Subscriptions drive Apple’s Services Revenue

Services could fuel growth beyond its historic $1 trillion valuation

Advancing from an impresssive performance in the third quarter, with a surging services revenue and stable iPhone sales, Apple (NASDAQ: AAPL) became the first publicly traded American company to be worth more than $1 trillion.

Apple’s revenue from the App Store is reported under the catch-all category : Services, which includes the App Store, Apple Care, Apple Pay, iTunes, iCloud, licensing and more. The services category is currently the second biggest revenue earner for Apple after its iPhone category; This is followed by Mac, iPad and other products (Apple Watch, HomePod, AirPods ..).

Apple reported a revenue of $9.55 billion (15% of total revenue) in the services category for its third quarter, a jump of 31 percent from $7.27 billion in the same quarter last fiscal.

In January 2017, Apple CEO Tim Cook had set a target to double services revenue to more than $14 billion a quarter by 2020.

Subscriptions up 95%

Subscriptions are up 95 percent from last year, and as of June 2018, developers have earned over $100 billion from the App Store. In India the growth is triple-digit with subscription as a category.

Apple pigeonholes app business-models in four categories : Premium, Paymium, Freemium and Subscription models. Around 270 million people are paying for subscription, which is an increase of 100 million over last year.

According to Morgan Stanley analyst Katy Huberty, only about 18 percent of Apple’s total device installed base are paid subscribers, leaving a lot of room for improved recurring revenue. Annual Recurring Revenue, or ARR, is a subscription economy metric that shows the money that comes in every year for the life of a subscription.

In 2011, the App Store started supporting subscription apps, and by 2016, had expanded support to all 25 of its categories, including Games, Kids and Health and Fitness. Over 28,000 iOS apps now offer subscriptions, including Netflix, iQiYi, Tinder, LinkedIn, Sing! By Smule, Headspace and Dropbox. Boom Beach and Minecraft are currently testing a subscription model for their games.

Apple CEO Tim Cook announcing the milestone $100 billion payout to App Store developers over 10 years at WWDC 2018 on June 4th.

Apple introduced the App Store on July 10, 2008. With the introduction of in-app purchase (IAP) in 2009, customers could download an app and then pay to unlock different levels and functionality, allowing more people to experience new apps before committing to buying them.

On June 4, 2018 at Apple’s WWDC, Tim Cook revealed that payouts to developers would pass the $100 billion milestone within a few days. “In these 10 years, the App Store has fundamentally changed the way we all live”, said Cook. “It’s spawned new industries, new companies and changed lives.”

Earlier, on January 4, 2018, Apple announced that iOS developers had earned over $86 billion since the App Store launched in July 2008. “In 2017 alone, iOS developers earned $26.5 billion — more than a 30 percent increase over 2016,” said Phil Schiller, Apple’s senior vice president of Worldwide Marketing. In five months (January to June 2018) iOS developers have earned $14 billion.

Of the $100 billion, the payout to Indian developers has been insignificant. Apple feels that Indian App Developers are not making enough money. There aren’t enough payouts for the installed base that is there in India. Apple’s App Store team will work to help the developers get their business models and marketing right.

App Store developers get 70 percent of the money made from most apps, while Apple takes 30 percent. In a shift from its longstanding revenue-share policy back in 2016, Apple changed this split to 85:15 for developers who were able to maintain long-term subscription customers. [*]

“In its first decade, the App Store has surpassed all of our wildest expectations — from the innovative apps that developers have dreamed up, to the way customers have made apps part of their daily lives — and this is just the beginning. We could not be more proud of what developers have created and what the next 10 years have in store,” says Phil Schiller, senior vice president, Worldwide Marketing, Apple.

App Accelerator

Apple launched its first ever App Accelerator in Bangalore on March 31, 2017. During its launch Phil Schiller said that there were around half a million registered developers in India and three quarters of a million involved in the app economy. According to him India is an exciting global market for Apple with incredible growth potential.

Design and technology evangelists from Apple’s world wide developer relations team conduct sessions, consultations and labs (to help developers integrate a particular technology into their app) at the App Accelerator. With over 500 million devices ready to support iOS 12 (currently at beta 5) from its launch day, the App Accelerator recently held sessions to help developers enhance their apps for iOS 12.

Chennai-based developer Raja Vijayaraman (L) became the first Indian to win the Apple Design Award at WWDC 2018 for his app — Calzy. Sinchan Maitri (R) was one of seven young Indians selected for the Apple Scholars program at WWDC 2018.

Every year, Apple hosts thousands of software developers from all over the globe to talk about the latest developments in apps at the Worldwide Developers Conference (WWDC).

Chennai-based developer Raja Vijayaraman became the first Indian to win the Apple Design Award at WWDC 2018 for his elegantly designed calculator app: Calzy.

Starting in 2013, Apple awarded scholarships to about 150 students to attend, and by 2018, that number had grown to over 350 talented students and STEM organization members from 42 different countries.

Apple selected seven students from India as Apple Scholars to attend WWDC 2018 : Sudarshan Sreeram, Aashna Narula, Yash Banka, Amol Kumar, Aulene De, Ajay Mandani and Sinchan Maitri.

Scholarship winners receive a free ticket to the conference, along with lodging and a one-year Apple Developer Program membership. Past scholarship winners have started their own STEM non-profit organizations to encourage their peers to learn coding and created apps that are tackling issues such as mental health, safety and climate change.

Swift

Apple introduced the Everyone Can Code program in 2016 to encourage learning, writing and teaching code, and today it is available to tens of millions of students around the world who can learn code, problem solve and create apps that will transform the future. Also in 2016, Apple launched Swift Playgrounds, an innovative iPad app that brings real coding concepts to life with an interactive interface for students of all ages and beginners to explore working with Apple’s Swift coding language.

Tim Cook called Swift the “fastest-growing programming language out there,” with over 350 thousand apps created using the language. “We believe coding is an essential skill that should be taught in every school in the world. That’s why we created Everyone Can Learn to Code. It’s been so successful it’s now available to tens of millions of students around the world. We’re sure it’s going to change the world.”

Increased methods of App discovery make Affiliate program redundant

With increased methods of app discovery in the latest iOS and Mac App Stores, Apple announced the closure of its affiliate program for apps. Apple used to pay publishers, who convinced customers to buy apps from the iOS and Mac App Stores, commissions ranging from 2.5 to 7 percent. Starting on October 1st, commissions for iOS and Mac apps and in-app content will be removed from the program.

In 2017, Apple unveiled an all-new App Store, creating a daily destination with dedicated Games and Apps tabs for customers to find exactly what they are looking for or be inspired to try something new, and learn about the creators behind the apps. The App Store now sees 500 million weekly visitors who are spending more time discovering new apps than ever before, and hundreds of stories on the Today tab have been read by more than 1 million people.

Apple is presently increasing its team size in India. A dedicated App Store team has been set up in India to help developers feature and optimize their apps on Apple’s App Store.

Sixty percent of all app downloads are through search — 40% by function. 60% by app or developer name.

Keyword best practices

Use all 100 characters. Separate with commas. Don’t include name or category. No need for plurals. Use trademarks if approved. Highlight unique features.

Billion Dollar businesses born on the App Store

Start-ups including Instagram, Calm, Uber and Instacart embraced features like the iPhone camera, Apple Pay, GPS and Location Services to deliver on-demand and personalized experiences, with many creating billion dollar businesses that started with apps in the App Store. At the same time, both traditional companies and those that started as websites, such as Twitter, Facebook, eBay, Yelp, Airbnb and Amazon, began building apps to meet changing customer behavior.

“The App Store completely changed the way people access and pay for software and services. Only through the power of a software ecosystem can subscriptions emerge and grow to such a level. The App Store created a means for others to become successful — many more than could possibly be imagined in ways that could not possibly be imagined — and freed people to be creative in unforeseen dimensions,” said Horace Dediu, analyst, Asymco.