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Why Apple’s Services business is so valuable

$7 billion last quarter alone.

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Apple CEO Tim Cook and Internet Software and Services SVP Eddy Cue
Drew Angerer / Getty

When Apple reported its second-quarter results yesterday, one of the first things it touted was the “strong momentum” of its Services business, which includes iTunes and Apple Music, the App Store, iCloud, Apple Pay and more.

While the company’s results are still mostly driven by the iPhone, it’s increasingly trying to portray Services as a growth narrative of its own.

Why?

1. It’s big.

Apple’s Services segment generated $7 billion in revenue last quarter, its “highest revenue ever for a 13-week quarter.”

It was the second quarter in a row that Services revenue passed $7 billion. And “it's well on the way to being the size of a Fortune 100 company,” CEO Tim Cook said during the company’s earnings call.

For context, that’s a much bigger business than other notable internet services, such as Netflix and Amazon Web Services.

2. It’s growing.

Apple’s Services business was its fastest-growing segment last quarter by dollars, and second-fastest by percentage after Other Products, which includes Apple Watch, Apple TV, AirPods, etc.

Services revenue grew $1.05 billion, or 18 percent year over year. That represents almost half of Apple’s $2.3 billion in overall revenue growth. (The much larger iPhone business only grew $392 million from the year-ago quarter.)

Apple says it wants to double its Services revenue by 2020.

3. It’s consistent.

Apple’s hardware business is highly seasonal, focused around the Christmas holiday and new-model-launch quarters. For its biggest product, the iPhone, that’s usually the same period — the December quarter, which causes huge spikes. Last year, for example, Apple generated almost 40 percent of iPhone revenue during the December quarter.

But the Services business, which includes media sales and also some 165 million paid, recurring subscriptions, looks much smoother so far, making it a steadier source of revenue.

4. It’s the glue that sells more Apple products.

This is perhaps the most important point, and a good reason why Apple’s Services business couldn’t easily be split off from the rest of the company.

It’s not just a random internet business, it’s a key part of what makes Apple’s tightly integrated hardware, software and services ecosystem work so well together.

Ideally, that creates loyalty and lock-in. So if someone buys an iPhone and gets hooked on Apple’s services, the hope is that they’ll be more likely to buy an iPad, Mac, Apple TV and Watch — and more services — and maybe even a car someday.


This article originally appeared on Recode.net.

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