Liability seems like a bizarre thing to worry about. If the local taxi company can handle the liability expenses of providing car service, then I'm sure Apple can too. Actually, Apple just might be big enough to get a really good deal on insurance.
Apple would definitely self-insure themselves if they owned a fleet of cars.
iPhone was obvious. Carriers were already going down this path (I was on the AT&T Next program prior to doing Apple's iPhone upgrade program).
And why does it matter if it was obvious or not...? It's still a move into a subscription model! LOL! They don't have to be "first" for it to count....!!!
And why does it matter if it was obvious or not...? It's still a move into a subscription model! LOL! They don't have to be "first" for it to count....!!!
No of course not. My point is I don't think we can read much into it because that's the way the market is going with smart phones. I see little evidence that consumer hardware as a service is becoming a thing though.
Here's a poorly kept secret of private equity valuations that spills over into the public markets. Product revenue, because it's lumpy and not entirely guaranteed to continue, gets a 4x revenue multiplier. Note that Apple's market cap, for years, has floated around 3-4x revenues. Recurring revenue, like subscriptions and automatically renewing leases, because they are predictable and, well, recurring, gets a 7x multiple. Note that NFLX's market cap is exactly 7x its revenue. So Apple has a huge incentive to convert as much of its revenue stream to a recurring model, using both subscriptions and leasing. This process will only accelerate, along the lines Sog has outlined, as Apple feels its way into these revenue models and gathers massive data from its experiences.
Thanks for the data. Very interesting. Apple of course (today) is neither a pure product company (although all of their success derives from the focus on great products), but not a services company in the traditional sense either. Apple is product, platform, ecosystem and services. Thus they should of course have a higher multiple than what they have as a pure product company - Apple valued as though it were Sony - as though there is nothing to keep a current product owner from moving to the next cheapest thing. This move to provide leasing via upgrade program is a good move not only to mitigate the decline of subsidies, but also moves the needle at bit to make it more obvious to investors that they do have pretty good recurring revenues. No reason that Apple can't expand that to other products as well - a good use of balance sheet.
The addition of a new video product (which is likely to be US only for quite awhile I would expect) would not really move the needle much in subscription revenues, but it could help with the perception. Just like Apple Music revenue is a nice addition, but not that material to the bottom line.
Quote:
Originally Posted by RadarTheKat
I don't see Apple directly getting into the taxi and rental car businesses, hiring staff, opening desks at airports, directly maintaining and insuring fleets of vehicles for lease directly to the public. These businesses aren't where the money is to be made or the focus should be placed. Creating the best vehicles for this purpose is how Apple will participate.
Agree. Apple is first and foremost a product company (with ecosystem as noted above), and their success is in making products that people want to buy. That is why they were successful with consumer, as the buyer = user, and will pay the premium for a great device. In enterprise, buyer is usually not user, and Apple's premium user experience is not as valued (changing as a result of BYOD, iPhone/iPad not much more than competitive offerings and more secure, partnerships, etc).
So I don't see Apple getting into the car business as a service like Uber, nor in selling in bulk to fleet agencies. If they do go in, they will sell to the consumer, as they will make something that people want to buy, where cost is not the only criteria.
Similarly, I do not think that Apple will sell automobiles directly to consumers. I think they will sell transportation as a service. Basically, a more trustworthy, consistent, and higher-quality Uber.
I agree that Apple will likely NOT sell automobiles but I disagree that they would ever sell transportation like Uber either...
Apple will likely sell technology services along the following lines...
1. A Vehicle OS for cars, trucks, planes, space ships with various modules for specific features such as entertainment.
2. A coherent navigation system in collaboration with Iridium and others for Drones, cars, trucks, planes, space ships.
3. Mapping services including street maps, indoor maps for buildings and malls and venues and space.
4. Audio and Video services for global communication, education and entertainment anywhere, anytime. (FaceTime, iTunesU, iBooks)
5. Advanced Information Technology based on IBM Watson and augmented reality for the entire Universe.
I have to laugh at this research note. Aside from the iPhone upgrade program (which is just mirroring what carriers were already starting to do) there is little evidence Apple is becoming a services company
it doesnt matter that carriers did it first. at all. iphone is apple's biggest source of profit, and if they shift customers over to a service model for it, that's noteworthy and significant.
I agree that Apple will likely NOT sell automobiles but I disagree that they would ever sell transportation like Uber either...
Apple will likely sell technology services along the following lines...
1. A Vehicle OS for cars, trucks, planes, space ships with various modules for specific features such as entertainment.
2. A coherent navigation system in collaboration with Iridium and others for Drones, cars, trucks, planes, space ships.
3. Mapping services including street maps, indoor maps for buildings and malls and venues and space.
4. Audio and Video services for global communication, education and entertainment anywhere, anytime. (FaceTime, iTunesU, iBooks)
5. Advanced Information Technology based on IBM Watson and augmented reality for the entire Universe.
And who is going to buy this vehicle OS? This stuff is a point of differentiation for auto companies. They're not going to buy some off the shelf OS from Apple. And Apple is all about a consistent user experience so I doubt they would be interested in creating custom OS/experience for different auto companies. My biggest skepticism with this list is when has Apple ever successfully been a piece of technology in someone else's product. Apple's biggest selling point is they control the entire widget, from hardware to software to services. The minute Apple doesn't control the entire widget I forsee lots of problems. Especially considering software and services are Apple's weak spot.
Look I'm not disagreeing with the idea. I'm just saying we don't really have evidence that's where Apple is heading and iPhone doesn't really count as Apple is just doing what the carriers already stated. So before people wet themeslves over this idea (and because the stock is up $3) today lets come back to reality. When I see Apple add another hardware product to an installment plan then maybe I'll believe they're really serious about it. The next logical choice would be to offer an iPhone/Apple Watch bundle.
We have CLEAR evidence Apple is trying to help make their products more affordable via financing:
I would like to point out Apple has been offering all their products on an installment plan for a number of years via their "Interest free" Barclays Card.
Promo period:
6 months: under $498
12 months: $499 - $998
18 months: $999 and over
While the terms and conditions of the Barclays card are differant than the current iPhone payment program, they are not that far apart. Remember, the iPhone promo is actually run by Citizens Bank. So, in both cases, Apple has "partnered" with a financial institution. Which I think is BRILLIANT as it allows Apple to spread/shift any default risks while also learning and collecting data on users, pros/cons of financing etc.
I have personally used both methods. I opened a Barclays card to purchase a fully loaded iMac 5K earlier this year. I then set-up an "auto-pay" of $250/month to ensure the balance was paid in full before the 18 month "free financing" ended.
Then about a month ago I purchased a128G 6S using the Citizens Bank program which automatically gets paid via my main credit card to the tune of $40+ month for the next 24 month. So, even less friction, not having to separately set up an auto-pay to a bank account as i had to with the Barclay's. For this trivial reason, I prefer the Citizens program as the CC used also provides miles, points and Blah Blah Blah.
The Barclay's does have the $25 Apple gift cards incentive but I have no plans of using this card until after the 18 month promo term...too much difficulty in keeping track of how they apply payments to "non-qualifying" purchases which easily ends up leaving you with BIG TIME interest charges, which is the "gotcha" trick on all these type deals. I HATE paying any interest on any/all credit cards and always pay monthly balances completely. Of course, all buyers need to "qualify" for either of these credit offers.
What I do wish Apple would offer is an "all you can eat" or "family" Apple Care plan which would cover ALL current and future Apple products I (or my family) have and continue to buy. Having to purchase separate AC on individual products becomes WAY too expensive on a per item basis. I have totally lost track of which products have or don't have AC plans and if they are still active or when they will end.
This a problem in search of a solution (at least for me) which, I think, Apple needs to help solve for customers with multiple products. It may even help increase sales of different products and services within their ecosystem.
A monthly insurance/AC policy as just another line item Apple could add to their recurring revenue stream...I would certainly welcome one and could be counted as "in"!
What I do wish Apple would offer is an "all you can eat" or "family" Apple Care plan which would cover ALL current and future Apple products I (or my family) have and continue to buy. Having to purchase separate AC on individual products becomes WAY too expensive on a per item basis. I have totally lost track of which products have or don't have AC plans and if they are still active or when they will end.
...
I think that is a great idea! Send some feedback to Apple (I am sure they always think about things like this, but always good to be sure). I tend not to get AC as much (did on Apple Watch as the price was good for 2 years). Given the full family of devices we have now with kids, this is something that would get more traction with us.
While I am not in consumer electronics (telecom vendor services), I can say that margins on maintenance contracts are very healthy, so it isn't like this would necessarily cost Apple much - in fact good opportunity to grow top line with only minor impacts on the cost level.
Here's a poorly kept secret of private equity valuations that spills over into the public markets. Product revenue, because it's lumpy and not entirely guaranteed to continue, gets a 4x revenue multiplier. Note that Apple's market cap, for years, has floated around 3-4x revenues. Recurring revenue, like subscriptions and automatically renewing leases, because they are predictable and, well, recurring, gets a 7x multiple. Note that NFLX's market cap is exactly 7x its revenue. So Apple has a huge incentive to convert as much of its revenue stream to a recurring model, using both subscriptions and leasing. This process will only accelerate, along the lines Sog has outlined, as Apple feels its way into these revenue models and gathers massive data from its experiences.
Thank you for this post, one of the first that explains or defines the bias of institutional investors. The issue is that Apple's customers have more loyalty than other customers. In a world where iPhones are replaced every one to four years by most people, Apple's hardware should be valued like a service. I think the hardware/service dichotomy is a bit specious-- I am not paying my Blockbuster, AOL, TeleCo services anymore.
And who is going to buy this vehicle OS? This stuff is a point of differentiation for auto companies. They're not going to buy some off the shelf OS from Apple. And Apple is all about a consistent user experience so I doubt they would be interested in creating custom OS/experience for different auto companies. My biggest skepticism with this list is when has Apple ever successfully been a piece of technology in someone else's product. Apple's biggest selling point is they control the entire widget, from hardware to software to services. The minute Apple doesn't control the entire widget I forsee lots of problems. Especially considering software and services are Apple's weak spot.
Do you know that practically all cars today run on the QNX Real Time operating system which is now owned by Blackberry?
This does not prevent auto makers from differentiating their vehicles.
Also most new cars today offer Apple CarPlay as a feature.
Comments
And why does it matter if it was obvious or not...? It's still a move into a subscription model! LOL! They don't have to be "first" for it to count....!!!
http://www.asymco.com/2015/09/14/apple-assurance/
And this one, specifically about the Services division, is excellent:
http://www.asymco.com/2015/08/26/much-bigger-than-hollywood/
I think both help support, and may have inspired, the Goldman theory here.
No of course not. My point is I don't think we can read much into it because that's the way the market is going with smart phones. I see little evidence that consumer hardware as a service is becoming a thing though.
Here's a poorly kept secret of private equity valuations that spills over into the public markets. Product revenue, because it's lumpy and not entirely guaranteed to continue, gets a 4x revenue multiplier. Note that Apple's market cap, for years, has floated around 3-4x revenues. Recurring revenue, like subscriptions and automatically renewing leases, because they are predictable and, well, recurring, gets a 7x multiple. Note that NFLX's market cap is exactly 7x its revenue. So Apple has a huge incentive to convert as much of its revenue stream to a recurring model, using both subscriptions and leasing. This process will only accelerate, along the lines Sog has outlined, as Apple feels its way into these revenue models and gathers massive data from its experiences.
Thanks for the data. Very interesting. Apple of course (today) is neither a pure product company (although all of their success derives from the focus on great products), but not a services company in the traditional sense either. Apple is product, platform, ecosystem and services. Thus they should of course have a higher multiple than what they have as a pure product company - Apple valued as though it were Sony - as though there is nothing to keep a current product owner from moving to the next cheapest thing. This move to provide leasing via upgrade program is a good move not only to mitigate the decline of subsidies, but also moves the needle at bit to make it more obvious to investors that they do have pretty good recurring revenues. No reason that Apple can't expand that to other products as well - a good use of balance sheet.
The addition of a new video product (which is likely to be US only for quite awhile I would expect) would not really move the needle much in subscription revenues, but it could help with the perception. Just like Apple Music revenue is a nice addition, but not that material to the bottom line.
I don't see Apple directly getting into the taxi and rental car businesses, hiring staff, opening desks at airports, directly maintaining and insuring fleets of vehicles for lease directly to the public. These businesses aren't where the money is to be made or the focus should be placed. Creating the best vehicles for this purpose is how Apple will participate.
Agree. Apple is first and foremost a product company (with ecosystem as noted above), and their success is in making products that people want to buy. That is why they were successful with consumer, as the buyer = user, and will pay the premium for a great device. In enterprise, buyer is usually not user, and Apple's premium user experience is not as valued (changing as a result of BYOD, iPhone/iPad not much more than competitive offerings and more secure, partnerships, etc).
So I don't see Apple getting into the car business as a service like Uber, nor in selling in bulk to fleet agencies. If they do go in, they will sell to the consumer, as they will make something that people want to buy, where cost is not the only criteria.
Similarly, I do not think that Apple will sell automobiles directly to consumers. I think they will sell transportation as a service. Basically, a more trustworthy, consistent, and higher-quality Uber.
I agree that Apple will likely NOT sell automobiles but I disagree that they would ever sell transportation like Uber either...
Apple will likely sell technology services along the following lines...
1. A Vehicle OS for cars, trucks, planes, space ships with various modules for specific features such as entertainment.
2. A coherent navigation system in collaboration with Iridium and others for Drones, cars, trucks, planes, space ships.
3. Mapping services including street maps, indoor maps for buildings and malls and venues and space.
4. Audio and Video services for global communication, education and entertainment anywhere, anytime. (FaceTime, iTunesU, iBooks)
5. Advanced Information Technology based on IBM Watson and augmented reality for the entire Universe.
it doesnt matter that carriers did it first. at all. iphone is apple's biggest source of profit, and if they shift customers over to a service model for it, that's noteworthy and significant.
And who is going to buy this vehicle OS? This stuff is a point of differentiation for auto companies. They're not going to buy some off the shelf OS from Apple. And Apple is all about a consistent user experience so I doubt they would be interested in creating custom OS/experience for different auto companies. My biggest skepticism with this list is when has Apple ever successfully been a piece of technology in someone else's product. Apple's biggest selling point is they control the entire widget, from hardware to software to services. The minute Apple doesn't control the entire widget I forsee lots of problems. Especially considering software and services are Apple's weak spot.
Look I'm not disagreeing with the idea. I'm just saying we don't really have evidence that's where Apple is heading and iPhone doesn't really count as Apple is just doing what the carriers already stated. So before people wet themeslves over this idea (and because the stock is up $3) today lets come back to reality. When I see Apple add another hardware product to an installment plan then maybe I'll believe they're really serious about it. The next logical choice would be to offer an iPhone/Apple Watch bundle.
We have CLEAR evidence Apple is trying to help make their products more affordable via financing:
I would like to point out Apple has been offering all their products on an installment plan for a number of years via their "Interest free" Barclays Card.
Promo period:
6 months: under $498
12 months: $499 - $998
18 months: $999 and over
While the terms and conditions of the Barclays card are differant than the current iPhone payment program, they are not that far apart. Remember, the iPhone promo is actually run by Citizens Bank. So, in both cases, Apple has "partnered" with a financial institution. Which I think is BRILLIANT as it allows Apple to spread/shift any default risks while also learning and collecting data on users, pros/cons of financing etc.
I have personally used both methods. I opened a Barclays card to purchase a fully loaded iMac 5K earlier this year. I then set-up an "auto-pay" of $250/month to ensure the balance was paid in full before the 18 month "free financing" ended.
Then about a month ago I purchased a128G 6S using the Citizens Bank program which automatically gets paid via my main credit card to the tune of $40+ month for the next 24 month. So, even less friction, not having to separately set up an auto-pay to a bank account as i had to with the Barclay's. For this trivial reason, I prefer the Citizens program as the CC used also provides miles, points and Blah Blah Blah.
The Barclay's does have the $25 Apple gift cards incentive but I have no plans of using this card until after the 18 month promo term...too much difficulty in keeping track of how they apply payments to "non-qualifying" purchases which easily ends up leaving you with BIG TIME interest charges, which is the "gotcha" trick on all these type deals. I HATE paying any interest on any/all credit cards and always pay monthly balances completely. Of course, all buyers need to "qualify" for either of these credit offers.
What I do wish Apple would offer is an "all you can eat" or "family" Apple Care plan which would cover ALL current and future Apple products I (or my family) have and continue to buy. Having to purchase separate AC on individual products becomes WAY too expensive on a per item basis. I have totally lost track of which products have or don't have AC plans and if they are still active or when they will end.
This a problem in search of a solution (at least for me) which, I think, Apple needs to help solve for customers with multiple products. It may even help increase sales of different products and services within their ecosystem.
A monthly insurance/AC policy as just another line item Apple could add to their recurring revenue stream...I would certainly welcome one and could be counted as "in"!
...
What I do wish Apple would offer is an "all you can eat" or "family" Apple Care plan which would cover ALL current and future Apple products I (or my family) have and continue to buy. Having to purchase separate AC on individual products becomes WAY too expensive on a per item basis. I have totally lost track of which products have or don't have AC plans and if they are still active or when they will end.
...
I think that is a great idea! Send some feedback to Apple (I am sure they always think about things like this, but always good to be sure). I tend not to get AC as much (did on Apple Watch as the price was good for 2 years). Given the full family of devices we have now with kids, this is something that would get more traction with us.
While I am not in consumer electronics (telecom vendor services), I can say that margins on maintenance contracts are very healthy, so it isn't like this would necessarily cost Apple much - in fact good opportunity to grow top line with only minor impacts on the cost level.
Placed my bet on AAPL in 2007 and ain't sellin' now.
Thank you for this post, one of the first that explains or defines the bias of institutional investors. The issue is that Apple's customers have more loyalty than other customers. In a world where iPhones are replaced every one to four years by most people, Apple's hardware should be valued like a service. I think the hardware/service dichotomy is a bit specious-- I am not paying my Blockbuster, AOL, TeleCo services anymore.
They need to rethink things.
Translation- Goldman-Sachs have taken AAPL positions, so time to pump-up the stock.
Yep!
Do you know that practically all cars today run on the QNX Real Time operating system which is now owned by Blackberry?
This does not prevent auto makers from differentiating their vehicles.
Also most new cars today offer Apple CarPlay as a feature.
I agree that Apple will likely NOT sell automobiles but I disagree that they would ever sell transportation like Uber either...
Apple will likely sell technology services along the following lines...
1. A Vehicle OS for cars, trucks, planes, space ships with various modules for specific features such as entertainment.
2. A coherent navigation system in collaboration with Iridium and others for Drones, cars, trucks, planes, space ships.
3. Mapping services including street maps, indoor maps for buildings and malls and venues and space.
4. Audio and Video services for global communication, education and entertainment anywhere, anytime. (FaceTime, iTunesU, iBooks)
5. Advanced Information Technology based on IBM Watson and augmented reality for the entire Universe.
So Apple is going to stop being Apple, by becoming an OS and services provider to other companies?
Perhaps you are hitting the "sauce" too hard there.