One of the newest memes to hit the interwebs this year is just another phrase from the past. The N.R.A. used “Stay in your lane” to put a chill on the medical community’s complaints about gun violence.
“Stay in your lane” is a 21st century way to say, butt out, or, mind your own business, or, don’t move into my personal affairs. I understand the sentiment. We live in an era where any member of humanity can challenge another with ease.
Everyone seems to have an opinion on Apple Inc. Kirk McElhearn:
How Apple Is Changing from a Hardware Company to a Services and Media Company
I understand the sentiment. Apple’s fastest growing business segment is Services; kind of a catch all of everything that isn’t really hardware in the likeness of iPhone, iPad, Mac, Watch, Beats, AirPods, Apple TV, et al.
So, what’s the problem?
The premise is wrong. Apple is a hardware company. Without hardware, nothing else in the company’s line of revenue and profits matters too much. Apple is also a retailer and has many hundreds of retail stores around the world; highly profitable, too. Apple Store online makes money hand over fist selling… insert the drumroll right here… hardware.
Apple also sells music subscriptions, music and media downloads on iTunes, makes a cut of every Apple Pay transaction, and takes home a slice of every app sold on the App Stores. Is Apple transitioning from hardware to apps? To carry the argument to an extreme, we could ask, “Is Apple transitioning from hardware to headphones?” The answer is obvious. No.
Just as obvious is this premise. “Apple is a hardware company first and foremost.” As it is with many technology companies, Apple is diverse and has many revenue and profit streams that make the company a total greater than the sum of the parts. Apple is not moving out of hardware, or changing from a hardware company to a Services company or media company as McElhearn states.
Services and media and apps and banking and all the other revenue and profit sources have been added to Apple’s flourishing hardware business. What is important to note is how much they are dependent upon what the customer base does… insert the same drumroll here… buy hardware.
As it stands now, Apple’s hardware business has peaked, yet the company manages to grow revenue and profits by, 1) raising prices to increase gross margins. Higher gross margins translate into higher revenue and profits. And, 2) adding specific Services to the product mix, which also bring in revenue and profits.
Services does not represent a major shift in Apple’s strategy because the components in Services have been around in one form or another forever. What is changing is the perception of Apple as a hardware company.
Apple needs more hardware sales and since CEO Tim Cook is merely the Accessories King, the successor to the Market Disruption King, Steve Jobs, then Apple could have a longer term problem. As a hardware company without a new hardware hit.