Apple’s Services division is increasingly under scrutiny

Biting back

Apple and the EU continue to go head-to-head.

Last week, the tech giant announced that it would withhold a number of features from European users — including Apple Intelligence and iPhone mirroring — because it claims the Digital Markets Act could create privacy or security risks. And, just this morning, Apple has been charged by the EU for failing to comply with that very same law, accusing the company of stifling competition on its App Store by preventing "app developers from freely steering consumers to alternative channels for offers and content."

If found non-compliant, Apple could face a fine of up to 10% of its global revenue, which, as our colleague Rani Molla points out, would be some $38 billion based on the company’s 2023 results.

The crux of the complaint is the App Store, which sits under “Services” — a wide division that spans advertising, subscriptions like Apple TV+ and iCloud, and virtually all other non-physical Apple products.

That division has become increasingly important for Apple’s bottom line (there are, after all, only so many people you can sell a $1,000+ iPhone to). In the last quarter, Services accounted for ~25% of Apple’s total revenue, but over 40% of its gross profit, notching an impressive gross margin of 75% — roughly double that of its Products division.

And it’s not just the EU that has put Apple’s Services cash cow in the spotlight: the US Justice Department also highlighted payments received by Apple for making Google the default search engine on Safari — which amounted to $20 billion in 2022 — as core evidence in its antitrust case against Google.