Apple’s ecosystem expansion and why it matters

Apple, the maker of the iPhone, has grown its total active devices to two billion globally, as the company moves away from product sales to services and advertising sales.

Why it matters

Apple’s interest in the advertising business is a hot topic of conversation in the industry, but having cornered many of the richest countries, its new strategy aims at global scale monetised through different means.

The strength of the strategy arises in part because many firms are scrambling to build up their first-party data, and those that already have a lot of it – like Apple – are in a great position to take in much of that spending by offering far greater visibility into its ecosystem than anyone else can.

By the numbers

• Globally, 27.11% of smartphones in circulation use iOS
• 87% of teens in the US have an iPhone
• 34% of all iPhone owners in the US are Gen Z (post-1996)
• 50% of all phone usage in the US now happens on an iPhone

Apple continues to sell a lot of phones and other devices, but given how expensive devices have become, services are increasingly key to the overall business. For context: the top-level iPhones crossed the $1000 threshold back in 2017, while the average price of iPhones across the range now approaches $1000.

In the first quarter of 2023, Apple reported an overall revenue decline of 5% versus Q1 ‘22, but its services business that accounts for around a sixth of its quarterly revenues saw a 6.4% increase.

The beauty of this strategy is that it creates a well of revenue based not only in monthly subscriptions, but one no longer based exclusively on new device sales. This translates to a revenue opportunity based on the firm’s more than two billion active devices.

Aiming for the growth markets

Apple has recently made India its own sales region, according to reporting from Bloomberg, reflecting both the country’s potential as a destination for its products (and therefore ecosystem) but also to Apple’s manufacturing make-up, as more of its supply chain shifts to India in an attempt to diversify.

While Apple’s market share in India remains relatively low (3.9% in 2022), this is the second largest smartphone market in the world with 659m users, just behind China. With an overall penetration of 46.5%, there is a major opportunity for all phone brands, and Apple sees an opportunity to grow its share.

Advertising

Another significant opportunity comes in the shape of Apple’s growing advertising revenue, which is expected to reach around $7bn by the end of this year, and clear $30bn by 2026.

• Apple’s expanding app store ad capabilities and possible demand-side platform, for which the company has been hiring, are two likely ways of monetising this vast user base.
• Yet both of those look relatively far down the purchase funnel; more recent news points to the idea of some advertising coming to Apple TV+, in an attempt to bring in high-reach ad dollars aimed at its paying subscriber base.
• It wouldn’t be the first to do something similar: Sky, the UK subscription TV company, has shown ads to its paying users for years; Amazon Prime Video advertises during sport broadcasts to subscribers and, through Freevee, offers subscription-free ad-supported content.

There are some risks here, however. For years, Apple’s offer has revolved around an ecosystem of better products often because there was no advertising. With the onset of ads, some commentators have suggested it’s like Apple’s premium devices “having coin locks on the bathroom stalls at a fancy restaurant”.

 Sourced from Statcounter, FT, Bloomberg, Apple, Statista, Newzoo, Mobile Dev Memo, WARC, Gizmodo, Macworld