Last March, Apple held a spring launch that lasted just over 100 minutes, launching a number of services including Apple News Plus, Apple TV Plus, Apple Arcade, and Apple Card. The launch was also seen as a watershed in Apple’s shift in focus from “hardware” to “services”, after which iPhone sales and revenues have slowed or even declined as the smartphone market matures, while Internet software services have become a more valuable part of the financial statements with higher margins.
Now, a year and a half later, Apple’s service revenue recorded $13.3 billion in the 2020Q2 quarter, the best since fiscal 2015, when service revenue was independent of Apple’s financial statements, supported by new services and traditional services such as the App Store and Apple Music. But hardware, including iPhones, iPads, Macs and wearables, remains the main driver of revenue, with about 80% of revenue contributing to hardware sales.
In this case, the performance of the new services, which were launched only last year, deserves special attention, but Apple has not disclosed the revenue of the new service separately, and even subscribers to some of the services are not disclosed.
We can only refer to data published by third-party statistics agencies andmedia, for example, apple TV Plus, which costs $4.99 a month, but when it went live last November, we adopted a “Buy a new device for free” marketing strategy, which provides a one-year free subscription experience by logging into the Apple ID on a newly purchased device.
Even with this almost “free delivery” strategy, the number of users Apple TV Plus can attract may not meet Apple’s expectations. As of February this year, Apple TV Plus had attracted only about 10 million subscribers, of which only half were active, meaning that more than half of them might have subscribed with the idea of “swasile wool”, which may later be due to the lack of content appeal of Apple TV Plus or other reasons.
Also less likely to fall short of expectations is Apple Arcade, a game subscription service that also priced $4.99 a month, with more than 100 games available in the library soon after launch, making it easier for subscribers to find their favorite kind.
Plus Apple gives game developers enough freedom and resources to focus on game development. Ultimately, like the Apple Store, Apple Arcade is built into a platform for subscribers and developers to provide a dual network ingress: the more subscribers, the more willing developers are to invest limited resources and launch more games, which in turn attract more users to Apple Arcade, creating a positive feedback loop.
Yet whether this dual-network effect works on Apple Arcade may be tested.
Apple has changed its previous operating strategy, eliminating some of its developing Apple Arcade games and shifting its focus to finding more high-quality games, Bloomberg reported.
Apple Arcade has launched nearly 120 games so far, but the lack of money may have prompted Apple to change its operating strategy. Game developers also say the shift also means that Apple Arcade’s pull-up and retention have not been as expected, as evidenced by the recent offer of a second free trial of Apple Arcade in parts of the United States and elsewhere.
As for the early launch of the apple News Plus, it has also been tepid, and recently lost a well-known publisher, The New York Times, who said that Apple News Plus’s news subscription strategy does nare them to connect directly with readers, so he feels that starting June 29th, i.e. will no longer work with Apple News Plus, and that previous articles will be withdrawn.
There is a strategic tension between a service-based and hardware-based business model: the former should maximize its market (for example, making more affordable devices), and the latter should maximize hardware differentiation.
In the years since the iPhone was born, Apple has made the iPhone the most profitable smartphone with its over-the-top device performance (Series A chips), beautiful design, hardware and software coordination (iOS system), and even though it doesn’t sell a lot of iPhone Xs, it still contributes to Apple’s profits with its high unit price.
But increasingly weak iPhone sales are unlikely to support Apple’s next decade, and even if wearables such as AirPods and Apple Watch cut the top market share in their respective fields, they are still a bit “small” compared with the revenue generated by the iPhone.
So Apple’s vision is a normal business decision in the service space, but the question now is how does Apple’s service break through the ring of new services that are tepid and traditional services are hard to break through?