Apple’s new iPhones may dazzle, but don’t get wowed by the devices. The iPhone X-ish designs and Apple hardware are really about keeping you locked in the ecosystem and selling various services and subscriptions.
Apple’s likely move to launch a streaming video and subscription news products highlights the company’s effort to bulk up its services business—already topping a $40 billion annual revenue run rate—but the company may want to consider a larger bundle.
The company’s video service is entering a crowded space with likes of Hulu, Amazon Video, Netflix and a bevy of other over-the-top efforts. On its own, Apple may have a tough sell without more original content. As bundle of services, Apple’s video effort can be handy.
Is it time for “Apple Prime”?
Apple has already proven adept at taking your money on a subscription basis. Its services business, which includes everything from AppleCare to iCloud storage to Apple Music is the fastest growing business in the company.
Nevertheless, Apple may run into subscription fatigue at some point. The cure would be a bundle.
Consider the following:
- AppleCare will run you anywhere from $129 to $199 depending on your iPhone model over two years.
- 2TB of iCloud storage is $120 a year.
- Apple Music goes for $120 a year.
- And now there’s Apple’s video effort, which may land somewhere between Netflix’s $12.99 standard plan, HBO Now’s $14.99 and Netflix’s top of the line $15.99 plan. Call Apple video $120 a year as it tries to gain share.
Add it up and you’re paying $460 a year to Apple in subscriptions should you opt for all of those services. Wouldn’t it make sense for an Apple bundle the would run $300 a year that includes all of those services. Apple could also do tiered accounts ranging from $150 to $300 a year.
Now it’s easy to smirk at this Apple Prime concept, but the customer base would go for it as long as there is value. Apple customers are also accustomed for paying premium prices so a $300 a year subscription may actually resonate. Microsoft 365 is a spin on a software subscription equivalent.
Amazon Prime is the natural comparison to whatever Apple bundle could be created. As far as value goes, there wouldn’t be much comparison. Amazon Prime has a series of benefits for $119 annually, but the big ones are free two-day shipping, same-day delivery in eligible zip codes, Prime Video, Prime Music (2 million songs in the U.S.), Amazon Music Unlimited discounts, Whole Foods Market discounts, Prime Reading and Amazon Photos.
The catch is you’ll also join Amazon Prime and buy a lot more stuff.
An Apple subscription bundle would have a different motive: Keeping you on the platform and the iPhone/iPad/Mac. Should Apple hold the fort with services, it can wait out customers’ elongated upgrade iOS device strategy. Apple has sold about 2 billion iOS devices.
In fact, Apple Prime could turbocharge a services business that is already growing nicely. Consider Apple’s first quarter and fiscal 2018 results.
And now consider what Amazon has been able to do with Prime. For 2018, Amazon’s subscription services—excluding Amazon Web Services—delivered revenue of $14.2 billion. AWS is another cash cow that plays into Amazon’s subscription orbit because the cloud unit is what gives the company the scale to discount.
Cowen & Co.’s Consumer Internet Survey reckons that Amazon has 63 million Prime subscribers, up from 58 million a year ago. Apple has a 1 billion devices in the field and could ultimately garner similar numbers.
Wedbush Securities analyst Daniel Ives said in a research note:
We (and many others) are finally getting what we hoped for and predicted as the company is set to announce its inaugural streaming video content service that will be a linchpin in further expanding its services wings into areas such as video content and potentially gaming over the next decade. Taking a step back, the services business remains the wild card in driving the valuation higher for Apple as we estimate the valuation of the services franchise for the company is worth roughly $400 billion on a standalone basis with this highly profitable segment poised to exceed $50 billion in revenues by FY20 and doubling from FY16 levels.
Ives said that Apple is likely to have to pull off a big content acquisition to really be a player, but the company can be a video player.
Will we see an Apple Prime service March 25? Probably not given it’s unclear how much Apple is willing or able to discount a large services bundle. Amazon Prime is based on a lifetime value of customer calculation as well as scale via AWS. Apple may not have the cloud scale and efficiency to deliver a value bundle.
In the end, Apple’s video splash will be just the beginning of an innovation push for services. Just keep in mind that the real innovation may be in the financial modeling and bundles to deliver more recurring revenue to Apple.
Source Article from https://www.zdnet.com/article/why-apples-streaming-video-service-should-lead-to-apple-prime-subscription-bundle/#ftag=RSSbaffb68
Why Apple’s streaming video service should lead to ‘Apple Prime’ subscription bundle
Latest blogs for ZDNet
Latest blogs for ZDNet