On August 19, 2020, Apple accomplished a historic milestone by becoming the first company to achieve a market capitalization of $2 trillion. It took the company 42 years to achieve its first $1 trillion valuation in 2018 and then only two more years to double that value in 2020. At present, Apple's market capitalization stands at $3.02 trillion.
New business model?
- Apple wants to end its sole dependency on iPhone sales which were not peaking (155 billion USD in 2015). As a result, Tim Cook announced in 2016 that Apple claims to double its revenue from software services by 2020 which essentially meant that Apple is intent sot add software as a service to its portfolio as well.?
- Access to Apple's ecosystem is granted through three product tiers, with the entry-level product being the minimum requirement. Secondly, you have retainers which are services like Imessages, Apple Arcade, Filmic Pro, or for that matter even your Spotify playlist that keep you hooked and lured to the Apple ecosystem.?
- If you are considering a potential purchase of a MacBook Pro, it may prove to be a compelling option for those seeking an upsell product. The acquisition of a second Apple device opens up access to a range of unique ecosystem features, including airplay, airdrop, continuity, and iCloud, that facilitate seamless connectivity between devices. This can bring a major challenge for individuals to transition out of the Apple ecosystem, as these features offer integration and convenience that is difficult to replicate with other devices.
- Apple wants to make a small change instead of having these apps just to act as retainers apple wants to build more apps and services and turn them into money machines so in short apple is deploying a popular marketing model followed by Gillette itself:?
- (The Razer blade model is a model wherein a company sells the first product at a lesser margin so that it can be sold as a low-cost high-margin product regularly to create a recurring income channel for the company.)
- As a by-product, they also act as recurring hooks to keep people in their ecosystem which is quite evident from their sales figures as well:
From 2015 to 2021, while the profit margin from iPhones has steadily risen from nearly 155 billion to 191 billion USD increasing at 23% mark, the revenue generated from services rose by 257% going from just 19 billion to 68 billion in a mere age of 7 years. The profit margin from iPhones is just 35%, the software services margin is nearly 60%. In fact, the app store was being run at a profit margin of 78% as of 2019 according to Bloomberg.
Apple’s Superlative Strategies
- Recurring Revenue Model: Recurring revenue is a stable stream of income your business generates from its customers. Apple’s recurring marketing is associated with subscription-based models or ongoing services that customers pay for repeatedly. It's remarkable to note that Apple's service revenue is nearly equivalent to the combined revenue generated by the sales of Mac and wearables. And even though the 20% is only a fifth of Apple’s business, the result is a staggering $78 billion dollars.
- Returner hooks: The Hook Model is a four-step cyclic process designed to build products that prompt high-frequency, repeat use by customers. There are four stages in every hook cycle: trigger, action, variable reward, and investment. Apple uses the Hook Model to keep users in its ecosystem by creating a compelling and addictive user experience. Here's how they do it:
- Trigger: Apple provides external triggers by constantly innovating and marketing its products, creating a desire for users to engage with their ecosystem. These triggers can be in the form of enticing product launches, advertisements, or promotions.
- Action: Apple designs its products to be user-friendly and seamless, making it easy for users to take actions like purchasing new devices, downloading apps, and subscribing to services. The ecosystem's intuitive design encourages user engagement.
- Variable Reward: Apple offers a range of rewards within its ecosystem, such as access to exclusive apps, services, and content. These rewards are unpredictable, creating anticipation and keeping users engaged.
- Investment: Users invest in Apple's ecosystem by purchasing hardware, subscribing to services like iCloud, Apple Music, or Apple TV+, and customizing their devices. This investment reinforces their commitment to the ecosystem, making it more challenging to switch to other platforms.
- Aggregator Model: An aggregator business model involves a central aggregator firm that collects data or offerings from various providers, often through digital platforms or applications. Apple has access to extensive data on the most popular apps in their app store, along with detailed insights into user demographics and usage behaviors. With this information, Apple could potentially launch a competing service that directly rivals an established app.
For example, Apple Music is priced lower than Spotify's family subscription in India. However, if you use Spotify Premium on an iPhone, Apple takes a 15% cut, while Apple earns the full revenue from Apple Music. This puts Spotify at a disadvantage.
- Getting into super high-potential spaces: ?This strategy includes healthcare and fintech and as already observed, the company has already aided a solid foundation with the Apple card and the Apple watch while on one side apple customers are by default the most premium audience in the world making them the perfect audience for financial services on the other side apple watch already has a tremendous amount of data to sell to health care services as its customers and this is such a revolution that it has a huge scope of application.?
For example,? an aging parent could share their heart health data with a family member, a person could choose to share their fertility window insights with their partner and even a Parkinson's patient can share their mobility data with a physical therapist this also includes backend integration of data because of which healthcare centers all across the united states can seamlessly access and share patient data with each other this will enable patients to get done with hospital procedures within a few seconds as compared to the existing tedious procedure.?
Apple's healthcare system, Apple card, and health app could make it a major player in health insurance and credit cards. Future projects like the car project and Apple glasses may also be significant pillars for the company.
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