competitor to companies such as Tesla. Well, it’s not a perfect comparison, but Tesla made just over $4 billion in revenue last year. That’s less than Apple earns on the iPad.

For further proof of a change, look no further than Apple’s advertisements. Apple spots have always centered their ads on what you can do with a device – less “Isn’t this phone pretty?” and more “Look at all you can do.” Dating back to the first App Store advertisements, it moved to “Look at what you can do here that you can’t do anywhere else”.

Previously, Apple would connect you to the device and lock you into the ecosystem. Now, the ecosystem itself has become a selling point for devices.

It will only expand. Apple has already begun an interesting foray into original video programming. More recently, Apple announced it was picking up a standalone “Carpool Karaoke” series, based on the celebrity sing-along segment from “The Late Late Show With James Corden.” As for mobile apps and software, the company is opening up Siri and Messages to other developers to build other service platforms.

More tellingly, it’s hard to reclaim its legacy around music – despite the fact that the very thing that led it to that status, the iPod, has declined to the point that Apple doesn’t even disclose its sales anymore. There have been persistent rumors that Apple is going to buy the celebrity-backed and exclusive Tidal from Jay-Z. The buzz was further fueled over the weekend by tweets from (who else?) Kanye West urging Cook to stop all ongoing negotiations and just “give Jay his check”.

Before I get too carried away with painting the future of Apple’s services, it must be said that Apple is still not known for having particularly good services. In the past, the company has been widely ridiculed for flawed programs such as MobileMe. Since those bad old days, the company has certainly improved, but even its modern incarnation of cloud services can leave something to be desired. If Apple is serious about pursuing services as a core business, things will need some fine tuning.

Obviously, I’d like it to start with iTunes. But even though I still think the program is a mess, I have to give it its due. More importantly for Apple, it always finds me what I need, and Apple holds me captive until I decide to stop using its products. And really, that’s where the genius of the platform has always been.

© 2016 The Washington Post

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