Apple’s Secret Weapon: A $100 Billion Services Empire

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Hello and happy Sunday! Today we’re diving into the latest shifts shaping business, tech, and the economy. Here’s what’s making waves:

• Which airline do travelers love most? The latest rankings reveal who’s soaring and who’s sinking.

• Apple’s $100B subscription empire: As iPhone sales slow, services are carrying the company.

• Tariff confusion is real: A surprising number of Americans don’t actually know who pays tariffs.

• China’s AI shake-up: DeepSeek-R1 is delivering top-tier performance at budget prices.

• Starbucks' China dilemma: More stores, but fewer customers. What’s next for the coffee giant?

Favorite Airline?

With airlines constantly looking to cut costs while maintaining service quality, finding the best airline experience isn’t always easy. According to the latest rankings from the American Customer Satisfaction Index (ACSI), some airlines managed to impress passengers more than others in 2024.

The ACSI scores airlines based on three key questions: overall satisfaction, how well the service met expectations, and how it compared to an ideal experience. Each airline is rated on a scale from 0 to 100, with higher scores reflecting better customer approval.

One notable takeaway? United Airlines was the only carrier to see its score drop from 2023. The airline faced multiple safety-related incidents, including a high-profile case in March when a tire from a Boeing 777-200 detached mid-flight and landed in a Los Angeles airport parking lot. 😧

For travelers looking for the best experience, these rankings offer insight into which airlines are delivering top-tier service—and which might leave passengers frustrated.

Apple’s Services Empire Is Now a $100 Billion Business

Apple’s services division—home to Apple Pay, Apple Music, Apple TV+, and the App Store—just hit a record high, bringing in $26.3 billion in revenue for the first quarter of fiscal 2025. That’s more than double what it was five years ago, and with over a billion paid subscriptions across its platforms, Apple is set to surpass $100 billion in annual services revenue this year.

While Apple is best known for its hardware, its pivot toward services has been a strategic move to maintain revenue growth. 💸 📈 With device sales slowing as innovation cycles lengthen, services provide a reliable, high-margin stream of recurring revenue. The company’s massive user base of 2.3 billion active devices ensures a steady pipeline of customers, and Apple’s tightly integrated ecosystem makes it harder for users to leave.

Apple’s ”walled garden“ approach means that once you’re in, you’re in—making its services not just a revenue driver, but also a powerful tool for customer retention.

What Is a Tariff Really?

A recent Ipsos survey found that only 45% of U.S. adults correctly identified a tariff as a tax on imports paid by importing companies—often passed on to consumers. Meanwhile, 17% bought into the popular but incorrect idea that exporting countries directly pay tariffs.

Nearly a quarter of respondents admitted they didn’t know the answer at all. 🤔 The confusion comes as tariffs take center stage in Trump’s economic plans, with new tariffs on imports from Canada, Mexico, and China set to take effect this weekend.

As tariffs become a major policy focus, it seems a large portion of the public is still unclear on how they actually work.

DeepSeek-R1 Is the Budget AI That Just Shook Up the Industry

DeepSeek, 🐳 a Chinese AI company, has sent shockwaves through the industry with its new R1 model, offering competitive performance at a fraction of the cost of leading AI models. The launch sent Nasdaq tumbling 3% on Monday, with Nvidia taking a massive 17% hit.

Unlike OpenAI’s ChatGPT and Google’s Gemini, which require significant investment in high-end chips, DeepSeek-R1 reportedly cost just $6 million per training run. Despite this lower budget, it has earned strong reviews, even slightly outperforming rivals on key benchmarks.

Pricing comparisons reveal just how disruptive DeepSeek-R1 could be. Uploading 1 million tokens costs just $0.55, while downloading costs $2.19. By contrast, OpenAI’s comparable model, ChatGPT-o1 Mini, and Elon Musk’s Grok are significantly pricier, with some AI models charging up to $15 for the same token output.

Google’s Gemini and Amazon’s Nova remain cheaper than OpenAI but still cost more than DeepSeek-R1, while Nvidia’s open-source Llama 3.1 Nemotron offers another budget-friendly alternative. With AI’s competitive landscape shifting fast, DeepSeek’s entry could force industry leaders to rethink their pricing strategies.

More Stores, Fewer Customers: Starbucks’ China Dilemma

Starbucks’ struggles in China are deepening, despite aggressive expansion efforts. The coffee chain added nearly 100 new stores in its first quarter of FY25, yet sales dropped over 5% from the previous quarter.🤭 Transactions fell 2% year-over-year, and customers who did visit spent 4% less per order.

CEO Brian Niccol is focused on revamping U.S. operations, but China—its second-largest market—poses a tougher challenge. Starbucks has long dominated the Chinese coffee scene, but local competitors like Luckin Coffee, rising nationalism, and a cultural shift away from Western brands are cutting into its market share.

The core issue? More stores don’t equal more revenue.🤷 Unless Starbucks can adapt to China’s evolving consumer habits, its growth strategy there might need a serious rethink.