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How Apple profits from selling you iPhones with little storage

LOS ANGELES — Sure, Apple sold a boatload of iPhones in the holiday quarter and made a mint.
But beyond the cash cow that is new iPhone sales, it also revealed how it's profiting by selling units that don't have enough room to hold all its customers' photos, videos and apps.
The iconic iPhone maker this week said it shipped 77.3 million iPhones, along with 13.1 million iPads and 5.1 million Macintosh computers. 
But the more interesting number is the growing size of the iPhone army—now at 1.3 billion people, up from 1 billion two years ago. 
“That’s 300 million extra people you can sell to,” says Patrick Moorhead, an analyst with Moor Insights.

The No. 2 division at Apple is Services —including Apple Music, iTunes, iCloud— now brings in more revenue than Macs or iPads, selling software, and to Moorhead, it’s not music subscriptions and iTunes movie rentals that are fueling the charge, “but all those iCloud upgrades." 
Services grew to $8.5 billion, from just over $7 billion in the year ago quarter, thanks to all those folks who probably awoke to nagging messages from Apple that their iPhone storage was full, and that they needed to upgrade, pronto.
On the old entry level 16 GB phone, the operating system takes up 4 GB of space, and many apps now are so big that they clock in near 1 GB as well. Even with the now standard starter 32 GB phone, snap some high-resolution photos and videos, hold onto your texts and e-mails and a handful of apps, and you're soon maxed out.
The basic iCloud service is free, but with just 5 GB of storage. Apple sells iCloud upgrades starting at 99 cents monthly for 50 GB of storage, or $2.99 monthly for 200 GB. Unless iPhone users are tech savvy enough to figure out alternatives, they will be out of room on their devices within weeks of purchase. 
Based on the trajectory of past performance, if Apple never released another iPhone, and just sat back and let Services do its thing, reaping about $8 billion for each of the next four quarters, it could generate $30-$40 billion a year in revenues just from storing people's photos and videos, and selling them movie rentals and music subscriptions. 
Think about that for a moment.
McDonald’s, the nation’s largest restaurant chain, sells about $25 billion worth of hamburgers and such every year. Apple already sells more Services than it does Macs; now it's poised to sell more software rentals than McDonald’s generates with Big Macs.

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