Tired of buying a new iPhone every year? Apple knows gaming!

For the past several years, Apple has seemed to sustain itself on sales of its flagship product: the iPhone. By releasing a new one each year (and marketing it nearly to death), Apple could get a critical mass of consumers to finance the company. Of course, Apple was also involved in many other product lines, but the iPhone was the centerpiece of their strategy.

That strategy appears to be wearing somewhat thin. Sales of the iPhone have been dropping. By this point in 2015, Apple had sold about 47 million iPhones. This year, sales have barely surpassed 40 million. Mobile technology has hit a plateau; there’s just not enough new capabilities to justify a new device each year.  Moreover, technology critics have roundly panned the newest iPhone. Minor complaints, like the thickness of the device and the absence of an integrated headphone port, have brought to light the slowing change in technology.

It’s not just the iPhone that is struggling. Sales of Mac computers and iPads have also slowed. The company’s revenue projections are down on the year, and the company has offered little excitement to counteract these negative indictors.

At the release event for the newest iPhone, Apple seems to be signaling a shift in direction.  Rather than sell physical goods, Apple is shifting to subscription online services. They’re doing so through a very unlikely medium: games. Following the breakout success and profitability of Pokemon Go this summer, Apple’s commitment to mobile gaming was very much on display.

For starters, they’ve made efforts to make Pokemon Go playable on Apple Watches, which may increase the likelihood of existing gamers to purchase add-on services. They’ve also started auditioning other Nintendo product offerings for mobile expansion, as one of the highlights of the release event was Mario Run. Mario Run appears to be modeled after Pokemon Go, in that players participate in the game through walking or running with their devices. What’s more, on hand to announce this new addition was Nintendo’s Creative Officer Shingeru Minamoto. Minamoto has been a fixture in gaming since the days of the 8-bit Nintendo.

Apple’s goal with these moves is clear: they want to be the future of mobile gaming. With micro transactions in games generating 30% more revenue this year than last, it’s easy to see why Apple is so motivated to position itself with gamers. Games specifically, and mobile services generally, represent an area of sustainable growth for the company.

Manufacturing physical devices comes with significant logistical hurdles. Sourcing raw materials, ensuring supply chain reliability, and protecting manufacturing integrity all cost money, which makes continued investment in them difficult for companies to swallow. Online service delivery, on the other hand, comes with much less overhead. Customers also don’t just buy your product once. They’ll keep paying as long as the service exists. Making the transition from hardware to software is the inevitable next step for companies like Apple.

 

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