The iPhone might be the most transformational product of the past 20 years. That's not meant to be hyperbole--I mean it. It has completely changed the way we communicate and interact with one another and with the world around us. It has enabled an entirely new industry of software developers to flourish, and made social media possible. It's also created entire categories of business that didn't exist before.
And, as a business, the iPhone is still an enormous part of Apple. In fact, on its own, the iPhone would be the fourth largest tech company. Only Amazon, Alphabet (Google), and the rest of Apple's businesses are larger. For context, the iPhone alone is roughly the same size business as Verizon, and larger than Microsoft.
The iPhone has also made Apple the most valuable and most profitable corporation on the planet. Apple made almost twice the profit of the next closest company on the Fortune 500 list. But more and more, that profit isn't coming from the sale of devices, but the services that run on them.
Which is why the iPhone isn't Apple's most important product anymore.
Apple released App Store figures for the end of 2019, and the overall results are staggering. The company says that almost $39 billion was paid to developers in 2019, which is incredible, but that wasn't even the biggest news. Those payments in 2019 alone represent a quarter of the total amount of money Apple has paid App Store developers since it launched. That's right, 25 percent of all App Store purchases, ever, occurred last year alone.
That's a pretty incredible amount of growth that is only expected to continue. Analysts predict that the services division alone--which includes Apple Music, Apple News+, Apple TV+, iCloud, the iTunes Store, and the App Store--will generate $53.65 billion for Apple this year, which would make it roughly the same size on its own as Facebook.
Not only is that a massive haul of revenue for the company, but services--by nature--are generally more profitable, meaning they contribute more to the bottom line.
In addition, along with the services division, Apple is shifting toward a focus on wearables like the Apple Watch and AirPods. Analysts believe that AirPods alone were a $12 billion business for Apple last year. The Apple Watch, on the other hand, was expected to sell more units than the entire Swiss watchmaking industry combined in 2019.
As the growth in iPhone sales continues to slow, Apple is clearly moving beyond and preparing for the fact that we are getting close to the saturation point for smartphones. This means that the iPhone will become less important in the overall growth of Apple, though it will no doubt continue to play an important supporting role. The iPhone, after all, is where we use many of those services. And the expected arrival of 5G this year or next is likely to spur a massive upgrade cycle.
But there's really no question that just as Apple transformed from a niche computer maker into a consumer technology giant with the iPhone, the company is clearly well on its way toward its next transition. And, just as Apple looks very different now than it did when its most popular products were the iMac and iPod, it will look very different as its growth is driven by services and wearables.
That change isn't a bad thing, but as they say, it is inevitable.