Most tech buzzwords turn out to be short-lived fads. But cloud computing, an industry obsession long before AI and spatial computing grabbed the limelight, has quietly fulfilled its early promise to a degree that is becoming a problem for Apple’s bottom line.
The idea of cloud computing is a simple one: Users offload data, apps, and processes from their devices and store them in the cloud, by which we simply mean a third party’s servers. Provided you have access to a reliable internet connection, and trust the security and privacy credentials of your cloud provider, this makes life easier. It’s easier to work across multiple devices, and the storage burden on each device becomes far lighter.
The problem, as far as Apple is concerned, comes when customers become so accustomed to a lighter storage burden that they lower their hardware buying requirements.
On Wednesday the analyst company Consumer Intelligence Research Partners (CIRP) published a new report entitled Are iPhone Buyers Finally Ready to Rely on the Cloud? This found that premium iPhone customers are becoming less inclined to spend extra for additional storage.
In the quarter ended December 2024, the proportion of top-end buyers (which means buyers of the iPhone 16 Pro and 16 Pro Max) who paid for storage beyond the baseline allocation was 44 percent, down from 48 percent for the equivalent models in the equivalent quarter a year earlier. Likewise, storage upgrading among buyers of “flagship” models (the iPhone 16 and 16 Plus, or 15 and 15 Plus the year before) fell from 48 percent to 42 percent.
This might not sound like much, but those small percentages add up quickly, especially when charging extra for more storage has long been one of Apple’s most reliable revenue streams. A baseline (256GB, $1,199) iPhone 16 Pro Max has a big profit margin, but this pales in comparison with the 1TB, $1,599 model because storage components simply aren’t that expensive–not anywhere near. (Admittedly this is a huge simplification, but look for a 1TB SSD on Amazon and see if it costs you $400.) In hardware terms, storage upgrades are about as close to pure profit as it gets for Apple.
The iPhone Pro Max has started at a hefty 256GB of storage for two years while the other models all have 128GB.
Connor Jewiss / Foundry
This makes it a problem when customers offload more and more of their data to the cloud–streaming songs from Apple Music or Spotify, storing photos and videos in iCloud–and there isn’t the same need for a large storage allowance. The amount of storage Apple currently offers with its baseline iPhones is enough for most people, and that’s costing the company money.
Of course, an agile and forward-looking company can pivot to a certain extent and make money from this trend in other areas. Apple Music itself is a revenue driver, as is iCloud. Services is indeed a consistent growth area… but then again, in Q4 2024 the entire Services department (which includes the App Store, AppleCare, and a lot of other things that aren’t related to cloud computing) brought in $25 billion in revenue, compared to the iPhone’s $46.2 billion. It’s not really comparable.
At the same time, the trend is not universal, and CIRP actually saw an increase in storage upgrades among buyers of the remaining “legacy” phones, which rose from 38 percent to 48 percent. That’s extra money coming in. Perhaps it can make up for the lost upgrades at the high end?
Up to a point, and that’s all. It’s not surprising that legacy buyers are more inclined to pay for extra storage, partly because they start with less (the baseline is just 64GB for the iPhone SE) and partly because both the phones and the upgrades are cheaper. The baseline 64GB iPhone SE is currently $429, while the 256GB model is $579. That’s a maximum upsell of $150 on a device that starts with a far lower profit margin in the first place.
Can we expect a 64GB iPhone 17 as Apple addresses this worrying trend? Probably not. I suspect that the cat is out of the bag as far as cloud computing is concerned, and costly storage upgrades may become a thing of the past, except for a smaller niche market that needs unusually large storage allocations for professional reasons. But this is bad news for Apple, and we shouldn’t be surprised if prices start to creep up as the company looks to bolster its profit margins in other areas.