How Apple profits from selling you iPhones with little storage
LOS ANGELES — Sure, Apple sold a boatload of iPhones in the holiday quarter and made a mint.
But beyond the cash cow that is new iPhone sales, it also revealed how it’s profiting by selling units that don’t have enough room to hold all its customers’ photos, videos and apps.
The iconic iPhone maker this week said it shipped 77.3 million iPhones, along with 13.1 million iPads and 5.1 million Macintosh computers.
But the more interesting number is the growing size of the iPhone army—now at 1.3 billion people, up from 1 billion two years ago.
“That’s 300 million extra people you can sell to,” says Patrick Moorhead, an analyst with Moor Insights.
The No. 2 division at Apple is Services —including Apple Music, iTunes, iCloud— now brings in more revenue than Macs or iPads, selling software, and to Moorhead, it’s not music subscriptions and iTunes movie rentals that are fueling the charge, “but all those iCloud upgrades.”
Services grew to $8.5 billion, from just over $7 billion in the year ago quarter, thanks to all those folks who probably awoke to nagging messages from Apple that their iPhone storage was full, and that they needed to upgrade, pronto.
On the old entry level 16 GB phone, the operating system takes up 4 GB of space, and many apps now are so big that they clock in near 1 GB as well. Even with the now standard starter 32 GB phone, snap some high-resolution photos and videos, hold onto your texts and e-mails and a handful of apps, and you’re soon maxed out.
The basic iCloud service is free, but with just 5 GB of storage. Apple sells iCloud upgrades starting at 99 cents monthly for 50 GB of storage, or $2.99 monthly for 200 GB. Unless iPhone users are tech savvy enough to figure out alternatives, they will be out of room on their devices within weeks of purchase.
Based on the trajectory of past performance, if Apple never released another iPhone, and just sat back and let Services do its thing, if it reaped another $8 billion for the next 4 quarters, it could generate $30-$40 billion a year in revenues just from storing people’s photos and videos, and selling them movie rentals and music subscriptions.
Think about that for a moment.
McDonald’s, the nation’s largest restaurant chain, sells about $25 billion worth of hamburgers and such every year. Apple already sells more Services than it does Macs; now it’s poised to sell more software rentals than McDonald’s generates with Big Macs.
In other tech news this week:
— Amazon reported that sales in the December quarter jumped 38% to $60.5 billion. The company said it shipped 5 billion items to members of its Prime service for expedited shipping and entertainment in 2017. Prime customers are estimated to spend an average $1,300 a year on buying stuff, compared to $700 for non-Prime members.
—Meanwhile, folks are spending less time on Facebook, due to changes in what we see on the social network. Facebook has been redesigning the network to show fewer viral videos, and focus more on family and friends.
— Google’s decision to start selling hardware products looks to be a good one. The company said it generated $4.69 billion from its “Other” division, which includes the Google Home speakers and Pixel 2 phones as well as cloud computing services. Google’s primary business is still advertising, which brought in $27 billion in revenue.
— Your face is your boarding pass. It’s not here yet, but a U. S. Customs official told us this week that within the next 4 years, passports could be toast, and we’ll use biometrics instead.
This week’s Talking Tech podcasts
—We began the week with three episodes from our recent trip to Japan.
Part 1: Self-driving Slippers? Get ready for a test that begins in March from auto giant Nissan.
Part 2: Gadget Lust —all about the cool products we saw in electronics shops that aren’t available here.
Part 3: My interview with a Japanese robot. Listen in as I conduct a conversation with Erica, a very human-like Android.
— How to photograph the Super Moon. Okay, it’s come and gone, but get ready for the next one by tuning in!
— Ditch the passport with biometrics. We speak to a top Customs official about big changes in flight entry and exits in the coming years.
— Sorry folks, but you’ll be paying more for the next iPhone. That’s the message of this week’s earnings announcement from Apple.
That’s it for this week’s Talking Tech weekend wrap. Relive our time in Japan by watching this timelapse from Kobe or take a walk with us in Osaka’s Dotonbori district. Please subscribe to the TalkingTech newsletter via this link. Follow me on Twitter, @JeffersonGraham. And if you haven’t checked out the daily #TalkingTech podcast yet, now’s the time. You can listen on Stitcher, Apple Podcasts, iHeartRadio or wherever you listen to online audio.
