The Apple Ecosystem Business Model: Selling Experiences through Devices
You don’t buy iPhone as a phone, you buy an entry ticket to the Apple experience.
People don’t know what they want until you show it to them. — Steve Jobs
I’ve been always skeptical about Apple products but eventually became converted two years ago. It wasn’t my personal choice, I just needed a MacBook to keep an eye on how our web app works with macOS and Safari in particular. Also, to understand what it feels like to use the app from an Apple user perspective. It was my first Apple experience that ended up with purchasing MacBook for personal use. But this story is not about Apple experience. This story is about how Apple makes money using this very experience.
Throughout the ups and downs of Apple’s history, this company has shown how to make products that people love, idolize, and are crazy about. Apple products are desired for innovative solutions, impeccable design in every detail, built-in quality, style, and elegance. As a prominent visioner, Steve Jobs proved that “it is not customer’s job to know what they want”. Right, it is Apple’s job. Once you have tried the Apple experience, you won’t ever give up on it.
Apple always disrupts the market with products that make a difference. The slogan of the first iMac “Think Different” is still present in everything Apple makes. Pioneering one technology revolution after the other, Apple gave to the world the first user-friendly all-in-one desktop computer, the smartphone that became a way of life, the watch that keeps you connected everywhere at any time, and a digital wallet that is not just cash-free but also contactless. Apple was not always the leader in the market but each time the best innovator.
Apple is more than a brand, it is a whole world that is not available for everyone though. Apple spreads their devices across the globe hardwiring more than 2 billion people to their devices. It is not just an indisputable innovation factory but a “cash flow machine” that has piled up more than 200 bln dollars on bank accounts and can run the business without selling a single iPhone for a year. It has built a unique business model that let the company break a record for becoming the first U.S. publicly traded company to reach 1 trillion US dollar market capitalization in 2018. Two years after Apple outshines itself by hitting a 2 trillion US dollar market cap in 2020 despite the worldwide coronavirus crisis.
So, what is the source of Apple’s growth? Do innovation, superior design, and high quality make Apple so rich?
Over the last five years, Apple has significantly diversified its product range in digital services, wearables (Apple Watch), devices (Apple TV), and other accessories for home and professional use. The introduction of a custom chip M1 shows that Apple is capable to go further and become independent from the hardware vendors at some point. But what all of these actually means?
To understand what stands behind Apple’s strategy, you should dip a little bit deeper into its revenue breakdown. A well-known fact that the major source of revenue is the iPhone but not the only one. Despite the fact that iPhone sales in 2020 accounted for 50% (137 bln US dollars) of the total revenue, almost 20% (53,77 bln dollars) were made from selling digital services. It is slightly more than sales received from iPad and Mac altogether (52,34 bln dollars). One more promising business segment is Wearables, Home, and Accessories that came to 11.2% (30 bln dollars).
While iPhones are in a downtrend, Apple’s digital services are booming. Since 2016 the revenue received from digital services has doubled with a steady growth rate of around 22% each year. It seems that Tim Cook started aggressively pushing digital services as a major strategic direction. And this is a fairly right decision. Why? Because of two main reasons.
First, the time has changed, and Apple is not the only innovator in the technology market that introduces new technology, feature, or user experience every year. Also, today’s level of technology allows replicating any feature very quickly. Every year, a burst of innovation by small startups steadily eats out more and more from the large technology pie.
Second, “Bread and circuses”, or “Device and entertainment” in modern English. Apple has appreciated the biggest potential they have — a unique business and technology ecosystem that had been diligently harvested throughout the company’s history. Apple employed an ecosystem business model that no one on the could replicate at scale so far. The rigid environment where only Apple products can exist and thrive. It is a business model where the more devices Apple sells to people today, the bigger number of subscribers they will have tomorrow.
On one hand, you become device-dependent, wired to a single technology environment that is difficult to change without a bargain. But on the other hand, you have a great advantage to switch or upgrade the Apple products without losing a seamless experience. The integrity of the ecosystem is a part of the Apple experience that you pay a premium for.
Apple’s ecosystem includes brand identity, devices, hardware, operational systems, user experience, digital services, native or authorized applications, e-shop and App Store, UI guidelines, requirements for application architecture, and security, SDK, cloud infrastructure, payments, stores, authorized resellers, manufactures, etc.
Brand identity
The bitten apple stands for the most recognizable brand in the world. In some sense, Apple is an embodiment of the brand in a broad meaning. The brand “Apple” is the most valuable asset for the company that represents innovation, perfection, and style.
Devices and hardware
It is difficult to say whether it was a part of Steve Jobs’s plan or just a series of strategic decisions but Apple produces devices that are designed in such a way that are fully compatible only with other Apple products. In fact, you can use any other brand for instance to replace Magic Mouse, and it will even work properly, but you lose all the beauty of the Apple experience. Taking for example any Windows PC, you can connect whatever device you want, even a Magic Mouse without any or significant loss of its functionality.
Also, Apple is famous for removing features like ports, or audio jacks that create space for other features or extending the product line of extra accessories. Basically, removing things to ensure more product diversification in the future and strengthening dependence on Apple products.
OS and Applications
Apple has developed a family of proprietary operating systems for each of their products (iOS, macOS, watchOS, tvOS) that provide a seamless experience. The App Store is a digital marketplace where you can download or purchase applications. The thing is that each application has to be validated before publishing it into the App Store. This strict process guarantees that the app is secure and adheres to Apple standards.
Also, there are apps and products that are available only in the Apple ecosystem such as assistant Siri, browser Safari, text processors Pages, Numbers, Keynotes, server software macOS Server, and many others.
Apple is one of the few technology companies that prefer to restrict or even ban using apps or services without a native device or Apple ID.
Digital services
Apple Music, Apple TV+, Apple Arcade, iCloud, Apple News+, and Apple Fitness+ are only available in the Apple ecosystem on a subscription basis. Recently all these services were bundled up in Apple One with a single subscription price.
Apple increasingly leverages their devices to boost the growth of services subscription. Because only Apple’s devices can grant exclusive access to their services which creates a perfect cash generation environment.
Payments
Apple Pay is a small detail that lubricates this “cash flow machine” making smooth and stable payments. It meticulously connected all dots in the Apple ecosystem ensuring stable cash flow.
Developer
To develop applications and publish them to the App store you have to be a member of the Apple developer program. The membership grants access to tools, services, and SDK. Obviously, it is paid. But you got everything you need to build and distribute apps: IDE (Xcode), recent SDKs, services (like App Store Connect, Apple Pay, CardPay, Face ID and Touch ID, GameKit, and many more).
Apple has proprietary the Human Interface Guidelines that provide detailed information and UI kits to ensure the integrity with Apple’s design system and platforms.
Apple stores and e-shop
Apple invests a lot in its stores to keep the highest level of positive experience even from shopping.
Apple ecosystem business model
All these elements create a value stream loop that defines Apple’s approach to the ecosystem business model. This model focuses on developing mechanisms of value creation, delivery, and capture inside the ecosystem. It limits the involvement of external actors and dependencies by establishing a multi-level threshold defined by price, authorization, and standards.
As a result, you don’t buy iPhone as a phone, but you buy an entry ticket to the Apple experience. Actually, you don’t buy Apple devices, you subscribe to Apple services.
As a result, you don’t buy iPhone as a phone, but you buy an entry ticket to the Apple experience. Actually, you don’t buy Apple devices, you subscribe to Apple services. As a premium for sleekness, you pay way higher than for a similar flagship product of a different brand. But once entered the Apple world you get a guarantee for a seamless, smooth, exceptional, and lifetime evolving all-in-one experience.
The ecosystem business model is a method of business development when you design a product in a way that the value is delivered through an ecosystem of surrounded experiences created by the integrity of native devices, software, wearables, accessories, payment technology, infrastructure, and digital services. In this business model, the new product or feature creates opportunities for accelerating other products or features, more product diversification brings more user base for digital services, and so on.
The ecosystem business model is a method of business development when you design a product in a way that the value is delivered through an ecosystem of surrounded experiences created by the integrity of native devices, software, wearables, accessories, payment technology, infrastructure, and digital services.
The ecosystem business model is the environment, where the user doesn’t disturb herself with extra thinking and making decisions, it is a space where everything is in the right place and the right time. It is built on trust and around a strong community of people who believe in your product. So far, the most successful one is Apple world.
Obviously, it would be difficult or even impossible to repeat Apple’s success. But as Jeff Bezos once said: never try to repeat someone else’s success. I would add, create your own success on the shoulders of titans Apple. It is not enough to create a product that is 10x better than any other on the market, it is crucial to create products people love.
