Apple: Putting its efforts where the money is

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Like the man said: follow the money.

In looking at Apple’s most recent financial quarterly results, you can learn a lot about the company’s strategy by seeing where the company is doing well. As chief financial officer Luca Maestri pointed out on the call, Apple’s primary investments have traditionally been in research and development, and it’s a good bet that it will focus many of those funds on areas that are growing.

As I listened to this week’s financial recap of Apple’s latest blockbuster quarter, I kept my ears perked for mentions of the places where the company seemed to be doing particularly well. That’s because Apple famously prides itself on skating to where the puck is going—which generally means the areas where people are responding well to its products.

Ready to wear

If there’s one standout bright spot in this quarter’s results, it’s probably Apple’s wearables/home/accessories category, which grew a staggering 54 percent year over year to a revenue of $6.5 billion. To put that in a larger context, Tim Cook said that the wearables business “generated more annual revenue than two thirds of the companies in the Fortune 500.” For a business that more or less didn’t exist five years ago, that’s a heck of a growth curve.

apple airpods pro Apple

The AirPods Pro made their debut this week, expanding Apple’s wearables lineup.

The upshot? Don’t expect Apple to back off wearables anytime soon. Given that the category currently encompasses the Apple Watch, AirPods (and new AirPods Pro), and the Beats audio devices, there’s still a ton of room left to expand. Of course, a much-rumored Apple augmented reality headset is the primary target of speculation here, but even should that materialize, that’s still only a small percentage of the body accounted for. There are plenty of other possibilities, from smart rings to additional health sensors that can communicate with your Apple Watch. Dare I even speculate about, some day, smart shoes?

Wearables are the most personal form of technology that Apple has developed—they’re on our bodies, after all—and that tends to engender strong feelings. Cook also argued that wearables represent different things to different customers: fitness to some, health to others, communication, and so on. That means they have broad appeal to a wide variety of potential customers. Apple’s success in the category has proved that wearables are a viable and profitable market, so the company’s not about to stop here.

Service station

Back in 2016, Apple set an ambitious goal of doubling its annual services revenue by 2020. How’s that going? Well, Apple’s revenue for services in fiscal year 2016 was $24 billion; by comparison, in 2019, that category accounted for $46 billion in revenue. (And, as a side note, the gross margin for Apple’s services in 2019 was $26 billion, more than that revenue from fiscal 2016.)

apple the morning show premiere jennifer aniston tim cook reese whiterspoon Apple

Apple TV+ and The Morning Show (starring Jennifer Aniston (left) and Reese Witherspoon (right), with Apple CEO Tim Cook) debuts on Friday November 1.

At this point, it would be a far bigger shock if Apple didn’t blow past that goal next year. Cupertino’s push into services this year has been strong, with Apple News+, Apple Arcade, and Apple TV+ joining Apple Music, iCloud, Apple Care, and so on. In the wake of those initiatives, the biggest question is whether Apple plans on focusing on beefing up its current offerings or just continuing to launch new services.

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