Apple’s services business remains at record levels, but is facing increasing pressure. Apple’s App Store, the core of its business, is facing regulatory pressure and a slump in mobile gaming, hurting the service’s growth.
However, during Monday’s earnings call, Apple hinted that it may seek to increase its services revenue through third-party apps. What does that mean exactly? Unfortunately, it’s not entirely clear.
Apple Chief Financial Officer Kevan Parekh said this when discussing how AI could “contribute to long-term revenue growth.” “On the product side, we feel there is a compelling reason in AI for customers to upgrade or switch to get the latest features. We also see opportunities in first-party opportunities as well as third-party apps and partnerships.”
Parekh did not elaborate on what opportunities are available through third-party apps. However, Reuters reported on Monday that investors are wondering whether Apple could profit from distributing third-party AI agents through the App Store and receiving a cut of the revenue generated from them.
Even as Apple’s overall services business continues to grow, App Store fee income has declined in some markets due to regulatory and legal changes. For example, third-party estimates in August suggest that the company’s fee income in the U.S. fell by 18%, and also in Brazil and Japan due to new regulations. Apple has traditionally tightly controlled payments within its app marketplace, taking a cut of every App Store transaction. However, a lawsuit by Epic Games ultimately forced the company to allow its apps to redirect users to external payment systems. Other legal issues have cropped up around the world, further hampering business.
During the earnings call, Parekh mentioned the woes of Apple’s App Store and returned to the idea that the company’s services business could expand into new areas.
“We also saw several factors impacting App Store performance. App Store performance in the September quarter was similar to last year, with double-digit growth in the number of paid subscriptions for third-party apps on the App Store, reaching a record number,” Parekh said. “At the same time, as we’ve talked about before, we’ve seen some headwinds in mobile gaming, which we expect to continue into the summer quarter.”
Parekh added: “Going forward, we expect services growth to be 8-9% (for the December quarter). This outlook takes into account our best expectations for future headwinds, primarily from third-party licenses and the additional 0.5 percentage point foreign exchange that I mentioned earlier.”
TechCrunch has reached out to Apple for more information and will update this article if we hear back.
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