Services Revenue Mix Could Reach 20% By 2020

Photo: @rwang0

On March 25, 2019, Apple held its special event on services at the Steve Jobs Theater in Cupertino, CA to launch and/or revamp 4 key services including:
  1. Apple News+. New service adds 300 magazines, the Wall Street Journal and more publications to 875 million iPhone users across 1.4 billion active devices around the world. The terms, as high as 50% of subscription revenue, expand reach and access, especially for mid-tier publishers. Users pay $9.99 a month for this service based on the Texture acquisition and Family Sharing is included in the subscription access. The initial analysis sees Apple News+ elevating journalism and fighting click bait and fake news via a subscription based ecosystem.
  2. Apple Arcade. The jump into the gaming business gives developers an opportunity to join an exclusive Apple ecosystem built on subscriptions. With an expected 100 unique titles to be added across 150 countries, Apple's foray into gaming will go up against Google Stadia, Microosoft Xbox Games Pass, and Sony's PlayStation Now. Some of the best gaming legends such as Final Fantasy mastermind Hironobu Sakaguchi and Sim City's Will Wright will create exclusive content. As part of the process, "Apple will help fund the creation of new games that will then be exclusive to Apple Arcade", noted Ann Thai, a senior product manager of AppStore who was on stage to make the announcement. Pricing has not been announced.
  3. Apple Card. Apple, GoldmanSachs, and MasterCard battle against card issuers with a new card ecosystem aimed at users who seek daily cash back and tools for managing personal finance without selling out on privacy. With only half of Apple users using ApplePay and payments as the core to the services foundation, Apple has created an offering that includes both a physical card, digital wallet, cash rewards, and personal finance management tools to spur adoption. Daily cash back offers 2% cash back on Apple Pay purchase, 3% cash back on Apple Products, and 1% cash back for all other purchases. Security provides a big differentiator with biometric verification on the device, one-time dynamic security code generation, and contactless payment.
  4. Apple TV+. Apple TV+ should not be confused with the device. As the videos subscription service, Apple TV+ will be accessible across all platforms and devices. With $1 billion committed to content creation, Hollywood converged on Cupertino as Apple demonstrated its seriousness in creating original content. The big guns, Steven Spielberg. J. J. Abrams, Reese Witherspoon, Jennifer Aniston, Oprah Winfrey, and even Big Bird took a few moments on stage to talk about their shows and emphasize the compelling nature of their content. Pricing for Apple TV+ remains to be determined.

Figure 1. #AppleEvent First Step To A Services Oriented Apple

Photo: @rwang0

Figure 2. Twitter Moments for #AppleEvent

Catch the news coverage:

VIDEO on TDAmeriTrade

VIDEO on Yahoo!Finance


The Bottom Line: Content + Network + Technology Power Data Driven Digital Networks

The shift from products to services drives the first step of many as Apple embarks on its own digital transformation journey. Apple's not only building multiple and recurring revenue streams to hold and drive device sales, but also activating its brand promise from innovation brand to inspiring a consumer movement around privacy and commerce. By prioritizing trust over click bait, fake news, and ad sales based on privacy data, Apple can expand its base oof 1.4 billion iPhones, iPads, Macs, and other devices.

Meanwhile, Apple also revealed key theme differentiators from the competition in creating its new services empire:
1. Design driven centric approach
2. Privacy first
3. Expert curation AND #MachineLearning for precision contextual content recommendations
4. Value based pricing in pay as you go access
5. Family sharing

In order to succeed in the next phase of digital transformation, Constellation sees the emergence of digital duopolies built on vertically integrated data models. In Apple's case, the have to put content, network, and technology together. Today, they have a dominance in devices (technology) and a distribution network (retail and app store). Apple's services initiative bring the missing content piece to drive the percentage of revenue from 15% to 20% by the end of 2020. Should Apple activate its 10% of its 50M subscriber base to add $20 to $30 per month in services, they could catch up with Spotify (96M) and Netflix (140M) in three to five years time. While hardware will always remain important, it's hardware plus services that will serve as the foundation of these digital experiences. Apple and Tim Cook must bring the right talent in to orchestrate one of the biggest transformations at one of the world's most valuable companies.

Your POV.

Can Apple survive their service strategy? Will they be able to survive the shift to data-driven digital networks (DDNs)?  Add your comments to the blog or reach me via email: R (at) ConstellationR (dot) com or R (at) SoftwareInsider (dot) org.

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