Apple has been facing the slow but steady decline in growth in its massive cash cow, the iPhone. That has driven it increasingly towards services, some of which are designed to keep iPhone users loyal, but with others creating a business in their own right.
In a two-hour event, CEO Tim Cook introduced a range of services including the long-awaited video streaming service, games and its own credit card, the Apple Card. This looked like Apple laying the foundations for a response to Amazon Prime, which would give iDevice users a gamut of storage, games and content for a monthly subscription – underpinned by Apple’s own payment systems. With an installed base of about 900m iPhones worldwide, that could be a powerful way to keep those users locked in, and monetize them more effectively and predictably.
For now, though, Apple has not gone the Prime route but is gradually adding separate new offerings to its services portfolio, and in the meantime, looking to disrupt the established model of the banks and content providers.
The list of new or updated services includes:
- Apple TV+, which will add more original programming, like Amazon and Netflix, including programming from Oprah Winfrey, Reese Witherspoon, Sesame Street and others in over 100 countries. The cost and variety of content is small compared to Netflix – Apple is estimated to have spent between $1bn and $2bn on original content so far, while Netflix spends $15bn a year. But the profile of these new programs is, for now at least, just designed to attract customers, providing a teaser for the rest of Apple’s apps – not just video but the whole portfolio from smart home to music to games.
- Apple may not offer a Prime-style all-in subscription, but it has been adding more subscription-based services in recent years, to add to its traditional model of downloading. In addition to music, it now has video and gaming, plus subs for a catalog of US magazines and newspapers, and (in the USA only) for pay-TV networks such as HBO, Showtime and Starz.
- And this can all be paid for with the Apple Card, developed with Goldman Sachs. It has no fees and will give users 2% cash-back on purchases made via Apple Pay, the existing iPhone-based payments system, or 3% when buying Apple products and services. This is the most disruptive move, because it pitches Apple directly against the banks, with none of the compromises and supposed partnerships of its relationships with other industries such as movie and music producers.
Apple’s services business accounted for just $40bn of its $266bn in revenues in 2018 but is growing more quickly than its devices. It hopes that the ease of purchase of the new services – another borrowing from Amazon – will boost that growth, and that some free offerings will lure new customers to the paid offerings. In a client note, analysts at Goldman Sachs predicted that Apple could convert 10% of the 85m monthly users of its free News app into paying subscribers, for instance.
Apple has always run into opposition to its high-handed approach to apps and content providers, and the relatively high cut it takes. Some of the most iconic US brands – Netflix and Disney in video; The New York Times and Washington Post in newspapers – have refused to take part, wary of Apple seizing the dominant role in the value chain and hurting their own brand relationship with their customers, and with it their profits.