Apple's Latest Earnings Reveal the Quiet Genius of iTunes

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Apple's Latest Earnings Reveal the Quiet Genius of iTunes
In the past, I've been open about not being a great fan of iTunes, Apple's once-revolutionary music software. I'm speaking somewhat hyperbolically, but I think iTunes has morphed into a multimedia management nightmare - with a disjointed style and complicated menus that try to "organize" my media in ways I never wanted to. But while the program occasionally makes me long for the days of my well-ordered CD collection, I have some newfound respect for its purpose and what it accomplishes for Apple.

After Apple's earnings report last week, there's little denying that, in iTunes, Apple has an amazing golden goose. Apple reported that the "services" sector - known to most people as "Things iTunes controls" - made just under $6 billion (roughly Rs. 40,038 crores) in the last quarter and grew 19 percent from the same time last year. And services has made Apple a whopping $23 billion (roughly Rs. 1,53,492 crores) so far this year.

That's pretty impressive.

Furthermore, chief executive Tim Cook has said that the company projects that its services sector will earn as much money as a Fortune 100 company by the end of 2017. That sounds like a bold claim -- but Northwestern Mutual, at No. 100, pulls in $28 billion in annual revenue. And if one thinks about iTunes and the businesses the services sector has managed to disrupt, it's actually a fairly believable claim. There's a reason that iTunes has become a sprawling behemoth of a program. It's because it's competing with so many businesses. It's music, sure, but it's also movies and software (in the form of apps) as well as iCloud.

It's a little hard to calibrate how Apple stacks up in all of those areas. But even without knowing exactly what Apple makes, say, in movie purchases and rentals, it's worth noting that Blockbuster made $6 billion in revenue per year. For a more timely comparison, Netflix, made $6.78 billion in revenue in all of 2015.

The focus on services seems to represent a shift in the way that Apple is looking at its own products. Apple is notable for controlling both the hardware and the software on its iPhones, iPads and Macs. Hardware has always been the main driver for the company. But with sales of phones, tablets and computers softening, that relationship is starting to turn on its head. If fewer people are planning to rush out and buy a phone every year -- as has been the trend for the past year or so -- Apple needs to keep making money off the phones it's already sold.

That doesn't mean that Apple should pass on hardware altogether, nor is that something one would ever expect to happen. But it does help explain a shift consumers may have noticed. Take, for example, the evolving rumors around Apple's as-yet-unconfirmed (but totally believed-to-be-true) car program. Now, reports suggest Apple's more interested in making car software. That differs drastically from years of reports that we would see an Apple-made car, or iCar, designed and produced by the company itself.

But that's a lot of investment that would not make it nearly as much money as it's used to seeing -- certainly not at first. Apple would presumably make just one or two models of car, as a competitor to companies such as Tesla. Well, it's not a perfect comparison, but Tesla made just over $4 billion in revenue last year. That's less than Apple makes off the iPad.

For further proof of a shift, look no further than Apple's commercials. Apple spots always centered its advertisements around what you can do with a device -- less "Isn't this phone pretty?" and more "Look at how much you can get done." Dating from the App Store's first commercials, it's shifted further to "Look at what you can do here that you can't do anywhere else."

It used to be that Apple hooked you with the device and locked you in with the ecosystem. Now, the ecosystem has become a device selling point itself.

That's only going to expand. Apple has already started an interesting foray into original video programming. Most recently, Apple announced that it's picking up a standalone series of "Carpool Karaoke," based on the celebrity sing-along segment from "The Late Late Show With James Corden." When it comes to apps and mobile software, the company is opening up Siri and Messages to other developers to create other services platforms.

Most tellingly, it's gunning hard to reclaim its heritage around music -- despite the fact that the very thing that drove it to that status, the iPod, has declined to the point where Apple doesn't even disclose its sales anymore. There have been persistent rumors that Apple is going to buy Jay-Z's celebrity-backed and exclusive-heavy Tidal. The buzz was further stoked over the weekend by tweets from (who else?) Kanye West urging Cook to stop whatever negotiations are ongoing and just "give Jay his check."

Before I get too carried away with painting Apple's services future, it should be said that Apple still isn't known for having particularly good services. In the past, the company has been roundly ridiculed for faulty programs such as MobileMe. Since those bad old days, the firm has certainly improved -- but even its modern incarnation of cloud services can leave something to be desired. If Apple is going to seriously pursue services as a main business, things will need some greater polish.

Obviously, I'd like to see that start with iTunes. But while I still think the program is a mess, I have to give it its due. Most importantly for Apple, it still finds me what I need, plus Apple has me captive until I decide to stop using its products. And really, that's where the genius of the platform has been all along.

© 2016 The Washington Post


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