Why Apple is Pressing Hard into Digital Services

NEWS AND NEW-PRODUCT ANALYSIS: With sales growth slowing for Apple’s key iPhone and iPad devices (and no explosive new products or categories on the horizon), it behooves the company to find new ways to commercially leverage its customer relationships--that is, to get them to spend more money with Apple.

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In a keynote event March 25 and hosted at its new headquarters facility in Cupertino, Calif., Apple announced four new and refreshed digital services aimed at the company’s current customers and other consumers.

Apple CEO Tim Cook (pictured) was emcee for the launch event.

The service offerings included:

  • Apple News+, a subscription service attached to the Apple News app that provides access to more than 300 magazines, newspapers and digital publishers. Apple News+ is currently available in the U.S. for $9.99 a month and in Canada for $12.99 a month.
  • Apple Arcade, a game subscription service that will feature more than 100 new games exclusive to Apple, including original releases from creators, including Hironobu Sakaguchi, Ken Wong and Will Wright. Apple Arcade will launch globally in fall 2019. No pricing details were provided.
  • Apple Card, a new credit card integrated with the Apple Wallet app. Apple Card will not charge annual, late, international or over-the-limit fees, or penalty interest rates on missed payments. Apple said its goal is to provide interest rates that are among the lowest in the industry. Apple is partnering with Goldman Sachs and Mastercard to provide issuing bank and global payment support. Apple Card will be available in the U.S. this summer.
  • Apple TV+ includes a new Apple TV app and a new subscription service featuring content and programming from creative artists, including Oprah Winfrey, Steven Spielberg, Jennifer Aniston, Reese Witherspoon, Octavia Spencer and others. Customers can subscribe à la carte to Apple TV channels, including services such as HBO, Showtime, CBS All Access, EPIX and Noggin. Shows can be watched in the Apple TV app, with no additional apps, accounts or passwords required. Pricing and availability for Apple TV+ will be announced in the fall.

The Good, the Not So Great and the Potentially Ugly

Client-focused services have a long and mostly successful history in the tech industry. When technologies and products are initially finding their way into the market, services offer great ways for vendors to reach out to and stay engaged with customers. More importantly, as products inevitably mature and improvements become increasingly incremental, services are critical to driving new value for customers and additional revenues for vendors.

Apple’s key iPhone and iPad devices clearly belong in this second group, and with sales growth slowing (and no explosive new products or categories on the horizon), it behooves the company to find new ways to commercially leverage its customer relationships--that is, to get them to spend more money with Apple. With those thoughts in mind, let’s review the event by considering what might be loosely called the good, the not so great and the potentially ugly aspects of the new Apple services.

On the good side, the company’s clear focus on delivering unified features and functions across the services, including ease of use, user privacy and security, customer personalization and family sharing was both gratifying and impressive. Those are all areas where Apple has the experience, technologies and scope to add value to its new offerings.

Additionally, focusing on these areas, particularly security and privacy, should help differentiate and separate the company from its competitors, especially the hapless bumbling and self-inflicted wounds that Facebook and (though to a considerably lesser degree), Google have lately suffered.

That said, Apple’s optimistic view of the value of its “curation” capabilities—is a bit more complicated. Curating will open the company to criticism over what content it chooses to deliver. Some will bleat about relatively minor variety and quality issues. But others are likely to hone in on more substantial issues, like how the curation process might be used to undercut competitors, or whether the company’s fee structure is fair to its content partners.

That subject is already a point of discussion about Apple News+ (where the company will reportedly garner about half of subscription fees) and allegedly contributed to high profile publications, including the New York Times and Washington Post declining to participate. Additionally, subscribers should also remember that some publications, including the Wall Street Journal are limiting the content they provide to Apple News+.

Competitive Disruption

The new Apple Card and Apple Arcade could be disruptive competitively, though for different reasons. First, Apple Card offers some features (“lower” [though not clearly specified] interest rates, no annual, international or late payment fees, and integrated cash back on purchases) that many consumers will find compelling. The elimination of international transaction and late fees also differentiates the Apple Card from many other charge cards.

Then again, Apple Card also suggests that the adoption of Apple Pay is not ramping as quickly among consumers, retailers and markets as Apple hoped. The company’s attempts to insert itself into credit/debit transactions is understandable and could eventually make a solid impact on the company’s bottom line. Whether Apple can significantly alter the credit/debit landscape remains to be seen. It’s probably best to reserve judgement until credit/debit competitors’ responses to Apple Card become clear.

Apple Arcade emphasizes new content from some well-known game developers. Plus, the ability to seamlessly play games across Apple devices should appeal to the company’s most tried and true customers. Will it be enough to disrupt markets or attract new clients to Apple devices? It’s hard to say at this point.

Apple TV+ Displays Sheer Star Power

Finally, the sheer star power present in the Apple TV+ reveal underscores its importance to the company. For weeks prior to the launch, orchestrated leaks focused on celebrity projects and surprise appearances. That the event would include big names in entertainment was a given. Plus, though Apple has been nibbling round the edges of video content and subscription services for years it has failed to make actual, substantial commitments. That, in turn, has allowed competitors including Netflix, Amazon and YouTube (Google) to grab and form huge swaths of the market in their own images. So how does Apple TV+ compare?

Unfortunately, that’s difficult or impossible to say. While the TV+ service is designed to compete directly with behemoth streaming services, like Netflix and Amazon Prime Video, few details were shared in Cupertino. Testimonials came from some powerhouse entertainment figures but what and how good or compelling their contributions will be is up in the air.

A few, like Reese Witherspoon, Jennifer Aniston and Steve Carell’s new drama, and the documentaries Oprah Winfrey is planning to produce are likely to click. Others, such as Steven Spielberg’s revival of his long-gone (the series originally ran 30+ years ago) “Amazing Stories” anthology, seem iffier. No samples of the new shows were shared, and pricing for the service won’t be revealed for months, so it’s all a crapshoot at this point.

The all-star guest list in Cupertino suggests that Apple is committing a good portion of its substantial cash hoard at TV+. But throwing money hasn’t helped highly touted past Apple products and services succeed. Plus, Hollywood has never been a great place for guaranteeing that sizable budgetary outlays will turn big profits.

Final Analysis

Apple’s new digital and refreshed content services all qualify as decent bets that should prove attractive to many of the company’s customers. But how do they qualify on the good/not so great and potentially ugly scale? Let’s consider that in reverse order.

Of the four, Apple News+ seems the most superfluous, and is designed to do little more than massage additional cash out of the Apple News app. With 300+ magazines and newspapers included, there should be something to appeal to most customers. Then again, consumers interested in higher value publications like the Wall Street Journal would be better off with standalone subscriptions. If the reports about Apple’s 50 percent fee structure are true, the Apple News+ story could turn pretty ugly.

Calling Apple Arcade a “gateway” service may seem unfair, but consider that Apple has never been a powerhouse in traditional gaming tech. Instead, the company’s focus is mainly on the games available through the App Store. Apple Arcade is clearly a generational play aimed at younger iPhone owners, but whether or how well Apple can entice them from the free/low fee game apps they love to a monthly subscription is uncertain. Call this one not so great.

Though Apple focused most of its firepower on the Apple TV+ subscription service launch, the prevalence of Baby Boomer and Gen X media celebrities made the proceedings seem a little tired. Sure, there were intriguing surprises, but they were mostly “safe” surprises that emphasized Apple’s deep pockets more than innovative thinking. Whether these efforts will result in compelling new content or produce significant threats to Netflix, Amazon Prime or other streaming services is anything but certain. Call it “good” but with reservations.

Of the new services, Apple Card seems to be the most potentially disruptive to the market and, perhaps, lucrative for Apple. Some critics have noted that plenty of credit cards offer better reward programs or forgive annual fees, but those offerings are typically aimed at higher-income clients and those with solid credit histories. Providing those benefits across the board to Apple Wallet users could substantially level the credit/debit playing field and force other card issuers to follow Apple’s lead. Goldman Sachs involvement is also intriguing since the company has previously not been involved in consumer banking. If Apple Card develops as planned, it could be as good as gold.

Finally, Apple’s new services build on existing products and platforms, meaning they pose far less risk to the company than launching all-new offerings. In some cases, Apple is working with talented, knowledgeable partners who should substantial value. While it’s unlikely that all of the new services will be as game changing as Tim Cook and company suggest, there appears to be more upside than down. For Apple, its shareholders and its customers, that’s all to the good.

Charles King is a principal analyst at PUND-IT.  © 2018 Pund-IT, Inc. All rights reserved.