Apple should mix hardware & services into 'Apple Prime' subscriptions, analyst says
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.
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.
Comments
Be curious to see what he actually did say.
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.
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.
It would NEVER be called ‘Apple Prime.’
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.