How Apple is positioning itself as an SaaS company

With iPhone sales beginning to plateau, Apple is now focusing its attention elsewhere: on their software-as-a-service (SaaS) platforms — more commonly known among consumers as macOS, iOS, WatchOS, iPadOS, and tvOS. 

By selling staggering amounts of content and subscription services, Apple is successfully monetizing its software. In fact, Apple’s services division made a staggering $13.4 billion in profits for the second fiscal quarter of 2020.

1.5 billion active devices and growing

After introducing the much-loved iPhone, iPad, Mac, iPad, Apple TV, and Apple Watch over the years, Apple now has a record 1.5 billion active devices, with 900 million of those being iphones — in turn, massively boosting its popularity as a software platform and boosting financial gain. Indeed, selling services and subscriptions is an effective SaaS revenue model used to increase profits

Each of these individual active devices uses an Apple operating system with easy access to the company’s services, as well as to the numerous third-party services Apple gets a kickback from. Specifically, Apple has recently revealed that iOS 13 and iPadOS 13 adoption has reached almost 80% for iPhones and iPads launched within the last four years. 70% of all iPhones are using iOS 13 (up from 50% in 2019), compared to 57% of all iPads, which has seen a 33% increase since 2019. 

A record number of paid subscriptions 

As 2020 came to an end, Apple finally surpassed its target of reaching 600 million paying subscribers. The company now has 620 million in total — that’s up 140 million from just a year ago, with over 35 million added in the December quarter alone. Apple profits from both subscriptions to its own services and from third-party subscriptions. Apple takes 30% of third-party subscription profits in the first year, which reduces to 15% in the following years.

Multiple new services

Apple already offers a comprehensive range of services, such as iCloud, Apple Music, AppleCare, and the App Store. More recently, the company launched four more services to better increase profits generated from its 1.5 billion active devices. Apple News+ is a subscription service in the Apple news app that gives users access to magazines and pay walled content from select news sites. Its monthly subscription fee costs users $9.99 (no annual subscriptions are currently available). Additionally, Apple Card is a credit card service powered by Mastercard and Goldman Sachs. It can be used for both regular and Apple Pay services.

Their video streaming service, Apple TV+, costs $4.99 a month, and is free for a year with the purchase of an iPhone, iPod Touch, iPad, Apple TV, or Mac computer. Lastly, they also recently launched Apple Arcade, a video game subscription service, for just $4.99 per month. Apple’s dedicated efforts to increase their service offerings for eager consumers are certainly paying off: the company’s service revenue is on track to top $50 billion in profits before 2025

For the time being, however, hardware still remains Apple’s main source of revenue. In its fiscal 2020 fourth quarter, Apple’s Services revenue increased from $12.5 billion in Q4 2019 to $14.55 billion, while the company reached an overall record revenue of $64.7 billion and $12.67 billion in profit. Nevertheless, as they continue to increase profits generated by their software platforms, Apple’s standing as a SaaS company will undoubtedly become stronger and stronger over time; their services now generate as much as 29% of the company’s gross profit. As such, it’s not unthinkable that in a few years, the company’s services gross profit may be near to overtaking its hardware gross profit.

The accompanying image is courtesy of Unsplash.

Dennis Sellers
the authorDennis Sellers
Dennis Sellers is the editor/publisher of Apple World Today. He’s been an “Apple journalist” since 1995 (starting with the first big Apple news site, MacCentral). He loves to read, run, play sports, and watch movies.