Apple makes all the money

The Business Model of Apple – How Apple Inc. Makes Money!

October 13, 2021 By Hitesh Bhasin Tagged With: Business Models

Established in April 1976, Apple is one of the top-rated Multinational Technology Company popular as one of the top four big companies around the world. The business model of Apple is based on designing, developing, manufacturing and selling of computer software, consumer electronics, and online services.

Company is headquartered in Cupertino, California, and it is functional all around the world. In this post, we will be diving deep into the world of Apple and understand how it has become a trillion-dollar company. So, without any further ado, let us get started right away.

Table of Contents

Introduction to the Business Model of Apple

Are you aware of the revenues that the Apple Company is gathering right now?

With operating income of US$70.898 billion and revenue of US$265.595 billion, Apple is for sure having a business model which is profit-oriented, global, powerful, and equally sustainable.

Hence, there is no doubt that companies from all over the world would want to have an idea about the business model of Apple so that they can have some sort of inspiration from it.

Here we are going to discuss the amazing business model that Apple has, which enables it to make billions and trillions of cash every single year. There was recently a $6 million cash flow free for the Apple Company, and that was in the weakest quarter that the company has.

There is no doubt that in the last year, the company has about 51 billion dollars of cash flow for sure. So, that is certainly more than the other companies that we see around. The business model of Apple predisposes the entire company for the cash generation via its different types of products

Apple sells three types of products, and they are-

• Apple Hardware Products
• Apple Software Products
• Apple Online Services

Let us have a look upon different products comprised of these three different types-

Apple Hardware Products

• iPhone smartphone
• iPad tablet computer
• Mac personal computer
• iPod portable media player
• Apple Watch smartwatch
• Apple TV digital media player
• AirPods wireless earbuds
• HomePod smart speaker

Apple Software Products

• macOS
• iOS
• iPadOS
• watchOS
• tvOS operating systems
• iTunes media player
• Safari web browser
• Shazam acoustic fingerprint utility
• iLife and iWork creativity and productivity suites
• Professional applications like Final Cut Pro, Xcode, Logic Pro

The Mighty Business Model of Apple: Numbers Say it All

We all know that the financial league of Apple is something that definitely cannot be matched in the best way for sure. The Trailing Twelve-month revenue of the company came out to be 224B dollars in total which were a lot higher than the combined total of Alphabet, Facebook, and Amazon.

When we talk about the revenue of the company, it can be said without a doubt that it is more and more daunting to see for sure. There is the income statement that is provided, which can ensure the pint that we are trying to make.

The operating income to Apple Company came out to be 608 Billion dollars in total which were about 50% higher than the entire outcome of Facebook, Alphabet, and Amazon.

Latest Numbers associated with Apple Business Model

• Revenue US$265.595 billion[1] (2018)
• Operating income US$70.898 billion[1] (2018)
• Net income US$59.531 billion[1] (2018)
• Total assets US$365.725 billion (2018)
• Total equity US$107.147 billion (2018)

How Apple Makes Money?

Apple makes money via three key resources-

#1. Product Sales

Apple makes money by selling some of the top-notch products across the globe.

#2. Subscription fees associated with iTunes Store, iCloud, Apple Music, etc.

When users subscribe for different apps and software, they pay a fee to the Apple that helps the company generate a good amount of money. When content owners and developers sell their digital content and applications via different Apple resources, they pay fees to the company.

• Apple application software like iLife, iWork, etc
• iCloud
• AppleCare
• Apple Pay
• Apple Music
• iTunes Store
• App Store
• Mac App Store
• iBooks Store
• Apple TV App Store

#3. Extended Warranty fees for its products

Apple also makes money when its users pay fees for extending the warranty for their respective products.

By using retail and online stores along with direct sales force, Apple sells its products and services in the major markets across the globe. Plus, Apple is also involved in selling a variety of third party products that are compatible with Apple, such as different apps and accessories.

Also, Apple offers indirect distribution channels such as third party Cellular Network Carriers, Value-Added Resellers, and Retailers.

Cash Flow in Apple

When it comes to the operating of the cash flow, there is no doubt that Apple is trying to make a lot of money for sure. But then it also has the cash flow as well with the rates which are not seen in any other company which is present in Silicon Valley for sure.

Now you must be wondering what the cash flow is.

Well, the cash flow is just a measure which can be used to make sure that people can easily find out the right amount of cash that is easily generated in the best way and that too after taking into account all the capital expenditures that the company makes.

These expenditures are the ones that are often associated with businesses operating all over the world.

The $51B of the free cash of Apple Company is quite more than the other brands that we have on the internet these days such as Amazon, Facebook, and Alphabet as well.

What is even more surprising here is that Apple is currently bringing about 70% more cash flow for free than the giant Microsoft as well.

We all know how lucrative the business model of Microsoft is, and this is why we know that the Apple Business model is even better than Microsoft’s in some ways.

Profit Extraction in Apple Inc.

When some discussions happen about the financial position of the company, there is simply not a single speck of doubt that the most credit is given to the iPhone for that.

It is something that would be considered as responsible for all the good fortune that the company has.

However, the iPhone just accounts for about 60% of the revenue that is present in the Apple Company.

So, we can say this without a doubt that some of the revenue is generated from some of the other products that Apple has. When it comes to the Apple products, there are smartphones, tablets, laptops, desktops, smartwatches, and so much more to look forward to.

Not just that, but there are some TV streaming boxes as well as some wireless headphones as well. There are some hardware manufactures that tend to make their money with the help of selling some of the tablets and the smartphones of the Apple Company.

Hence, there is no doubt that the businesses don’t really come close to the profitability that Apple has over the competitors in the best way. The best selling options for the manufacturers would have to be the Apple Macs.

Apart from that, Apple is known to be one of the companies that have some of the most profitable and amazing wearables for the customers too. This is not its people as there are some minor products from Apple, which have a pretty big sales perspective.

For example, we have the Apple TV for the users, which is also quite popular, and there is simply not a single speck of doubt about that fact.

So when you look at such products, then there is no doubt that you might think that Apple is one of the most profitable and amazing companies that there is for the people. How else can anyone explain so many profit leaders of the company, right?

Core Belief System of the Apple Business Model

If you want to have a proper idea about the cash flow of the Apple Company, you need to make sure that you have to see the amazing business model of the Apple Company. There are three core beliefs that the Apple Company has, and we are going to talk about that in here.

#1. Placing Products Above Anything Else

When it comes to the Apple Company, we all know that there is pretty serious cash flow. So, there is no doubt that it starts with the R&D labs for sure.

The management that the company has is completely motivated with the coming up of amazing products and not to just make the profits for the company.

The executives present in the Apple Company won’t really miss a chance in order to focus on the point. However, there are quite a few people outside who might think that this is not the right solution for sure.

However, when it comes to the financial performance of the Apple Company, it certainly backs up all the quality statements that are being made by the company. So, we can say this that the claims which are made by the company will be true in the most certain way for sure.

Also, the company is pretty sure that they are able to provide their customers with everything that they want to have.

#2. Staying Focused Always to Optimize Global Presence of the Company

The value of the Apple Company starts with the focus that they have.

They expand the network of the company by using company-owned retail stores across the world. So, there is no doubt about the fact that they have been pretty much focused on their goals for sure.

The money that the company is spending on Apple products is certainly one of the main reasons that it is so popular amongst the people. Company is also focused on building different platforms that can be used for the apps and content distribution on the Apple devices.

#3. Incorporating a Vertically Integrated Business Model for better User Experience

The business model of Apple incorporates a vertically integrated business model that helps the company in offering the best user experience to its users. Apple is involved in designing and manufacturing its own OS, application software, hardware, and services.

Hence, the company integrates all this, so users can get easy to use products in a seamless manner. All the innovations and technical breakthroughs get their processing via Apple only and not on any other partner.

Because of this vertically integrated model, Apple makes the top-notch products that are considered best in the industry, and hence, they are sold at the premium pricing.

Wrapping it up!

So, there is no doubt about the fact that the company has an invariable focus when it comes to the success of the company. There are some other traits such as deliberate management and focus on technology which makes it one of the best options for the people.

These are some of the ways in which Apple is able to make money for businesses. It is for sure, going to help a lot when it comes to inspiring other companies in designing their business models.

How have useful and profit-driven do you consider the business model of Apple? Share your views about Apple business model in the comments below.

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How Apple Makes Money

Apple’s biggest revenue sources are the iPhone and the Americas

Apple Inc. (AAPL) is a global technology company that designs, manufactures, and sells smartphones, personal computers, tablets, wearables, and accessories. Some of its main products include the iPhone, the Mac line of personal computers and laptops, iPad, Apple Watch, and Apple TV. The company also has a fast-growing services business that includes its iCloud cloud service, and its digital content streaming services such as Apple Music and Apple TV+, the latter launched in November 2019.

Apple faces numerous competitors including smartphone manufacturers Samsung Electronics Co. Ltd. (005930) and LG Electronics Inc. (066570), computer manufacturers Lenovo Group Ltd. (0992) and Dell Technologies Inc. (DELL), streaming-content providers Spotify Technology S.A. (SPOT) and Netflix Inc. (NFLX), and other technology companies like Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Amazon.com Inc. (AMZN).

Key Takeaways

• Apple sells smartphones, personal computers, tablets, wearables and accessories, and services.
• iPhones are Apple’s biggest source of revenue by product, and the Americas is the largest revenue generator among its geographic regions.
• Apple’s services business generates the highest gross margins.
• Apple recently acquired classical music streaming service Primephonic.
• Apple announced changes to its ecosystem that will allow developers to offer payment options to users of their apps outside of the App Store.

Apple’s Financials

Apple posted net income of $21.7 billion on revenue of $81.4 billion in Q3 of its 2021 fiscal year (FY), the three-month period that ended June 26, 2021. Apple refers to revenue as net sales in its financial reports. Both net income and revenue rose compared to the year-ago quarter. Net income grew 93.2% as revenue climbed 36.4%.

Both Apple’s Products and Services businesses grew during the quarter. Revenue for the Products business rose 37.4% compared to the year-ago quarter, comprising about 79% of Apple’s total revenue. Among its products, iPhones comprised 49% of total revenue; Macs (10%); iPads (9%); and Wearables, Home and Accessories (11%). Services revenue grew 32.9% compared to the same quarter a year ago, comprising 21% of Apple’s total revenue.

Apple has mounted a major corporate strategy to reduce its dependence on lower-margin hardware products, which face slowing growth, while accelerating the growth of its Services business, which has higher margins and a more predictable, recurring revenue stream. Apple has introduced many new services in recent years, including Apple Arcade, Apple TV+, Apple News+, and Apple Card. The company now offers many of its services in one simple plan called Apple One.

The high margins in Apple’s Services business have continued to rise. Gross margin as a percentage of sales was 69.8% in Q3 FY 2021. Its annual gross margin in FY 2020 was 66.0% compared to 63.7% in FY 2019 and 60.8% in FY 2018. Gross margin as a percentage of sales for Products was 36.0% in Q3 FY 2021. It was 31.5% in FY 2020, down from 32.2% in FY 2019 and from 34.4% in FY 2018.

Apple’s Business Segments

Apple provides a breakdown of revenue and operating income for the following geographical segments: Americas; Europe; Greater China; Japan; and the Rest of Asia Pacific.

While the U.S. is still the dominant market, Asia is rapidly catching up. In Q3 FY 2021, markets in China, Japan, and Asia Pacific contributed 36% of operating income and 33% of revenue. That makes the Asia region dramatically more important than Europe to Apple for growth and profits.

Americas

The Americas segment includes both North and South America. Revenue grew 32.8% in Q3 FY 2021 to $35.9 billion, comprising about 44% of Apple’s total revenue. Operating income grew 62.0% to $12.9 billion, comprising about 41% of the operating income for all segments.

Europe

The Europe segment includes European countries, as well as India, the Middle East, and Africa. Revenue grew 33.7% in Q3 FY 2021 to $18.9 billion, comprising about 23% of Apple’s total revenue. Operating income grew 60% to $7.1 billion, comprising about 23% of combined operating income for all segments.

Greater China

The Greater China segment includes mainland China, Hong Kong, and Taiwan. Revenue rose 58.2% in Q3 FY 2021 to $14.8 billion, comprising about 18% of Apple’s total revenue. Operating income rose 84.6% to $6.3 billion, comprising about 20% of the combined operating income for all segments.

Japan

Revenue for the segment rose 30.2% in Q3 FY 2021 to $6.5 billion, comprising about 8% of Apple’s total revenue. Operating income rose 43.4% to $3.0 billion, comprising about 10% of the combined operating income for all segments.

Rest of Asia Pacific

The Rest of the Asia Pacific segment includes Australia and those Asian countries not included in the company’s other reportable geographic segments. Revenue for the segment grew 28.5% in Q3 FY 2021 to $5.4 billion, comprising about 7% of Apple’s total revenue. Operating income grew 54.0% to $2.1 billion, comprising about 7% of the combined operating income for all segments.

A note to readers that the combined operating income used in the segment breakdowns above and in the pie charts was $31.5 billion in Q3 FY 2021. To arrive at Apple’s lower, reported consolidated operating income of $24.1 billion for the quarter, Apple makes deductions for research and development expenses and other corporate expenses.

Apple’s Recent Developments

On Aug. 30, 2021, Apple announced that it has acquired Primephonic, a classical music streaming service. Financial terms of the transaction were not disclosed.

On Aug. 26, 2021, Apple announced that developers will be able to share purchase options with users of their apps outside of Apple’s ecosystem. The change, which comes as part of a proposed settlement of a class-action lawsuit, will make it easier for Apple’s customers to use forms of payment other than the App Store.

How Apple Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Apple and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Apple releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Apple discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Apple breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and membership in the LGBTQ+ community.

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