Apple's Services penetration isn't high despite years of growth
Despite seeing its Services arm grow at a steady pace over the years, analysts believe Apple is still considered a device producer, with middling take-up of its various non-hardware elements by customers.
Apple Services
Apple's Services business is continuing to see year-on-year quarterly growth, with over 900 million users paying for subscriptions on Apple's platform as of October. Despite this, Apple's Services still aren't penetrating the user base as much as it should, at least according to Consumer Intelligence Research Partners.
In a report titled "Apple Services - Not as Dominant as Apple Hardware," analysts point out that there's penetration as high as 60% for paid iCloud storage for users, but then shrinking down to as low as 4% for some AppleCare options. To CIRP, Apple has "decidedly mixed results in selling services to device customers."
To consumers, CIRP believes they "think of Apple primarily as a hardware manufacturer."
The most successful element is paid iCloud storage, with its integration into iPhone, iPad, and Mac usage making it "relatively impervious to competitive services."
AppleCare, Apple's extended warranty service, is the least successful, with 4% of iPhone and 7% of iPad customers paying for it. CIRP reckons this is due to the "myriad of competitors in the extended warranty market," who also have an edge for selling iPhones with their services, such as mobile carriers.
Of Apple's other services, Apple Music is though to be used by just over a third of Apple customers. To grow in a heavily established market like streaming music, Apple "would need to persuade customers to switch from their incumbent service."
Apple TV+ lags behind Apple Music, at a 28% penetration rate. Again, substantial competition is a problem here, however since each service has its own exclusive programming, there is more opportunity for consumers to pay for multiple services.
Two other media offerings have also made inroads with customers. Approximately one in five Apple customers is now an Apple News subscriber, while just over a quarter subscribe to Apple Podcasts.
Each also has strong competition, with Apple News taking on a "wide range of national and local news outlets." Apple Podcasts now sees the same from Spotify.
Despite the view of being middling, it is said by multiple other analysts that Services is a key driver to growth for the company. In June 2022, Wedbush offered that Services can help Apple weather macroeconomic conditions via its Services growth for 2023.
Meanwhile in July, Morgan Stanley insisted an increased focus on subscriptions could add nearly $1 trillion to Apple's market capitalization.
Read on AppleInsider
Apple Services
Apple's Services business is continuing to see year-on-year quarterly growth, with over 900 million users paying for subscriptions on Apple's platform as of October. Despite this, Apple's Services still aren't penetrating the user base as much as it should, at least according to Consumer Intelligence Research Partners.
In a report titled "Apple Services - Not as Dominant as Apple Hardware," analysts point out that there's penetration as high as 60% for paid iCloud storage for users, but then shrinking down to as low as 4% for some AppleCare options. To CIRP, Apple has "decidedly mixed results in selling services to device customers."
To consumers, CIRP believes they "think of Apple primarily as a hardware manufacturer."
The most successful element is paid iCloud storage, with its integration into iPhone, iPad, and Mac usage making it "relatively impervious to competitive services."
AppleCare, Apple's extended warranty service, is the least successful, with 4% of iPhone and 7% of iPad customers paying for it. CIRP reckons this is due to the "myriad of competitors in the extended warranty market," who also have an edge for selling iPhones with their services, such as mobile carriers.
Of Apple's other services, Apple Music is though to be used by just over a third of Apple customers. To grow in a heavily established market like streaming music, Apple "would need to persuade customers to switch from their incumbent service."
Apple TV+ lags behind Apple Music, at a 28% penetration rate. Again, substantial competition is a problem here, however since each service has its own exclusive programming, there is more opportunity for consumers to pay for multiple services.
Two other media offerings have also made inroads with customers. Approximately one in five Apple customers is now an Apple News subscriber, while just over a quarter subscribe to Apple Podcasts.
Each also has strong competition, with Apple News taking on a "wide range of national and local news outlets." Apple Podcasts now sees the same from Spotify.
Despite the view of being middling, it is said by multiple other analysts that Services is a key driver to growth for the company. In June 2022, Wedbush offered that Services can help Apple weather macroeconomic conditions via its Services growth for 2023.
Meanwhile in July, Morgan Stanley insisted an increased focus on subscriptions could add nearly $1 trillion to Apple's market capitalization.
Read on AppleInsider
Comments
While I firmly believe in AppleCare, and buy it for our Macs, iPhones and iPads (and have saved thousands with it (including the time my wife dropped her 256GB iPad Air and smashed the screen: that iPad cost $800 with tax, and it was replaced with a new iPad for $49), there are some options I consider superfluous. Apple Watch. AirPods. HomePod Mini. Apple TV device. Three have no moving parts to fail, and are inexpensive enough to replace in the unlikely event something fails. The Watch, sure buy AppleCare, for some very active or clumsy people, or people who don't take them off to shower or swim, but not for me. They're a bit expensive, but not enough to justify AppleCare in my mind.
So I'm sure that at least 3 of those mentioned have very low AppleCare sell-through rates.
But it is absurd to believe only 4% of iPhone users get AC.
Apple has embarked on a brand consolidation/unification strategy wherein everything they do is under the Apple brand (e.g., Music, TV+, etc.)
The approach has a certain OCD appeal. But I predict this will be a bigger issue than we might all think. But ultimately it's an ego-centric vanity move that ignores how the consumer thinks.
Apple would likely have been better off doing something like this:
*An alternative path would be to buy Netflix, buy Disney, sell off the stake in Hulu, roll all of Netflix's original production under Disney and leave Netflix as streaming distribution only. I suggest this mostly because Netflix has a killer brand position in millions of minds.
NOTE: If they go the car route, they'd be advised to do something similar. They should either buy a brand or invent a new completely one. Notice that even Toyota (and Nissan, and Honda) did this when they launched a new luxury car. They were already in the car business...but not the luxury car business.
The Apple brand has a certain position in people's minds that's centered around digital electronic devices (e.g., Watch, iPhone, iPad, Mac, etc.) They have risked diluting the brand and creating confusion in the consumer's mind. This is a dangerous game to play and one that has—more often than not—ended in failure.
Al Ries and Jack Trout wrote about this over 40 years ago. While some of the specifics may have changed, the principles have not since their principles are based on the human mind, perception, psychology, etc. Those haven't changed in 40 years (or even 1000 years).
P.S. I'd argue they should have done all of their audio initiatives (e.g., AirPods, HomePod, HomePod mini, etc.) under the Beats label. But that's a weaker position to defend.
And of course iOS already has an iCloud backup.
Or, to paraphrase, "Apple is doomed if it doesn't follow the advice of random internet trolls who think they're worth listening to because they claim to be financial analysts."
As for the rest, the argument is basically about positioning. A brand's/product's position in the customer's mind is vital. Many companies have screwed up by not recognizing this. Apple does not mean "music" to most people. It does not mean "TV/movies" to most people. It does not mean "gaming" to most people. It does not mean "fitness" to most people. There are other brands that already occupy a position in the customer's mind in each of these areas. Apple is quite likely diluting its brand position in customers' minds.
I realize that among Apple loyalists this seems unlikely, even impossible. But there's a world beyond Apple. And Apple has the challenge to grow...a LOT. By attempting to unify everything under the Apple name/brand they have two profound risks: a) diluting what Apple means and has meant, b) not achieving gains in the other areas because they don't "own" those positions in people's minds.
There was a better strategy for them to play.
The Apple branding of everything was, frankly, an ego-centric vanity play. I think Apple is greatly over-estimating its "brand juju" here. Apple means iPhone, iPad, Watch, Mac in 99% of minds. It does not mean music, TV/movie streaming, etc.
TL;DR: This is about positioning in the mind of customers. This is important. It affects g—in fact determines—rowth, profitability, and success in each of these markets.
Hope that helps.
P.S. Don't make the mistake of assuming that the billion or so people that own iPhones are mentally and emotionally part of the "Apple loyalty" group. They're loyal to iPhone but still might not view Apple as a lot more than that. Some do, sure. But not likely even a simple majority.
* Example of detached from reality. You said, "Apple does not mean 'music' to most people." You really think that? You think Apple hasn't built a strong connection with music in people's minds? I'm pretty Apple has a pretty solid track record when it comes to associating itself with music. iTunes Music Store, iPod, GarageBand, Logic are all examples. Hell, Apple used to host a yearly music festival.