apple-business-growth

Evolution Of Apple Sales By Products

iPhone and Services sales represented the main revenue drivers in 2022. Within the service revenues, the fastest growing sub-segment was the advertising business Apple built on top of the App Store, followed by the Mac, Accessories & Wearables, and the iPad.

A long-term perspective on Apple’s sales

Taking a long-term perspective on how companies’ revenue streams evolve is interesting to understand also how their business strategy changes over time.

By taking a long-term look at the decade 2008-18, four main products (iPod, iPad, iPhone, Mac), and its other products, a few insights are coming up:

evolution-of-apple

  • Over the years, Mac remained a stable product. However, Apple, which started as a computer company 10-15 years, became an entirely new company, powered up by a new business model and a whole new set of products. The Mac was once the company’s main product, making up most of its revenues. Over the years became a “niche” compared to the iPhone. In 2018 all the Mac products made up about 10% of the total net sales for Apple. While we can expect the Mac to still be relevant in the coming decade in the professional world, its net sales might remain relatively stable over time. It might be possible that its sales share in comparison to other products might get smaller and smaller.

mac-sales-as-percentage-of-total-sales

  • The iPhone has been a massive success. Nothing new about it. Yet it is interesting to notice how the iPhone cannibalized the iPod. In conventional business strategy, cannibalization is something to avoid in most cases. In this particular scenario, the iPhone did cannibalize the iPod, yet it also opened up a much broader market. This blue ocean made Apple reach a completely different scale, bringing it into mass consumers’ hands. Today the iPhone represented 63% of Apple’s net sales.
  • From 2011-14 iPad and related products and services surpassed the Mac. This might have given the impression that the tablet market was ready to take over the portable computer market. Yet, that didn’t happen, or at least not as imagined. Starting in 2015, the Mac picked up momentum, and in 2018, the Mac still generated more sales than the iPad. Therefore, Mac and portable computers, in general, have shown a resilience that made them a relatively stable product for Apple.
  • The iPod has been a massive success as Apple also introduced a new way of consuming music via iTunes. But the iPod eventually became more of a transitioning product, ultimately leading to the iPhone and iPad. Today iPod sales are comprised of other products.
  • The other product sales in 2018 more than doubled compared to 2014. Other products comprise AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories. Some of those products might turn out to be hidden gems.

How did things change through and post-pandemic? 

apple-revenue-streams
Apple is a product-based company fuelled by platform business models (like Apple Store), in which sales still primarily come from the iPhone. However, the company has also transitioned toward a service company (with Apple Store, iTunes, now called Apple Music, and advertising services) and a wearable product company, which is the fastest-growing segment.

After the pandemic, the iPhone, with the launch of new releases, became one of the key growth drivers for the company, at least in revenue generation. 

Indeed, with a saturated smartphone market, Apple must keep a large distribution for its iPhones.

That is why the company leverages both a direct and indirect distribution strategy, as explained below:

apple-distribution-strategy
In 2022, most of Apple’s sales (62%) came from indirect channels (comprising third-party cellular networks, wholesalers/retailers, and resellers). These channels are critical for sales amplification, scale, and subsidies (to enable the iPhone to be purchased by many people). In comparison, the direct channel represented 38% of the total revenues. Stores are critical for customer experience, enabling the service business and branding at scale.

As of 2022, Apple still has wide margins on its products.

For instance, the company generated over $205 billion from the iPhone in 2022, and on the new product, the iPhone 14, the company still keeps a 120% markup, which is extremely high for a tech product

This is thanks to branding, a powerful distribution strategy, and an incredible hardware product with a powerful chip, coupled with a marketplace that enables users to get the most of the things they need for free.

how-much-profit-does-apple-make-per-iphone
It costs Apple $501 to make an iPhone 14 Pro Max, and the company sells it at a base price of $1099. This makes Apple’s base markup on the latest iPhone model at 119% Apple is the only tech company able to sell its tech products at such a premium, thanks to a combination of hardware, software, and marketplace.

What’s next? 

Chips shortages and supply chain issues created by macroeconomics and geopolitical instability might also induce Apple to inshore more and more. 

Meaning Apple will try to bring its manufacturing capability, from chip to phone manufacturing, closer (geographically) to California.

But, even more important, try to (over time, and this is a 10-year process) internalize it. 

While this would reduce margins and change the overall capital structure of Apple, it would also make Apple way more solid in the long term. 

Whereas now Apple depends a lot on China. 

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