Ready Player One — Apple Edition
Ready Player One is an entertaining movie. But let’s talk about Apple One instead. This week, many maybe care too much about no new iPhone announced at the Apple Even — 09/15. Even there could be many reasons, it’s a pretty clavier strategy. Because people do talk more about it. I’ll share my 2 more cents later. But first things first: people really need to get more creative on naming, Apple One seriously? Like there is not enough [whatever] One already. Besides Neo, no one sticks in a huge way. Once again, Apple wants to “reinvent” the One. No thank you, I rather wait & watch… the Matrix 4 instead 😉.
Before we dive into my extrapolations of the “strategy”, please bear in mind: “Ideas are easy. It’s the execution that’s hard.” Besides, there is always more than one reason why any One can disrupt the market. So allow me to offer casual thought experiments here. Now, let’s “Start with Why”. tl;dr they are big money, lock-in customers & guaranteeing business prosperity for the next decade.
Big Money
I’ll leave the real math to professional, but let’s get a rough idea at least. Apple has ~1B users & targets 600M paid subscriptions by the end of 2020. Even it’s small now, it does grow fast. Besides, the upside is huge. To compare, Netflix has 190+M subscribers & Spotify has 130+M subscribers. The subscription business is all about economies of scale. And, Apple One will want to be Apple’s Amazon Prime, which has 150+M subscribers. Now you know why Spotify is so worrying about this.
One more thing, I believe Apple does the math much better than me. However, if I have a say, Apple should do much better than $15/mo. because the name of the game is scale — “Your margin is my opportunity”. Instead, Apple is too “good” at playing Scaled Pricing too well.
To be fair, low price is never Apple’s game for many good reasons. Saving 29% is already a big bargain from Apple. After all, Apple is still mainly in the device selling business & a “premium brand”. Nevertheless, if you want to play a subscription service game well, you better think & act like a serious one. For example, how about just $15/mo. — a flat price to Family or even Premier? It is sweeter to grow the user base quicker.
Lock-In
Every business pursues some form of Vendor Lock-In strategy. Of cause, it works better when you reach a critical mass. Apple is no doubt the 800-Pound gorilla. And there have been so many success stories. e.g. Nintendo is profiting a 400+% big from COVID-19. Which is an upgraded version of Vendor Lock-In. The high-value contents have similar stickiness if your catalog is big enough. Just check out how Disney Plus quickly reached 60M+ subscribers in less than one year. Apple wants to play the same card. Besides, it will also keep the customers to:
- continue to buy more Apple products
- bring new customers: family & friends
- reduce content cost(acquisition or producing) & bargain power.
Future Prosperity
It’s not news that the smartphone market is mature. Even Apple is still killing it & manages to grow iPhone by 6% 2020 while the whole market drops ~10%. To keep growing, Apple eventually entered the lower-end market, e.g. iPhone SE-2020. Which will hurt the margin. In short, it has been a hug Cash Cow, and Apple needs new Starts for the next decade. But iPhone is huge, 150+ billion as ~55% of the revenue. No device has that potential nor on track to get closer to that size anytime soon. Apple is very smart to put up a new All-Star game. Subscripted Services are the key player and Apple One will be the key secret sauce. Not just because Services grow faster, 14+% and contribute ~19% of revenue but ~32% gross profits. But also, it’ll be the most valuable support player (to sell devices) & a good compensation of the iPhone SE strategy.
Another Giant Hole
Can you believe it? It was 1997, Steve Jobs shared a “playbook” with developers. As I switched gears to work on the In-Vehicle Infotainment system early this year, it strikes me how the history rhymes. It happened in the computer & mobile industries. It’ll happen again on Automotive. The question is when not if. And the game is pretty much the same. For example, the majority of car OEMs are still doing “Non-Connected Computers” / IVI systems today. However, Tesla has shown how a connected IVI system may be.
There is no going back. You just can not compete if you don’t fully embrace the new mentality “yesterday” 😉. If I’m a Car OEM, I’ll even rethink how this may help me to transform my customer relationship & expand to new “app economy & subscription business models”. To whoever wants to play the new games in Automotive: “What are you waiting for?”
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
