Apple now makes more revenue from its services than it does from selling Macs. Revenue from services like iTunes, the App Store, other internet services, and licensing has increased 20 percent year-over year. It's a shift that means Apple can now generate a steady stream of revenue from existing devices that are accessing its internet-based services that the company controls.
"Apple Pay is growing at a tremendous rate."
A big part of the services boost comes from a growth in App Store revenue. App Store revenue increased 35 percent year-over-year, and iCloud is also continuing to grow. "Apple Pay is growing at a tremendous rate," admitted Apple CEO Tim Cook during the company's earnings call, noting that there are 1 million new users per week. While Apple Pay is growing, Apple CFO Luca Maestri notes it doesn't "provide a meaningful financial contribution at this point." The overall shift means Apple's services unit is now the company's second largest category during the recent quarter, ahead of Mac and iPad sales but behind dominant iPhone sales.
While services are now ahead of Mac revenue, that doesn't mean the Mac is failing. Mac sales dropped 12 percent year-over-year, but Maestri believes the company "grew market share" despite a "challenging quarter for personal computer sales across the industry." Mac sales generally outperform the rest of the PC market, but sales have declined in both of Apple's 2016 quarters.
It's too early to say what this shift really means for Apple, and whether Macs will rebound in both revenue and sales. Apple recently revealed minor updates to its MacBook and MacBook Air lines, but there's still room for a bigger refresh of the MacBook Pro models. Either way, Apple looks set to continue to generate money from existing devices that access its own services, just like many of its competitors.