Apple had strong App Store sales in 2020

CNBC reports today that the Apple App Store generated over $64 billion in revenue last year. That would be a 28% increase over the $50 billion that the iOS digital storefront collected in 2019; it would also represent a 3.1% hike over 2018's revenue of $48.5 billion. Part of the reason for the surge in the top line has to do with the global pandemic which led businessmen working from home and children engaged in remote learning to download certain apps from the App Store. In addition, there were apps installed to help both kids and adults kill time. Mobile games come to mind as does short-form video app TikTok used to create 15 second and 60 second videos.

The App Store is part of Apple's Services division which garnered over $50 billion in gross for the first time ever in fiscal 2020. This helped the company achieve a major goal of doubling Services revenue from $25 billion to $50 billion over five years. Consider the businesses that are included in this unit and you'll see why it is the fastest-growing business unit inside Apple. The Services division houses the App Store, Apple Pay, AppleCare+, Apple Music, Apple News+, Apple Arcade, iCloud, Apple TV+, Fitness+, Apple Books, and more. Apple Music has grown to 85 million subscribers in just five years which Loup Ventures says, "illustrates the power of services built on top of default apps." Apple's services sector grew by 16% last year to $53.7 billion in sales and Loup Ventures sees another 15% hike next year. And consider that the App Store makes up 35% to 40% of Services Revenue.

Loup Venture's Andrew Murphy sees Apple creating more services that would add new features to some of the tech giant's existing or default Services platforms.  Some examples could include:

In 2019, Apple CEO Tim Cook explained that Apple's Services sector had a goal to "help our customers get the most out of the products and to enrich lives" by making companion apps "more entertaining, more useful and more informative." The original plan for the Services sector was to generate recurring revenue allowing Apple to collect flows of cash even in years when the iPhone just isn't selling. These recurring revenues are high margin allowing Apple to bank large sums of money.

Loup Ventures used Fitness+ for a case study noting that it adds value to Apple Watch users who can view biometric data on their watch screen. Besides integrating with the Apple Watch, it also integrates with the Apple iPhone, Apple TV, and AirPods.

Based on revenue, Apple's Services business is just about the size of a Fortune 50 firm. Would Apple ever decide to spin it off as a separate company? It is a possibility but nothing that is being looked at right now. During the holidays, App Store customer spending was up 27% year over year. In 2019, App Store customer spending was up 16% on an annual basis.

Apple, as many of you know, takes a 30% cut of in app purchases made using the App Store's "in-app" platform. Because iOS is a closed system, Apple's customers can't sideload apps and are forced to buy paid apps through the App Store even if they can be purchased for less money from another app store. As a result, Apple is being investigated by some regulatory agencies for monopolistic behavior. Recently though, Apple dropped its cut to 15% for the purchase of apps created by developers with less than a $1 million in annual sales.