Image source: Apple.

In many ways, you could think of Apple (NASDAQ:AAPL) as a subscription business. This case has been made before over the years, but Apple continues to solidify its recurring revenue with new initiatives like the iPhone Upgrade Program. Apple's hardware businesses are already effectively recurring revenue sources, since its user base is so loyal that it can count on regular upgrades at varying intervals for different products, all while retaining pricing power. That's long been the holy grail of the entire consumer electronics industry, and no other company has successfully accomplished this to the extent that Apple has.

But Goldman Sachs analyst Simona Jankowski is now broadening this framework and applying it to all of Apple's product lines.

Apple-as-a-Service?
According to Bloomberg, Jankowski believes that Apple is in the midst of transforming into a services company, even going as far as coining a new Apple-as-a-service term (as if the market needs more as-a-service acronyms). But we're not talking entirely about services in the traditional sense. That's probably a good thing too, since Apple has long lagged behind Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) in terms of offering a comprehensive of cloud services that work reliably and cohesively. Apple investors should be pleased to see this new development in the iDevice maker's competition with Alphabet.

More specifically, the analyst estimates that Apple users currently contribute around $42 each on average per month. That's a healthy average revenue per user, or ARPU, figure for a hardware-centric business when looked at as a subscription service. Here's how she derives that estimate.

A numbers game
She starts by estimating the global iPhone installed base at 470 million, applies penetration estimates on each different product category, and then prorates a typical product in that category by a monthly installment based on expected upgrade cycles. Jankowski figures that 15% of iPhone users have a Mac, 52% have an iPad, 2% have an Apple Watch, and 1% have an Apple TV. The estimates also suggest that users upgrade their iPhones every two years, Macs every four years, and iPads every three years. Apple Watch and Apple TV are expected to be upgraded every two years.

If you weigh approximate prices with the variables above, here's how much Apple effectively generates per user per month.

Product

Monthly ARPU

iPhone

$27.94

Mac

$4.06

iPad

$5.71

Apple Watch

$0.27

Apple TV

$0.06

Total hardware ARPU

$38.04

Services ARPU

$3.50

Total ARPU

$41.54

Data source: Goldman Sachs.

But here's where the plot thickens. The analyst believes that over time, Apple can grow this ARPU figure all the way up to a whopping $153, or over triple the current level. But this might be a little bit too optimistic.

First, it assumes 100% penetration of all product categories within the iPhone installed base, which isn't really realistic in emerging markets since those consumers don't adopt all of these categories. Second, it assumes that all of these users will upgrade all of these products at regular intervals without fail, which is really a function of Apple's own development cycle. We don't know what the Apple Watch cycle will be yet since it's a brand new category, and Apple TV went for three years without a refresh. Even Apple doesn't know what the consumer iPad upgrade cycle will be, either.

To be clear, Goldman doesn't actually expect this all to come to fruition, but instead believes $153 ARPU may be realistic for U.S. consumers and a $50 ARPU sounds reasonable for all international users. If Goldman is even half-right, though, with its assumptions, Apple's business won't rely on unit growth if it can better monetize its existing user base, which is why Jankowski has assigned a $163 price target on the Mac maker.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.