With 900 million paid subscribers, Apple’s services gamble appears to have paid off

In a press note on Wednesday, Apple highlighted how its services have grown quickly in a short time and are only getting better. The oldest of them, Apple Music (launched in 2015, after Apple bought and rebranded Beats), boasts 100 million songs. Although the music streaming service is reportedly trailing Spotify in paid subscribers count, Apple regularly adds new features that keep iPhone users hooked to the service. Another service that is gaining attention is Apple’s video streaming service, Apple TV+, which won an Academy Award for Best Picture for its movie “CODA.” Apple TV+ competes with Netflix and Disney+ in the cut-throat streaming market.

Apple now has 900 million paid subscriptions across services. (Image via Apple)

One Apple service that is underrated, but has a lot of potential to become big in the future, is Apple Arcade, a subscription-based gaming service. Because of its broad market appeal and lower entry point, Apple Arcade has become a hub for fun and casual games. Although the gaming service does not compete directly with Nintendo, Xbox and PlayStation, Apple Arcade has started to look like a breath of fresh air among other gaming services and platforms.

But the services business has its own challenges

The services business may be the second largest revenue contributor after the iPhone, but Apple’s fastest-growing unit faces multiple challenges. It’s entirely tied to the App Store. The largest component of the services business is the App Store, but its growth has started to slow down. Apple’s services segment grew by just 14 per cent last year, down from about 27 per cent growth in fiscal 2021. If the growth from the App Store starts to stall, it will impact Apple’s service business in the long run.

Apple, which operates the App Store – the gateway to millions of apps and games for iPhone and iPad users, faces lawsuits and antitrust charges globally due to its market power. The European Union, which has become the center of global regulatory crackdown against Big Tech, has accused Apple of stifling competition. The UK antitrust regulator, the CMA, recently started an investigation into Apple and Google over mobile practices.

The Apple iPhone 14 is seen in this photo. (Image credit: Anuj Bhatia/Indian Express)

Cupertino, however, continues to reject charges of monopolistic practices. Instead, it says the App Store continues to thrive, with developers benefiting the most from the mobile economy. The company noted that developers selling digital goods and services on the App Store have earned more than $320 billion since the launch of the platform, up from $260 billion last year. In 2021, Apple announced the expansion of its App Store pricing system to offer developers access to over 700 additional price points, a sign that the company is losing its tight grip on software distribution and payments on the App Store.

For Apple, the services segment is a high-margin business free from the complexities of supply chain problems, which have hammered its growth in recent months. App Store, despite signs of slowing down, still attracts more than 650 million visitors across 175 regions each week.

But, like other companies, Apple is also vulnerable to an economic slowdown. A slowing economy, currency headwinds, and high inflation could slow subscriber growth, as fewer people have money to continue paying for the services. Apple’s reliance on the iPhone, which accounts for two-thirds of sales, could threaten the growth of its services business. Apple’s services are tied to the iPhone, iPad and Mac – and growth in those devices has begun to slow. Apple’s unwillingness to make these services grow beyond its devices and bring them on rival platforms is hurting the growth potential of its services business.