In many cases, I think the evolution of the approach has its root in the nature of Apple history. Think to when the beleaguered company — already pronounced “dead” on the front page of Time magazine — focused on improving its platform in isolation. In the end, it actually built a better platform than others could provide. All the same, along the way the company developed a business model that relied on delivering unique solutions within its own garden. And while regulators may be holding their critical mirrors wrong, a little opening up could have saved the company from harm.
100 billion reasons to put up a fight
Once Apple became a global success story, it maintained that now highly profitable approach, in part because the company culture became reliant on that modus operandi. The thing is, at this point, services represent $100 billion in income for Apple, and the company owes it to its stockholders to protect as much of that value as it possibly can, even when forced to change.
Perhaps part of the reason for the company’s reluctance to change is related to the margins it generates on services. These are almost as eye-watering as the revenues — around 70% gross margin according to Apple’s Q4 2023 statements.
That means Apple knows how profitable services on its platforms can be and means it will not be at all prepared to open up to the extent some competitors want. Opening up to competition is one thing; being forced to subsidize that competition by offering free access to the platforms is another.
How much is too much?
That’s why so many of the arguments about opening up are rapidly spinning toward defining just how much is reasonable for any platform provider (even so-called “gatekeepers”) to charge for access. To me that’s the only question that should be answered, as it would define what the entire digital services industry is entitled to charge. That’s probably why regulators and the wider industry pretend it’s all about the so-called “Apple Tax,” rather than their own desire to make more money from selling their own digital wares.
While this 21st Century series of Big Tech Mystery Plays dominates the drama, Apple’s services revenues remain remarkably resilient. Counterpoint says that even through all the legal and regulatory uncertainties, services are likely to generate around a quarter of Apple’s revenues in 2025, with the company expected to reach $400-billion in annual revenue in 2024. That money does, as the company so frequently reminds us, also contribute a huge amount of employment opportunity both at Apple and across its wider partner ecosystem.
