Apple Services create leverage for the company while at the same time adding value for the customer. Apple and the customer experience a more enhanced integration within the Apple ecosystem, and Apple generates high-margin revenue through the cross-sale of additional value-add services.

A great example of this is Fitness+. Fitness+ allows Apple Watch users to get more value out of their watch and tightens the integration within Apple's ecosystem between the Apple Watch, Airpods, and Apple TV/iPhone/iPad.

Apple's Services revenue grew 24% y/y and generated $15.8B in sales during the first fiscal quarter of 2021. Services have become increasingly important to Apple's success as upgrade cycles for new iPhone sales continues to lengthen.

Since FY16, Services has grown its annual revenue from $24.3B to nearly $53.8B in FY 2020. Services revenue continues to grow as percentage of Apple's total revenue, reaching 19.6% of total revenue in FY 2020.

As Services continue to make up more of Apple's total revenue, margins for the company should expand. During FQ21, gross margins for Services and Products were 68.4% and 35.1%, respectively.

Apple can grow its Services revenue by increasing prices, more iPhone users signing up for the current services available, or the creation of new services.

Analysts who follow the company closely believe the following services make the most sense to add to the Apple ecosystem:

What other services could Apple create to cross-sell to its userbase?