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Share of Apple customers who use each service
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How Apple keeps making money off you in between iPhone purchases

As Apple dismantles its walled garden, other services revenue could become more important.

Rani Molla

Apple’s services segment is increasingly important to its bottom line as a critical revenue source to counterbalance its slowing hardware sales.

Services, which accounts for a quarter of the iPhone maker’s revenue but more than 40% of its gross profit last quarter, is also under siege on multiple fronts.

For one, regulators have been successfully pushing the company to open up its walled garden, by allowing third-party apps to replace its native ones. That’s important because the company could lose some of the income it derives from fees associated with things like the App Store and Apple Pay as consumers get more alternatives.

And even Apple competitor Google’s problems might become its own problems. To remedy its monopoly, Google could be forced to ditch its exclusive deal Apple to make it the default search engine on iPhones. Apple, makes tens of billions of dollars a year from that deal, which, as Business Insider’s Peter Kafka has pointed out, is a huge component of Apple’s services revenue.

That means that other types of service revenue could become more important to Apple.

New data from market research firm Consumer Intelligence Research Partners (CIRP), which surveys people who recently purchased Apple products, provides a look into what those might be.

CIPR found that iCloud remains one of the most popular services, with about two thirds of recent Apple buyers paying for the service. It’s followed by Apple Music and Apple Podcasts.

CIRP doesn’t ask consumers about their App Store usage or search habits because they don’t have much discretion in that matter — nor would they be able to accurately pick out how many apps they’ve downloaded or how much they’ve transacted on them — but those are major contributions to services revenue.

“The services that we're listing here, the consumers do have choice,” Michael Levin, CIRP partner and cofounder, told Sherwood. “You don't have to use iCloud. You could use Dropbox, you could use Google Drive.”

The share of Apple consumers using AppleCare on their iPhones, though, is pretty low, partly because customers can get insurance from their carriers or retailers.

“AppleCare, if they're like anybody else, is insanely profitable.”

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OpenAI reportedly delaying erotica feature to focus on “gains in intelligence”

OpenAI is delaying its planned “adult mode,” as it seeks to shore up ChatGPT’s core capabilities before the chatbot can generate erotic content.

A source within OpenAI told tech news site Sources that the company will miss its Q1 target for launching the feature:

“We’re pushing out the launch of adult mode so we can focus on work that is a higher priority for more users right now, including gains in intelligence, personality improvements, personalization, and making the experience more proactive.”

The company said it still believes in “treating adults like adults,” but said it wants to get the experience right. OpenAI has been testing user age estimation technology ahead of the planned release.

“We’re pushing out the launch of adult mode so we can focus on work that is a higher priority for more users right now, including gains in intelligence, personality improvements, personalization, and making the experience more proactive.”

The company said it still believes in “treating adults like adults,” but said it wants to get the experience right. OpenAI has been testing user age estimation technology ahead of the planned release.

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Anthropic will sue the Pentagon over supply chain risk designation, Amodei says

Anthropic CEO Dario Amodei said in a public post that the company will sue the Pentagon after receiving a letter from the Department of Defense officially designating Anthropic as “a supply chain risk to America’s national security.”

Amodei says that the effect of the unprecedented designation for an American company is more narrow than originally described, and that most of its customers would not be affected.

“With respect to our customers, it plainly applies only to the use of Claude by customers as a direct part of contracts with the Department of War, not all use of Claude by customers who have such contracts.”

Amodei says the company does not “believe this action is legally sound, and we see no choice but to challenge it in court.”

The CEO also apologized for statements he made in a leaked internal memo in which he claimed that the company was targeted because it didn’t show “dictator-style praise” for President Trump.

“With respect to our customers, it plainly applies only to the use of Claude by customers as a direct part of contracts with the Department of War, not all use of Claude by customers who have such contracts.”

Amodei says the company does not “believe this action is legally sound, and we see no choice but to challenge it in court.”

The CEO also apologized for statements he made in a leaked internal memo in which he claimed that the company was targeted because it didn’t show “dictator-style praise” for President Trump.

$40B💰

SoftBank is going to great lengths to double down on OpenAI — including taking on significant debt. After completing a $40 billion investment to become one of the ChatGPT maker’s largest backers, the Japanese conglomerate is now seeking a roughly $40 billion loan with a 12-month term, Bloomberg reports.

The financing would be SoftBank’s largest-ever dollar-denominated deal. The AI investment has helped lift profits, but it is also pressuring SoftBank’s credit profile.

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