Since the introduction of the iPod in 2001, Apple has been radically changing our relationship with content.
It dissected the album, allowing us to just buy the songs we wanted to listen to—and only listen to them on Apple devices or software. It created a store for applications that developers use to debut their newest ideas and is now effectively the only way users can add third-party software to their Apple devices. It created a messaging service that only iPhone users can use. It’s established a music subscription service that over 27 million people subscribe to, with exclusive albums and programs that entice them to ignore other alternatives.
In its entirety, this is what’s called a closed platform system, or a “walled garden” approach to technology. It’s not supposed to work in terms of creating a viable business for its operator and it’s in stark contrast to open systems like Android, which is still the Wild West of app stores, where software with malware or bugs often runs rampant. Apple hand-picks every app that goes live in its store, sometimes rejecting apps for no good reason, or because a foreign power tells them to. It’s a system built in the image of its creators, and it’s such a beautiful garden that it has paid off handsomely for Apple.
Apple’s services business, where all this walled garden resides, has become the company’s second-largest business unit. It’s been trending upward for years, bucking the patten of Apple’s cyclical hardware business, which delivers its best quarters around the holidays. On its most recent earnings call Aug. 1, Apples said services generated more than $7 billion in the quarter, and CEO Tim Cook took pride in saying the division is now the size of a Fortune 100 company.
Apple sets the rules around what can come into its walled garden, but it consumers seem to love it. Even in quarters when hardware sales slump, consumers are paying for Apple’s services at an increasingly higher rate.
There will come a day when iPhone sales won’t matter.