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Why Apple, Microsoft Are Focusing on Services

A focus on services is critical to the long-term survival of companies like Apple and Microsoft.

May 14, 2018
Microsoft 365

In a recent column, I wrote about a new great divide in Silicon Valley, in which one side believes the best business model is to sell products and services while the other side gives away services subsidized by advertising.

Both business models are valid, but the ad-supported model must contend with protecting customers' privacy as advertisers need as much data on them to target ads. As a result, it's becoming clear that those selling products and services—such as Apple, Amazon, and Microsoft—have perhaps the most sustainable models.

Apple announced in its May 1 earnings call that its services revenue during the last quarter was $9.2 billion. This is a 31 percent increase from the same quarter a year ago; if made a standalone company on its own, services would be a Fortune 300 company. To be clear, 62 percent of Apple's revenue still comes from iPhone sales, but this chart from Statista puts the services growth in context:

Beyond the iPhone

At the moment, Apple leads the pack in providing a complete ecosystem of hardware, software, and services. But if you have been watching Microsoft over the last four years, you know that it's doing the same, with services like Office 365 and more recently, Microsoft 365.

A dedicated, sand-boxed store in which only approved apps are allowed gives Microsoft more control over security and brings it new revenue streams. But PC partners don't love it, pushing some to alternative OSes like Google's Chrome OS.

Still, while there is money to be made in hardware, PC sales continue to shrink and a focus on services is critical to the long-term survival of companies like Apple, Microsoft, and others.

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About Tim Bajarin

Columnist

Tim Bajarin

Tim Bajarin is recognized as one of the leading industry consultants, analysts, and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has provided research to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba, and numerous others. Mr. Bajarin is known as a concise, futuristic analyst, credited with predicting the desktop publishing revolution three years before it hit the market, and identifying multimedia as a major trend in written reports as early as 1984. He has authored major industry studies on PC, portable computing, pen-based computing, desktop publishing, multimedia computing, mobile devices, and IOT. He serves on conference advisory boards and is a frequent featured speaker at computer conferences worldwide.

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