How big is iCloud?

Apple has declared that what used to be “Other Music Related Products and Services”[1] plus “Software, Service and Other Sales”[2] which was formerly known as “iTunes/Software/Services”[3] is about to become “Services”.

“We’ll also have a category that we refer to as services and this will encompass everything we report under the heading of iTunes software and services today including content, apps, licensing and other services and beginning this month it will also include Apple Pay.”

“Services” will therefore encompass a massive amount of revenue. The reported revenues for the fiscal 2014 were $18 billion. Including all billings, the turnover in sales is over $28 billion. For next year, assuming that Apple Pay, which is just getting started, is unlikely to contribute greatly to revenues, Services turnover will top over $35 billion. That figure would make Apple Services alone one of the top 90 companies in the Fortune 500.

Screen Shot 2014-11-14 at 5.11.47 PM

Regardless, as a component of overall sales, the group formerly known as iTunes/Software/Services (shown in red above) was a modest 7% of total sales in the last quarter. Using all available information regarding downloads, payouts and reported financials, an estimate can be obtained on how this 7% is itself divisible into nine sub-segments:

Screen Shot 2014-11-14 at 5.15.08 PM

  • Pro Apps
  • Music
  • Video
  • Apps
  • Books
  • OS X
  • iWork
  • iOS Apps
  • Licensing and other income

These are shown above as either contributing to statement of operations (i.e. as reported, on right) or using billings (or the actual “cash register takings”, on left).[4]

What would be ideal in understanding this Services segment would be to break the “Licensing and other income” into its component parts. Namely:

  • Licensing revenues including Google’s payments for traffic acquisition (TAC)
  • AppleCare
  • iTunes Match
  • iTunes Radio
  • iAd
  • iCloud
  • (and soon, Apple Pay)

In particular, it would be very interesting to know exactly how much revenue could be coming from iCloud. We have not heard from Apple on iCloud user numbers since mid-2013 and this was the data at the time:

Screen Shot 2014-11-14 at 5.30.27 PM

Couple that to “Licensing and Other Income” as deduced from Services accounting yields the following picture:

Screen Shot 2014-11-14 at 5.38.30 PM

It would appear that iCloud accounts are growing in proportion to “Licensing and Other Income”. Note that at the point that iCloud accounts were zero, revenues from Licensing were about $225 million/quarter and growing slowly. The real growth kicked in when iCloud accounts started ramping up. Since revenues from iCloud has to be in the “other income” and since no then it is, I believe, reasonable to assume that the iCloud user base growth is a principal driver of growth[5]

Also, bursts in the Licensing and other income line occurred after several iCloud-specific marketing events:

Mobile Me migration started in October 2011 and on September 30, 2013 the complimentary iCloud storage plans expired and were automatically adjusted to the free 5 GB plan (with an offer to upgrade to a paid plan). Correspondingly, Q1 2012 and Q1 2014 showed the largest increases in Licensing and Other Income.

This is a multiplication of many assumptions, but there is some intuitive logic. The only place iCloud can be found seems to be growing in proportion to iCloud users and plan marketing.

So how much does iCloud contribute to Apple’s sales? My guess would be about $1 billion per quarter. That would be spread over 500 million iCloud accounts and therefore an average revenue per account of $2/user/quarter or $8/user/yr.

The lowest non-free iCloud pricing is about $12/yr (5GB plan is free). This would imply that two thirds of iCloud users are paying users (and one third are opting for the 5G plan).

I realize that this attach rate to a paid service is astronomical. Anything over 10% is unheard of. I would say the error in my estimates could be 20% but that still leaves a huge gap to what seems reasonable.

[Put another way, if the attach rate were only 10% then iCloud revenues would have to be in the $600 million range and thus only about 10% of what Licensing and Other income seems to be. This would force the question of what could be generating the remaining $5.6 billion/yr.]

  1. Includes revenue from sales from the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. []
  2. Includes revenue from sales of Apple-branded and third-party Mac software, and services. []
  3. Includes revenue from sales on the iTunes Store, the App Store, the Mac App Store, and the iBooks Store, and revenue from sales of AppleCare, licensing and other services []
  4. The primary distinction is in Apps billings where the 70% paid to developers is not shown as revenue. []
  5. Of course, AppleCare could also be a driver but AppleCare should follow overall device sales patterns and this is not clearly evident in the Licensing/Other curve []
  • Tom Van Avondt

    and photo in the cloud will be huge, i am a current iT match subscriber but would need to host ump 40 Gigabyte of Photo’s and I want to host them … , but prices will eventually come down … (i Hope)

  • fstein

    Great work. Consider how App revenue will grow over the next decade with: IBM Apps; and Apps that take advantage of Metal, Swift and CPU/GPU upgrades.
    Note also how Services revenue is not seasonal. Great comfort to investors.

  • lucas

    Great post, as always

    Trying to help:

    – iTunes Match is very likely to be marginal, surely smaller than iCloud

    – Also, wouldn’t expect iTunes Radio to make anything close to Pandora’s $600m 2013 revenue

    – Don’t have any data, but would be very surprised if iAd is north of $1bn a year… Millennial Media for instance made $300m ttm

    – Maybe Google is paying much more TAC than the $1bn year estimated by bankers?

    – Or maybe AppleCare somehow dettached from Mac Sales? No evidence though, just exhaustion of possibilities

  • J


  • njr

    Regarding your apparent 66% attach rate for iCloud, I’d strongly question your assumption that taking the average price as $1 is reasonable. Obviously, assuming the bottom tier gives you the highest possible attach rate. It seems to me much more likely that most people don’t use the service but that a good proportion of those who do opt for more than 20GB of storage, especially since 20GB is such a tiny amount of storage. The 200GB tier is much better value and has enough capacity to back up any iPhone or iPad and hold a decent number of photos. So if you instead assumed, for example, 25% at 20GB ($1), 60% @ 200GB ($4), 12% at 500GB ($10) and 3% at 1TB you get an average price of $4.45, with an implied attach rate (using the same figures as you) of more like 15%.

    I know a lot of people with Apple devices, and I know no one who pays for iCloud storage, so I am very dubious about a 2/3 attach rate. It makes sense to me that those who do pay would buy a meaningful amount of storage at a better rate.

    • iObserver

      njr I believe your scenario to be more likely. I know many people who use iPhones, myself included, and I only know one person who pays for iCloud.

      On the other hand, there could be some accounting magic going on behind the scenes that wraps up other income into here.

      I do know if prices come down a bit and storage goes up I’d consider getting it myself.

      • iObserver

        Is iAd revenue getting wrapped into here?
        I didn’t see on a cursory glance at Apple’s financials.

      • Yes it is. iAd is part of Services. It’s not considered to be very large (less than $250 million/yr.)

  • Logan

    Agreed. But Can someone please fill in how did he get to $35b when reported revenue is $18b per year? Even if considering it’s only 30% cut from the App Store. Adding the remaining 70% would mean that the “services” total revenue would be $60 billion per year.

    Can someone please elaborate?

    • Sam

      Music, Movies, TV Shows report sale price as revenue. 100%
      Books and Apps only report the 30% “commission” as revenue. The other 70% isn’t reported on the balance sheets.

      Hope this helps.

      • Secular_Investor

        @ Sam. I think you will find that the other 70% is not reported in Apple’s revenue as well as not reported on their balance sheet i.e. they only report as revenue their net 30% “commission” – perhaps I am wrong?.

    • Secular_Investor

      @ Logan

      If you look at the chart “iTunes Group Gross Revenue (Billings+ Services, Software and Licensing)” it shows the total “Services” revenue as around $7.5 billion for Calendar Q3’14

      4 x $7.5 billion = run rate of $28 billion a year

      So I think Horace Dediu is projecting around $7 billion Services revenue growth for next year to arrive at $35 billion for next year (calendar 2015)?

      Perhaps Horace can confirm?

      If I am correct then it seems to me that he is in fact making quite a conservative assumption. By far the largest segment of Services revenue comes from Apps, sales of which are likely to increase significantly with the surge in sales from the iPhone 6 and 6 Plus.

  • Horace – there seems to be a typo here “Since revenues from iCloud has to be in the “other income” and since no then it is, I believe, reasonable to assume that the iCloud user base growth is a principal driver of growth” (“since no then it is”)

  • santoscork

    Lots to chew on but I will only comment on the Mac revenues relative to the top chart.

    Interesting how the “Get a Mac” advertising campaign which ran from May 2006 to October 2009 kept the momentum going in revenue or so as I see it. The campaign was a success at least, I doubt anyone would doubt how endearing they were. That being said, I wonder if another campaign of the same calibre could drive revenue even up further.

  • shift_happens

    You hint at it in Footnote 5. But I think you are mistaking a large AppleCare contribution for iCloud

    • I’d be happy to get a solid AppleCare estimate (that tracks with both Services revenues and with device sales—presuming that AppleCare scales with device sales).

      • shift_happens

        @asymco I only have anecdotal numbers of retail staff being pushed to achieve 35% attach rate of AppleCare on device sales. At $200+ per Mac and $99 per iPhone that’s a large chunk of change.

  • DarwinPhish

    I think you are underestimating the impact of iTunes Match. I don’t think you need an iCloud account to use iTunes Match, just an iTunes account. Only 20% of all iTunes need to subscribe to Match to generate $1B/quarter. I doubt it’s that high, but I would not be surprised if iTunes match is making a significant contribution.

    Also, the current iCloud storage pricing became effective in September, which is after all your data points. I believe there were 3 options: $20, $40 or $100/year.

    • I would be happy to blend iTunes Match and iCloud under one lump sum to signify “paid online services”. Let’s just say that the iCloud figure includes iTunes Match for convenience.

  • gustavo fontana

    Great post Horace, I also agree with you and many here that 2/3 feels astronomically off. Especially given how cryptic iCloud is for average consumers (what does it do? how does it work? where are my photos? all my photos? 1000 photos? wha?…and my full iphone is backup, Like… cloned? )

    I’d be curious to see how much of a revenue jump happened when iTunes Match went live. I know many people signed up for that to clean up their music library, and many (myself included) forgot to cancel the yearly auto-renewal (if they even realized it was an auto-renewal).

  • mingster

    One thing we should try and look at is the impact of AppleCare, and in particular AppleCare+. AppleCare+ is just 2 years old and I think it is highly possible that consumers are starting to understand the benefit of it, and with their new purchases it is possible that AppleCare+ has gained significant increase. Then you throw in the fact that AppleCare+ is for iOS devices, which might be contributing significantly the growth.

    That said, iCloud is still definitely huge, especially when it comes to consumer adoption and willingness to pay (according to your polls).

  • fn1234

    Great post as always. How do you account for the photo printing services? As a big user, I can tell you the absolute dollar spend per year can very high. I suspect margins should be lower than much of the rest of the services.

    • Great question. Another “invisible” service that flies under the radar.

  • Mamadou barry

    bonjour moi jai une probléme sur une iphones je achétée mai je trouvée une ccompte icloud queje nai connai pa le ancien propiétaire