Apple's subscription numbers are weird
It says there are 935 paid subscriptions to services on its platform, but what does that even mean?
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Apple’s subscription numbers
If you pay attention to Apple’s earnings calls, you know that the numbers this past quarter were “disappointing.” That’s kind of a strange thing to say about the world’s most valuable company making more money than any other company—even if if was less than people though it should make. It’s also weird because it was Apple’s second-best quarter of all time, the best being the same period last year. That’s how things like stock markets work. It’s not about how well your business is doing, it’s about how well it does compared with how well people think it should do.
People expect Apple to do very well. Usually, it has. Even though it wasn’t as amazing a quarter as people expected, Apple still sold a lot of iPhones and iPads and Macs. It just didn’t sell as many as people who are paid to pick stocks wanted Apple to sell.
It did, however, have a record quarter for its services division. Now, to be clear, whenever you hear Apple talk about “services,” you might think that means AppleCare or Apple TV+ or Apple Fitness+ or iCloud. Yes, technically, those are a part of Apple’s services, but mostly it’s just the App Store. Apple makes most of its services revenue from the commission it takes from subscriptions and in-app purchases in the App Store.
It’s not surprising that Apple talks a lot about how successful its services division is. After all, if most of your business did worse than everyone expected, you probably would rather spend time talking about the parts that did better. Sometimes, though, that gets weird.
Apple, for example, boasts about the number of “paid subscriptions across the services on our platform.” As of the end of December, that number was roughly 935 million.
Apple likes to talk about how that number keeps growing, and you might think that it reflects the number of people who have signed up for one of Apple’s services, like iCloud or Apple Music or Apple One. That is what “paid subscriptions across the services on our platform” sounds like. And, I’m sure some of them are, but the number of people who give Apple money every month for one of its own services is not anywhere close to 1 billion people.
Instead, that number reflects all of the people who have subscribed to anything on an iPhone (or iPad or Mac). If you have a subscription to Carrot Weather, Disney+, or Flighty, and you signed up on your iPhone, Apple is counting that.
Why is Apple boasting about that number? Because it wants to remind people who invest in its stock that the App Store is still printing money. Apple makes 15 to 30 percent off of every subscription in the App Store. And, while the company has drawn a lot of criticism for its control over its platform, it still makes for a very good business.
During its earnings call, Apple’s CEO, Tim Cook, said the company now has 2 billion “active devices.” That’s a lot of iPhones, iPads, and Macs, all of which have Apple’s App Stores preinstalled. It’s a lot of people to whom you can sell apps and services and subscriptions.
Sure, Apple would love to sell its own subscriptions, but honestly, it’s doing just fine collecting 30 percent from third-party developers. When it talks about 935 “paid subscriptions,” it’s a reminder to investors just how well its doing.
What’s even more weird is that if you ask Apple, they won’t actually clarify what those numbers mean on the record. They will simply let you keep believing either version of the narrative.
Okay, but then why isn’t Apple more clear about that? Why does it describe the number in a way that could be taken to mean something else?
Well, because there are other people for whom Apple would rather not remind that the App Store is just, well, printing money. Those people are generally lawmakers and regulators who would be happy for Apple to make less money if it means scoring political points. Big tech, if anything, is an easy target for scoring political points.
Right now, in both the United States and the European Union, there are proposals to force Apple (and Google, for that matter) to divorce its platform from app distribution. Those proposals would require companies that make devices and operating systems to open up those platforms to third-party app stores, or to allow users to install apps directly.
There are also calls to require Apple to change the way it collects commissions on subscriptions that directly compete with its own services. Spotify, for example, would have to pay 30 percent of its subscription to Apple, which offers Apple Music. That puts Spotify at a significant disadvantage since it would have to charge more to make the same amount of revenue. Obviously, Apple Music doesn’t have to pay a commission to Apple. There are a lot of people who believe that means Spotify shouldn’t have to either.
I’m not sure what the right answer is there, but I do know Apple would rather not remind the lawmakers behind those proposals just how much it makes from commissions on third-party subscriptions.
Apple doesn’t break out the numbers so we have no way of knowing how many of those 935 million subscriptions are for Apple services, but if I had to guess, I’d estimate it to be around a third, at most. The company also won’t say whether it counts a subscription to its Apple One bundle as a single subscription, or if it counts as a subscription for each of its included services.
What is pretty clear is that services is increasingly becoming Apple’s primary growth engine. It may not represent more revenue than the iPhone, but it’s already Apple’s second-biggest segment, and it’s growing far faster than any of the others.
That’s why the company is trying to find a balance between talking up its most successful business, and protecting it by not making too big of a deal of that success. That’s obviously not easy, but Apple’s approach is definitely, well, weird.
Also happening today:
A day after Google announced its competitor to ChatGPT, called Bard, Microsoft is hosting an event to “share some progress on a few exciting projects.” The focus is expected to be its partnership with OpenAI and integration with Bing. The event is today at 10AM PT, but won’t be live-streamed. The Verge’s Tom Warren will be onsite and live-blogging the event.
As for Google’s announcement, the company is rolling out a chatbot in the coming weeks that users will be able to interact with in search. Google was previously hesitant to incorporate ai-text generation tools in search, mostly because of how unreliable they can be. The company hasn’t wanted to risk its reputation on a chatbot giving users made up information.
Now, however the fact that ChatGPT has reached almost 700 million users in just a few months means Google really has no choice but to do something. Bard appears to be its answer, with wider access to the public coming soon.
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