Yesterday, Apple announced its most recent quarterly results, and while iPhone sales have continued to cool, there's good news overall as the company beat expectations. Expectations, it turns out, are everything.
In fact, one of the most interesting things we learned is that you can make the case that the iPhone is no longer Apple's most important product. Which is saying a lot considering that it's probably the most successful product, ever. It transformed Apple from a niche computer manufacturer into the first trillion-dollar company.
It also made Apple the most profitable company on the planet and increased the company's revenue by a factor of 10. It's been a no-brainer to say that the iPhone is Apple's most important product ever--but not anymore. At least not if you measure it by its importance to the future of Apple.
Because something has happened--for the first time in seven years, the iPhone represents less than half of Apple's total sales.
Certainly, the iPhone is important. In fact, the iPhone still generates enough revenue that, if it were its own company, it would rank in the top 30 on the Fortune 500. Higher, in fact, than UPS or Wells Fargo. It also still makes up the largest chunk of Apple's revenue.
Apple's iPhone problem isn't that people are giving up them and buying Android devices, but rather that almost everyone already has a smartphone. That market is highly saturated, meaning it's harder and harder to continue to grow.
Sure, there are plenty of people who don't have an iPhone, and I'm sure Apple would be happy to sell them one. But that often depends on factors like price and features, two areas Apple has never intended to compete with the iPhone. Instead, the company competes on the overall user experience.
This has led to what I think you can argue are now its two most important products, or at least, product categories.
Apple said its services division saw an increase of almost 13 percent, and now makes up 20 percent of the company's revenue. That means that one of every five dollars spent with Apple is for a subscription to iCloud, Apple Music, Apple News+, or an App Store purchase.
There's always been an interesting dynamic between Apple's services and the iPhone: whether Apple offers services as an enticement to buy an iPhone or the other way around. I think you could argue that moving into the future, the services that Apple builds on top of its devices are becoming more and more important as a driver of growth.
That will become even clearer when Apple's upcoming TV+ service launches later this year. Certainly, streaming video is another increasingly saturated market, but if Apple can leverage its enormous scale and platform of devices to gain traction here, it has the potential to disrupt that market the way it did music.
Apple's services division also happens to be its most profitable by far, meaning that over time it will increasingly become more important to the future of the company. And since subscription services renew every month, there's less pressure to persuade people to upgrade to the latest version of the coolest new device--they're already signed up and are paying their $10 per month.
In some ways, the Apple Watch is the natural evolution of the iPhone. There are only so many things you can make a smartphone do before you have to do something totally different. That's basically the Apple Watch, which happens to be the most successful wearable product, ever.
Apple sells more watches than any other company on earth, more than all the Swiss makers combined. And, in addition to being the logical extension of your iPhone, it's become a killer device in its own right. The health tools are best-in-class, and it's probably the best productivity device you can buy. It also happens to have a much greater untapped market than the iPhone, meaning that moving forward, it's a far more important device to the success of Apple.
Mac and iPad
It's been a while since the Mac was the most important product made by Apple. I'm not sure you can really argue that it's back in that spot, but, unlike the iPod, Mac sales are growing.
And the iPad has been growing even faster, now barely trailing all Mac desktop and laptop sales. I personally think Apple has made it clear that it wants to position the iPad as the future of creative work, and it appears that users have started to catch on. Apple is rumored to be introducing two new iPad models later this year, and I'll be keeping an eye on what it announces next.