As I mentioned Tuesday, there is still a lot to say, but I wanted to write one more piece that adds some context before digging into the services products themselves.
I’ve always been fond of using the “only Apple” philosophy in much of my analysis of the company. Even Apple’s management likes to throw this phrase out from time to time to highlight things that are in Apple’s sweet spot and something only Apple can do. Apple is the single most integrated consumer tech company in the world, and that integration allows them to do things others can not. That integration starts with the hardware and extends to software and now services.
The “only Apple” philosophy must now be applied to services, and this adds an interesting new factor into the analysis. As of now, what is clear is that only Apple can deeply integrate these media-rich services like games, news, TV, and music, into Apple hardware. This is, and will always be Apple’s advantage over its competitors. In the same way that all of Apple’s products are designed to work together and get better the more devices you have, we should expect Apple’s services to work best on Apple hardware and work better the more services you consume.
That being said, integration alone is not necessarily a slam dunk for Apple when it comes to the success of their services. Firstly, Apple will have to avoid antitrust situations and likely can’t pre-install apps with services onto iOS but must let users download them of their own choosing. But, once downloaded, Apple can bake in integrated experiences to the overall device and OS that surface more value for their services vs. competition. From this perspective, I want to make a few points that will be an interesting watch and learn from, with Apple and services.
Competition and Cross Platform
From a business perspective, Apple has brought many new observations to the industry and business knowledge. In some cases, they have broken the templates used by business schools and challenged conventional wisdom. But, as often is the case, their integrated strategy provides more lessons to the industry and anything else. This entrance of their integrated services strategy will yield many lessons. Most of them being from a services competition viewpoint.
Apple having to straddle a blurry line of anti-trust with their services will be good overall for everyone. First, because they can’t pre-install things like Apple Music, or Apple News, or Apple TV without getting into anti-trust issues, they will have to genuinely compete with the likes of Spotify, HBO or Showtime, and other news services if they want consumers to download their apps and use these services. Apple has no inherent competitive advantage for premium/paid services in the way they do with hardware and software. While integration is the advantage of an Apple service after you choose it, it is not there by default and consumers will likely weigh all their options including competition.
This is why growth in the user base of Apple’s paid services will impressive because they aren’t starting with an integrated advantage like they are used to. But this also raises a question of cross-platform that I’ve been wrestling with for some time now.
Nearly all services are cross-platform. When it comes to web/digital services, being cross-platform seems like a checkmark to compete but companies developing these services usually only have a subscription revenue model, so they have to achieve scale. This is the fork in the road Apple will come to very soon. Is their services strategy about selling more hardware, or about growing the services business? That is the question.
While I could be wrong, given we don’t have much historical precedent to go off here, I’d argue that if growing the services business is the sole goal then Apple needs to bring certain services cross-platform. Apple News+ and AppleTV+ specifically. Services business require scale and while Apple has that in roughly a billion customers, they are up against the competition in services that are first and foremost cross-platform. Here is why I think that matters.
I’ve mentioned before that our research has shown us that when consumers are presented with a mostly subscription, they heavily weigh the benefits and more deeply scrutinize the investment. Services are not commodities or quick decision purchases. This is why free trials are almost entirely necessary for services. It is very hard to extract monthly money for a service unless the consumer has vetted it is worth it to them. When it comes to my cross-platform point, most consumers do not own 100% Apple hardware. Most of Apple’s user base has an iPhone and a Windows PC and a smart TV brand like Samsung, LG, or Vizio. That combination is the most common combination of the three main screens of the vast majority of Apple’s customer base.
Competitively speaking, I believe having access to content you subscribe to on all the devices you want to access them is important for a subscription service. So for example, Apple News+ becomes more interesting to an iPhone owner with a Windows PC when they can access that content on both. The evidence for this lies in Apple cutting deals to bring the TV app to third-party smart TVs. This strategy is solely for the purpose of consuming the AppleTV+ content one subscribes to on the TV of your choice. I’m convinced Apple needs to treat all their services this way, much like Apple Music on Android, if they want their services business to scale.
Another strong point here is the family plan. Most services don’t have family plans, at least not good or personalized ones for different family members. Which means Apple’s family plan concept is a point of differentiation. However, while it is unlikely to assume an Apple customer has 100% Apple hardware, it is even less likely an entire household has all Apple hardware. So for a family plan to hold its value and differentiation, a potential subscriber would want to know their family has access to the content they pay for on the hardware or platform of their choice.
If Apple does not check these boxes, then it seems likely they are up against tougher competition who is not going to create walls around their services. One quick point, is that certain services make sense to remain exclusive. Apple Arcade for example has no need to go cross platform and adds much depth to Apple’s customer value.
I’m fascinated by all this because we are in the somewhat new ground from a business standpoint, but Apple is also in new territory. Many important business lessons will emerge, and that is one part of many that make all this exciting.