Apple still over-relies on the iPhone

The tech giant's trying hard to diversify, but karaoke shows and Pokémon Go won't make up for dropping iPhone sales.

by Gabriel Phillips and Adam Gale
Last Updated: 28 Jul 2016

When Apple announced that sales of the iPhone had fallen by 15%, the natural response was ‘ouch’. Yes it still sold over 40 million units over a three month period, but 15% is 15%. Yet shareholders disagreed, sending stock up 6.5% to $103.

It was perhaps a sign of confidence in Apple’s ability to diversify revenues away from its signature product.

The company’s certainly been trying of late, having recently bought the rights to Carpool Karaoke, a popular feature from James Corden’s American chat show, and commissioned a new series called ‘Planet of the Apps’ hosted by, both planning to debut soon on Apple Music.

In fact, Apple’s services are on a steady climb with reported growth in that division of approximately $1bn. While it’s a drop in the ocean compared with the iPhone sales (which contributed around two-thirds of its $44bn quarterly revenues), it at least demonstrates potential for growth.

Apple makes approximately 90% more from its iTunes store than Alphabet does from Google Play, despite booking half the number of downloads. Having its own platform for apps has been effective as they can choose what to host, enabling them to hold onto exclusives, while at the same time earning a far larger revenue from in-app purchases on iOS products.

Enter Pokémon Go. Apple is expected to make approximately $3bn from the ubiquitous app alone, due to the profligacy of its users. This isn’t as far-fetched as it sounds – Candy Crush made $2bn for Apple after only two years on the app store, after all, despite having a far lower ratio of paid to total users.

If we’re going to be brutally honest though, not everything Apple has tried has been a massive hit. The Apple Watch has yet to revolutionise how we look at our wrists, while Beats by Dre, despite its $3 billion price tag, has not yet managed to dominate the headphone market, which is crowded with cheap alternatives.

Apple has shown it’s willing to make forays into new areas that others either won’t or can’t due to a lack of capital – not a problem for a firm with $200bn in the (offshore) bank.

The big question for Apple is whether these smaller gambles will be enough. Compare it to Alphabet, which has a whole host of other bets in play in areas as diverse as driverless cars and life sciences.

These have yet to materialise into Google’s Next Big Thing, but at least they have a chance to do so. The App Store and Beats do not. The fact that Apple is set to spend $10bn on R&D this year alone suggests that the firm hasn’t given up on its quest to find a worthy complement – or successor – to the iPhone either.

The rumour mill says Apple’s big bet is a driverless car to rival Google’s. The weight of expectation to deliver on that rumour will be heavy indeed. The towering iPhone is only as good as its latest iteration, after all, and corporate history is littered with brands discarded by fickle consumers.

Apple's services division cannot save it from that fate - it needs iPhone users to sell those services to.  So if Tim Cook can’t reveal a Steve-Jobs-style game-changer before too long, people will start to wonder whether the world’s most valuable company is yesterday’s news.  


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