Horace Dediu: The triumph of the walled garden

Tim Cook said he would double Services revenue in four years. He did it in three.

From a note posted Wednesday on Asymco.com:

dediu triumph apple walled garden

Click to enlarge. 

As my estimates above show, the growth came from apps and licensing and other revenues. Apps include many third-party subscriptions and licensing includes Google TAC [traffic acquisition cost] and other income includes Apple’s own subscription services and a few additional items like Apple Pay, AppleCare and iCloud.

What Apple is launching this year will boost this even further with TV+, Card, Arcade and News+. These are a new set of specific services that, apart from Card, will require subscriptions and will deliver Apple-specific content. Unlike previous Music and TV offerings, what Apple has embarked on is a high degree of involvement in the content creation process. These will be Apple TV shows, Apple video games and Apple-directed News feeds.

This is quite the watershed moment. Apple, a company dedicated to providing tools to content makers and content consumers, choosing to be involved in the lottery-like game of choosing and backing winners in creative works...

But let’s pause here to think more deeply about what is happening. Without much notice, we are seeing a content world where distributors are locking up talent and creating a studio model where production, talent and distribution and display are under one roof...

Another observation to be made is that the bundling and binding of content into specific distributors creates a walled garden effect. This extends beyond video content to games (a larger business than film, at least at the box office, see below) and to apps. Arcade games are Apple-exclusive. Many apps which depend on Watch, AR and other unique technologies become exclusive, and of course unique titles.

As far as consumers are concerned this might be just fine... A garden is lovely after all. The walls are there to keep danger and chaos away as much as to keep you in it. The constraints simplify as much as they restrict. Though it may be contrary to some modular and interoperable utopias which paralyze with choice, we might well be experiencing a triumph of the walled garden.

My take: A fresh Dediu post is always worth the visit. Come for the charts and insights, stay for the comment stream.

Click to enlarge.

16 Comments

  1. Fred Stein said:
    I love the numbers and graphics.

    Disney, as a metaphor, comes to mind. Compare Disney’s walled garden theme parks to the rest of the theme park world – some nice and clean and some cheesy and scary. It extends to Disney and Pixar movies, much loved and trusted brands.

    In addition to all the services Horace mentions, which have great growth potential, we seehealth and finance just barely starting.

    $200B in services can happen. Almost none of this is priced in.

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    September 25, 2019
  2. victor castroll said:
    $200b in services can happen?

    sure, if the world population triples, i guess anything can happen.

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    September 25, 2019
    • Michael Thompson said:
      @vic I almost feel bad for you about the painful financial lesson that you’re about to learn, almost. Hopefully it doesn’t take down your entire portfolio.

      Apple is very close to breaking out and when it does, Apple bears are going to get ruined. Bye, now!

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      September 25, 2019
      • victor castroll said:
        @michael

        please don’t feel bad for me. feel bad for people that aren’t doing well. i made 20% on my port yesterday.

        otoh, i feel bad for you. you and the rest of the lot here are drunk af on the kool aid.

        i merely suggesting insuring because, believe it or not, some of you have pinged me privately and asked for ideas. i share those at http://www.MICAbear.com.

        ps – i’m not selling anything so please forget about that nonsense…

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        September 26, 2019
      • victor castroll said:
        pps – i think i’m batting 1000 here. not sure why the hostility.

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        September 26, 2019
  3. Gregg Thurman said:
    $200b in services can happen?

    Yes. The operative word here is can. That doesn’t mean it will, but it certainly can.

    Apple’s FY2019 estimated annual Services revenue runs about $46,000,000,000 (sans Apple TV+, Apple Arcade, AppleCard, Apple News+), or about $46/per year/per user.

    Apple’s current base of users is about 1,000,000,000. $200 Billion works out to be $200/per year/per user. Achieving the extra $154/per year/per user needed to achieve $200,000,000,000 annual Services revenue is not that far fetched, especially if you factor in low to moderate user base growth and rising monthly subscription pricing (to match current competitor pricing) of Apple’s recently announced streaming services over the next 5 years.

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    September 25, 2019
    • Michael Thompson said:
      @Gregg Apple’s base will grow substantially larger than 1 billion. And $200 billion in services revenue not only can happen, but assuredly will happen over time. Many continue to enter, few leave.

      We haven’t even scratched the surface of what’s coming.

      Apple bears ALWAYS get destroyed in the end. RIP.

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      September 25, 2019
      • Gregg Thurman said:
        @Gregg Apple’s base will grow substantially larger than 1 billion

        Yes, it will. I used that number as a starting point and noted that growth will occur if you factor in low to moderate user base growth.

        The whole point is to refute the notion that the world population must triple for Services revenue to hit $200 Billion. It decidedly does not.

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        September 25, 2019
        • victor castroll said:
          my bad. i overreached. it only needs to double.

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          September 26, 2019
      • victor castroll said:
        “in the long run, we’re all dead”

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        September 26, 2019
    • victor castroll said:
      lana del rey can also sleep with me. doesn’t mean she will but she certainly can…

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      September 26, 2019
  4. Ralph McDarmont said:
    I guess the Cook haters need to find another target. Tim is doing his company and investors very very well. A+++ team at Apple, as always.

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    September 25, 2019
    • victor castroll said:
      why is this positioned as hating? you’re not doing it right. i love Apple. just not enamored with $AAPL here. your view is myopic. and costly.

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      September 26, 2019
  5. Dan Scropos said:
    We’re probably 4-5 years away from $80+ billion in profit, less than 4 billion shares and a P/E of 20-25. That prints $400-$500.

    The 3 main drivers will be Wearables, iPhone and Services, each with revenue in excess of $100 billion.

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    September 25, 2019
    • victor castroll said:
      finally some sanity. yes Dan…

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      September 26, 2019

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