Apple’s services sector is thriving, but it’s encountering increasing challenges. A key component of this sector, the App Store, is under regulatory scrutiny and experiencing a downturn in mobile gaming, which has impacted growth.
During the earnings call held on Monday, Apple indicated it might seek to enhance service revenues via third-party applications. However, the specific details regarding this strategy remain ambiguous.
While discussing the potential of AI to “boost revenue over time,” Apple’s CFO, Kevan Parekh, mentioned, “On the product side, we believe AI will provide a strong incentive for customers to upgrade and switch to gain access to new features, and we also see opportunities in both third-party applications and partnerships, alongside first-party prospects.”
Parekh did not specify which opportunities might arise from third-party applications. Nevertheless, reports suggest that investors are curious if Apple could earn revenue by offering third-party AI applications through the App Store and receiving a share of their earnings.
Changes in regulatory and legal landscapes have negatively impacted App Store commission earnings in certain regions, even as Apple’s overall services business continues to grow. In August, third-party analyses indicated an 18% drop in U.S. commission revenue, with similar downturns in Brazil and Japan following regulatory updates. Historically, Apple has managed payment processes in its app marketplace stringently, taking a percentage of all App Store transactions. However, a lawsuit from Epic Games compelled the company to allow apps to redirect users to alternate payment methods. Additional legal challenges globally have also complicated operations.
During the earnings call, Parekh acknowledged the challenges facing the App Store while suggesting that Apple’s services division could explore new areas for growth.
“We’ve encountered various factors that have influenced App Store performance. For the September quarter, App Store results were consistent with the previous year, in addition to achieving a record number of paid subscriptions and double-digit growth in third-party applications,” Parekh explained. “However, we also noticed some challenges in mobile gaming, which we have previously discussed, and anticipate these will persist into the upcoming summer quarter.”
Parekh further noted, “Going forward, we project services growth to be between 8 to 9% in the December quarter. This forecast accounts for our best estimates regarding sequential challenges, particularly from third-party licensing and an additional half percentage point related to foreign exchange rates.”
TechCrunch has reached out to Apple for further details and will provide updates if any information is received.
