Apple should mix hardware & services into 'Apple Prime' subscriptions, analyst says

Posted:
in AAPL Investors
To keep growing services revenues, Apple may want or need to bundle hardware and services into a single subscription, according to one analyst.




The fundamental issue is that Apple is competing for customers with companies like Amazon -- which pulls people into its ecosystem with Prime memberships and low-cost devices -- and Google, which makes Android free to phone and tablet developers so people will use its ad-based services, Horace Dediu commented to the Wall Street Journal. To build services revenue under the current situation, Apple will likely have to keep selling and maintaining older iPhone models, suppressing its typically high profits on hardware.

Apple customers already spend an average of a dollar a day on hardware and services, Dediu noted. Pair something like the iPhone Upgrade Program with a bundle of services -- such as Apple Music, iCloud, and/or the upcoming TV slate -- and the company could count on more consistent revenues, not dependent on one device or another being a hit.

In the December quarter, iPhone revenues rose 13.2 percent year-over-year even as iPhone units shrank slightly. This can be credited largely to the $999-plus iPhone X, as well as a $699 baseline price for the iPhone 8. An "Apple Prime" model might put less pressure on Apple to continually grow hardware numbers.

Dediu didn't address the potential obstacle of competition regulators, who might argue that such tactics would shut rivals like Spotify and Netflix out of a major platform.
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Comments

  • Reply 1 of 36
    This is one of the most nonsensical "strategies" that I've seen. Apple isn't struggling to find customers for it's hardware or grow it's services. Amazon and Google, on the other hand, do struggle to sell hardware.
    lkruppbshankGeorgeBMacmdriftmeyerrepressthisspliff monkeyravnorodomSpamSandwichcornchipwatto_cobra
  • Reply 2 of 36
    lkrupplkrupp Posts: 6,088member
    I am very calm in the knowledge that Apple would never do such a lame brained, idiotic, counterproductive scheme.
    mac_dogbshankchiarepressthisspliff monkeymattinozcornchipwatto_cobralolliver
  • Reply 3 of 36
    lkrupp said:
    I am very calm in the knowledge that Apple would never do such a lame brained, idiotic, counterproductive scheme.
    I was gonna say something like that, but you said it better.
    mac_dogrepressthisspliff monkeywatto_cobra
  • Reply 4 of 36
    Rayz2016Rayz2016 Posts: 3,797member
    Surprised that Dediu would come up with something like that. The best way to grow service revenue is to offer compelling services, not to try to sweeten the deal with old hardware. 

    Be curious to see what he actually did say. 
    edited February 5 repressthiswatto_cobra
  • Reply 5 of 36
    Apple already invented Prime Membership - we as Apple hardware purchasers are all members.   Apple rewards its members with "free services" (basic iCloud, iWork apps, iTunes ecosystem, etc) many of which may be upgraded to expanded (at increased prices) services (increased iCloud capacity, Apple Music streaming service, etc).
    king editor the grateGeorgeBMacchiarepressthisspliff monkeyrob53lito_lupenamattinozcornchipwatto_cobra
  • Reply 6 of 36
    mac_dogmac_dog Posts: 547member
    Another asshole trying to justify his high salary. 
    repressthiswatto_cobra
  • Reply 7 of 36
    Apple is a hardware company with integrated, exclusive software that has a reputation of making the hardware function reliably and intuitively. The addition of entertainment content is still intended to drive customers to purchase the hardware in order to access the content. That content, through the App Store, ITunes music and video is also profitable, so the current model seems to work well for Apple. They don’t appear to be in the business of giving anything away, other than perhaps routine upgrades to their software, which is already priced into the hardware purchase.

    The competitors mentioned in the article above are all working lower margins, because hardware, software and even content are often given away as loss leaders to draw customers in as “product” they can then sell to advertisers. That model can work, too, but not so well that there’s any reason Apple would feel compelled to abandon their own highly successful strategy.
    repressthisanomewatto_cobra
  • Reply 8 of 36
    foggyhillfoggyhill Posts: 4,692member
    The phone's financiing is already the Iphone as a "service" , with Apple taking care of the financing directly, it's getting more overt.

    Eventually, in 10 years, they could indeed rollup a "service+" option straight into the financing and people would get a phone, video and music all rolled up into one.

    They could even have an applications "stream" as a service where people get access to a library of apps for a fixed price. It has happened to media so don't know why it would not happened to apps, especially small ones, too.
    tmay
  • Reply 9 of 36
    No, that’s not a very good idea!
    repressthiswatto_cobra
  • Reply 10 of 36
    maestro64maestro64 Posts: 4,147member
    I really wonder if these analysis really think things through. Why would apple mirror strategy of give it away and make no money when they have a strategy of selling for a profit. 

    These companies who give stuff away will not keep their customers, as soon as someone else have the give it away strategy to grow market share, those same customer will run to the new free sandbox. Apple customer already know they need to play in Apple's sand box and the only way they are leaving is if someone delivers a higher quality product and experience and the same or lower cost not free and lower quality.

    Apple does not want the customer who want it for free.
    cornchipwatto_cobrajony0
  • Reply 11 of 36
    I think a sunscription model is just what Apple needs. Except i would bundle ITunes, Apple Music, iBooks, and a new Apple TV model with original content.  With such a huge ecosystem in place, i believe Apple users would flock to such a model.  Forget trying to cut deals with conremt providers; simply pay them as always and make up the costs from the hiards of revenue Apple  would produce (and can well afford)
  • Reply 12 of 36
    foggyhillfoggyhill Posts: 4,692member
    maestro64 said:
    I really wonder if these analysis really think things through. Why would apple mirror strategy of give it away and make no money when they have a strategy of selling for a profit. 

    These companies who give stuff away will not keep their customers, as soon as someone else have the give it away strategy to grow market share, those same customer will run to the new free sandbox. Apple customer already know they need to play in Apple's sand box and the only way they are leaving is if someone delivers a higher quality product and experience and the same or lower cost not free and lower quality.

    Apple does not want the customer who want it for free.
    Also, giving it away means that either you don't have money to invest to differentiate or you are using the money from somewhere else making yourself less competitive in your core business. Google, Amazon and Facebook eventually will have a big ass collision, not to mention things like Alibaba in Asia and big firms like Wallmart that reacting a lot more aggressively.
    watto_cobra
  • Reply 13 of 36
    "Apple customers already spend an average of a dollar a day on hardware and services"

    This is Apple's real business plan! I've been saying this for years and the numbers have roughly scaled up proportionately year after year. This little secret has been out in the open for years yet Wall Street analysts continue to be blinded by counting baubles and fretting over market share numbers. With over 600 million customer credit cards on file (and growing daily), a dollar-a-day yields about $220,000,000,000 in annual revenue. That's one helluva predictable revenue stream as a base to build upon.
    cornchipwatto_cobra
  • Reply 14 of 36
    GeorgeBMacGeorgeBMac Posts: 2,354member
    emoeller said:
    Apple already invented Prime Membership - we as Apple hardware purchasers are all members.   Apple rewards its members with "free services" (basic iCloud, iWork apps, iTunes ecosystem, etc) many of which may be upgraded to expanded (at increased prices) services (increased iCloud capacity, Apple Music streaming service, etc).
    Yes!  This!
    It's the part that most miss -- analysts and even Apple Fans included...
    It's why Apple hardware is so expensive:   It's not just hardware.
    It's also why reports of Apple's Gross Margin on iPhones is just so much bull...
    repressthisCuJoYYCcornchipwatto_cobra
  • Reply 15 of 36
    This is one of the most nonsensical "strategies" that I've seen. Apple isn't struggling to find customers for it's hardware or grow it's services. Amazon and Google, on the other hand, do struggle to sell hardware.
    Amazon struggles to sell hardware? What have they struggled to sell outside of that stupid phone Bezos never should have built in the first place.
  • Reply 16 of 36

    maestro64 said:
    I really wonder if these analysis really think things through. Why would apple mirror strategy of give it away and make no money when they have a strategy of selling for a profit. 

    These companies who give stuff away will not keep their customers, as soon as someone else have the give it away strategy to grow market share, those same customer will run to the new free sandbox. Apple customer already know they need to play in Apple's sand box and the only way they are leaving is if someone delivers a higher quality product and experience and the same or lower cost not free and lower quality.

    Apple does not want the customer who want it for free.
    That’s not what he’s arguing at all. He’s saying going to a complete subscription model would provide predictable revenue streams rather than the seasonality we have now all driven around when new hardware, especially iPhone, is released. Seems to me like he’s trying to come up with a model that would get Wall Street to value Apple differently (i.e. not a hardware company). Not sure I agree it would work.
  • Reply 17 of 36
    To keep growing services revenues, Apple may want or need to bundle hardware and services into a single subscription, according to one analyst.
    Pair something like the iPhone Upgrade Program with a bundle of services -- such as Apple Music, iCloud, and/or the upcoming TV slate -- and the company could count on more consistent revenues, not dependent on one device or another being a hit.
    Wow. He suggested the exact thing that would make me STOP buying Apple products. What a genius. Those who can, do. Those who can't become analysts. I'm fairly certain that part of Apple's success can be attributed to NOT listening to advice from analysts. 
    watto_cobra
  • Reply 18 of 36
    Are you serious?
    It would NEVER be called ‘Apple Prime.’
    watto_cobramavemufc
  • Reply 19 of 36
    maestro64maestro64 Posts: 4,147member

    maestro64 said:
    I really wonder if these analysis really think things through. Why would apple mirror strategy of give it away and make no money when they have a strategy of selling for a profit. 

    These companies who give stuff away will not keep their customers, as soon as someone else have the give it away strategy to grow market share, those same customer will run to the new free sandbox. Apple customer already know they need to play in Apple's sand box and the only way they are leaving is if someone delivers a higher quality product and experience and the same or lower cost not free and lower quality.

    Apple does not want the customer who want it for free.
    That’s not what he’s arguing at all. He’s saying going to a complete subscription model would provide predictable revenue streams rather than the seasonality we have now all driven around when new hardware, especially iPhone, is released. Seems to me like he’s trying to come up with a model that would get Wall Street to value Apple differently (i.e. not a hardware company). Not sure I agree it would work.

    He maybe thinking this. However, this is no different the give the printer away and make it all up on ink the consumable. HP start this and loose this market as soon as someone else decided to do it for less, then Epson does not make as much since people knocked off the ink cartridges. Linking subscription is like the cable guys, to change service if can (some markets you have no choose) becomes difficult. This is why apple rather sell you the hardware let the content guys fight it our and Apple lets all platforms run on their hardware. I like the fact I can run Netflix, Prime, Hulu and most all my Directv content on my ATV. If I want I do not have to bounce between hardware platforms.

    BTW, Netflix had its ups and downs on revenue, they loss subscribers and gain them over time. The cost to unsubscribe is very low to most customer, In apple Model is not as easy to exit Apple ecosystem. Apple has most of the content, they can easily flip the switch to allow subscription streams, verse rent or own to watch content. The bigger question is what Apple has not flipped the switch. They did it on Music and they beginning to kill Spotify. Partly because artist and record companies rather deal with Apple and Apple pays more and on time.
    GeorgeBMac
  • Reply 20 of 36
    maestro64 said:

    maestro64 said:
    I really wonder if these analysis really think things through. Why would apple mirror strategy of give it away and make no money when they have a strategy of selling for a profit. 

    These companies who give stuff away will not keep their customers, as soon as someone else have the give it away strategy to grow market share, those same customer will run to the new free sandbox. Apple customer already know they need to play in Apple's sand box and the only way they are leaving is if someone delivers a higher quality product and experience and the same or lower cost not free and lower quality.

    Apple does not want the customer who want it for free.
    That’s not what he’s arguing at all. He’s saying going to a complete subscription model would provide predictable revenue streams rather than the seasonality we have now all driven around when new hardware, especially iPhone, is released. Seems to me like he’s trying to come up with a model that would get Wall Street to value Apple differently (i.e. not a hardware company). Not sure I agree it would work.

    He maybe thinking this. However, this is no different the give the printer away and make it all up on ink the consumable. HP start this and loose this market as soon as someone else decided to do it for less, then Epson does not make as much since people knocked off the ink cartridges. Linking subscription is like the cable guys, to change service if can (some markets you have no choose) becomes difficult. This is why apple rather sell you the hardware let the content guys fight it our and Apple lets all platforms run on their hardware. I like the fact I can run Netflix, Prime, Hulu and most all my Directv content on my ATV. If I want I do not have to bounce between hardware platforms.

    BTW, Netflix had its ups and downs on revenue, they loss subscribers and gain them over time. The cost to unsubscribe is very low to most customer, In apple Model is not as easy to exit Apple ecosystem. Apple has most of the content, they can easily flip the switch to allow subscription streams, verse rent or own to watch content. The bigger question is what Apple has not flipped the switch. They did it on Music and they beginning to kill Spotify. Partly because artist and record companies rather deal with Apple and Apple pays more and on time.
    Except he’s not saying give the hardware away and make it up on content or whatever. He’s saying have one subscription for hardware and software. I currently pay over $50/mo for my iPhone. Under his scenario a user could pay $200/mo for hardware and services. I’m not sure how easily this would work though because people don’t upgrade Macs and iPads as frequently as they do iPhones. I believe iPhone has 12/18/24 month programs. Would they have longer programs for iPad and Mac? And what if you decided you wanted out of the program? It’s easy to cancel Apple Music at any time. How easy would it be to cancel a hardware subscription? If you did would you be responsible for an early termination fee or paying off the balance of what you own on the hardware? Seems to me like more work than it’s worth just to try and get Wall Street not to view Apple as a hardware company.
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