In 1976, Steve Jobs, Steve Wozniak, and Ronald Wayne founded a hardware startup called Apple Computer Company. In the decades since, the firm has evolved into a tech sector giant that sells everything from video editing software to TV shows. However, the core of its business is still consumer electronics.
Based on the corporation’s recent moves and Q2 2019 fiscal earnings report, that won’t be the case for much longer. Apple is in the process of pivoting away from electronics and becoming a services-centric brand. In doing so, the organization is ensuring its future as a leading global brand.
The Fall of Apple’s Smartphone Business
The Cupertino, California firm is moving away from being a products company for one reason. The organization has rightly determined that smartphones shouldn’t be its main revenue driver.
Though it generated $46.5 billion in products revenue from January to March 2019, the operation’s earnings report touted the robustness of its $11.4 billion services business. Apple chose to emphasize the success of its subscription-based content because it brought in record revenue last quarter. Conversely, its products business fell by 10 percent compared to the same timeframe in 2018.
The cooling of the global smartphone market has devastated consumer electronics brands like Samsung. Industry experts predict it will continue trending downward due to economic contractions and the high quality existing consumer handsets. But Apple won’t incur 60 percent revenue declines because its leadership has developed a strategy to deal with the market correction.
Befitting its reputation as one of the tech sector’s most innovative brands, the company’s transformation is occurring in a nonlinear fashion.
Apple Pay Expansion
The firm isn’t walking away from its core business anytime soon. Apple’s newly minted six-year partnership with chipmaker Qualcomm indicates its intention to keep releasing best-in-class smartphones. The conglomerate’s $600 million licensing agreement with Dialog Semiconductor, a key iPhone component vendor, supports that notion.
Apple is, however, directing most of its resources and attention to developing its services business. Just this past year, the company has been aggressive in evolving its Apple Pay segment.
In January, the organization added big-box retailer Target to the growing list of merchants that accept its mobile payment system. Last month, it announced a partnership with the city of New York to make its subway system Apple Pay compliant. The corporation also expanded the segment’s features in March by unveiling a branded credit card.
Content Host Turned Content Platform
Apple is also making a big play for the lucrative subscription video on demand (SVOD) market. The company has raked billions as a content host with its Apple TV, iTunes, and App Store brands. In March, it revealed Apple TV will host a range of new original movies and TV shows this fall. The corporation’s new video platform will only host content it owns, meaning it won’t run into the licensing problems Netflix is struggling with.
The conglomerate has also laid the groundwork to get its new video content to as many consumers as possible. In January, Apple announced a partnership with Samsung that will bring iTunes to the screen companies smart TVs. The firm also buried the hatchet with longtime rivals Amazon and Google so its services will be available on Fire TV and Chromecast products.
The technology giant is also breaking into subscription gaming and news aggregation. Its new Arcade and News+ applications give users access to new video games and a host of papers and magazines at affordable monthly rates.
The New Apple
Apple’s reorganization efforts extend beyond deemphasizing smartphones and introducing new services. The corporation has also taken steps to burnish its reputation with investors and consumers.
CEO Tim Cook publicly expressed support for tighter regulations on the tech industry and positioned Apple as an apolitical enterprise. As the public has grown more critical of reckless tech firms, his statements are public relations masterstrokes.
The organization has also taken recent steps to please its shareholders. In May 2018, Apple announced a $100 billion stock buyback and it’s revealed plans to perform a $75 million buyback earlier this week. The company’s record capital returns serve two purposes. The first is that it makes the prospect of purchasing Apple stock highly appealing. The second is it prevents against the kind of investor revolts Facebook and Google are contending with.
With its current strategy, the notion of Apple as a consumer electronics company will become anachronistic. But the firm’s reputation as a valuable and adaptable brand will continue well into the future.