Apple services: One service to rule them all or fuel them all?

(Image credit: Image Credit: Syda Productions / Shutterstock)

Apple’s recent announcement of Apple Services marked a new era for the tech giant. It marked its transition from a consumer tech hardware company to a fully comprehensive entertainment streaming service. At its recent unveiling, the tech company announced it’s sowing its own seeds in the very industries it helped to create with the proliferation of smartphones: a shrewd move. Apple is reported to have 1.4 billion active devices worldwide and an iPhone install base of 900 million. The boom of mobile apps has followed the rapid install of smartphones across the world and 2018 was another record breaking year. App Annie reported 194 billion mobile app downloads, an astounding $101 billion in consumer spend globally and the average user now spends up to 3 hours a day in apps.

Mobile’s expansion is prolific, impacting every business in every industry by changing consumers’ daily habits through gradual, seemingly small changes to everyday transactions. From the way we consume content to how we bank, shop and date, 2019’s consumers are used to reaching for their mobile as a remote control for life. As the install base of smartphones is rumoured to be nearing saturation, Apple is being strategic in future proofing the value it offers to customers. Steve Jobs is famously quoted for saying “Some people say, "Give the customers what they want." But that's not my approach. Our job is to figure out what they're going to want before they do. I think Henry Ford once said, "If I'd asked customers what they wanted, they would have told me, 'A faster horse!'" This move from Apple shows Tim Cook is carrying this legacy through in the company’s evolution.

Within 10 years, the smartphone has evolved from a digital swiss army knife to an entertainment hub. In 2010, top apps worldwide by revenue were dominated by productivity apps from with apps like DataViz’s ‘DocumentstoGo’ at #1, ‘Logmein Ignition’ at #3 along with Google’s ‘Quickoffice’ at #7 and navigation apps filling the gaps: Garmin’s ‘NAVIGON Europe’ and TomTom’s ‘TomTom Western Europe’ and ‘TomTom Europe’. In stark contrast, in 2018, it was entertainment, lifestyle, dating and music apps that raked in the revenue. Netflix was #1 in 2018, with Chinese company Tencent’s ‘Tencent Video’ knocking out US’s Netflix from the #2 spot in 2017, maintaining its position in 2018.

What about gamers?

Mobile apps have become so ingrained in our daily lives, that each year’s top app charts accurately reveal changing consumer habits like a zeitgeist zoetrope. Looking at these latest trends, it’s clear Apple is being strategic with its latest move into the subscriptions industries. Rent-it-now is the new Have-it-now generation driving a $122B app economy. In 2018, App Annie predicted that 2019 would see global consumer spend in Entertainment apps grow 520 per cent, fueled largely from in-app subscriptions in video streaming apps. Consumer spend on in-app subscriptions is predicted to (largely) fuel the 2x growth rate for apps outside of games versus games, (albeit games will represent nearly 75 per cent of total consumer spend). However, while we’ve established this makes sense for Apple, what impact will the tech behemoth’s move have on other industries? Will bundling news services dilute brands or give publishers a lifeline from the decline of print and proliferation of online ad blockers? If mobile games are being driving already by subscriptions, does a gaming streaming service make sense for publishers? With the fragmentation of video streaming becoming increasingly convoluted, will Apple be successful in its attempt to pull users back onto one platform and can it compete with existing giants in the space?

If mobile games are being driving already by in-app purchases, does a gaming streaming service make sense for publishers?  Subscription mobile games individually offer more value each month, with fresh content and new challenges - in other words, incentives to keep paying. Apple Arcade, instead, offers entirely new games each month. It sounds like a small change, and a great deal for gamers, but the challenge here is in how publishers find their footing.  The majority of revenue in gaming [95 per cent+] is through in-app purchases. Gamers can download and play a game for free, but pay within the mobile gaming app to win extra bonus levels, new weapons, clues, etc to get ahead in the game.  With so many free games already available on the App Store to download every month, Apple will need a big incentive to pull people into its own platform at a fee. In some ways, Apple Arcade’s success depends on the same values of Apple TV+, the value of its content. With games from Lego already included in its platform, Apple will need to execute huge marketing campaigns in order to pull people in on the basis of individual games’ reputations (in the same way that Apple TV+ will lean on the reputation of its original shows and big names).

Moving into fintech

What prompted Apple’s move into fintech? Apple Card offers more potential interchange income than other Apple Pay transactions. Apple is learning from the top fintech apps what features work well - ie, what makes the best user experience - but isn’t claiming to disrupt the fintech landscape. Instead, it’s claiming another stake in the services market. Global downloads of Finance apps exceeded 3.7B in 2018, up 90 per cent from 2016 and the average user checks their bank account on mobile nearly daily in 2018, up 25 per cent from 2016. Apple has taken the best use cases and features from the top mobile banking apps and attempted to stake its own, unique, claim in the ground.

Apple TV+’s success will hinge on word-of-mouth and prestige recognition from award shows. For streaming, the downside is market saturation. How do you convince people with three video subscription services that they need to subscribe to a fourth? With its investment in big Hollywood names, Apple clearly understands the pull will be in its content and the dialogue it can create with new content with its investment in big names and big shows, taking note from Netflix (whose app topped revenue charts in 2018), Hulu and Amazon.  Moreover, video-streaming excels on mobile and continues to grow. In fact, 10 minutes of every hour spent consuming any form of media — across internet and television — in 2019 will be from streaming videos on mobile. Hence, doubling down in this space is incredibly important for Apple.

The increasing fragmentation of streaming services may well reach a tipping point where we go back to the start, effectively, with one platform hosting multiple content creators. Interestingly it seems to be futureproofing itself to this tipping point. Apple TV Channels is a single place where all the content from your various subscription services can live side-by-side. Perhaps Apple will continue its spending spree with an acquisition of other streaming services and/or their content.

Specifically, the battle will be in creating original content, as evident by others in this space, like Netflix, Amazon and Hulu. Apple, like others, need to incentivise through compelling content, and having star power at the event from directors to actors to singers definitely helps to do so.

What’s clear is the real winner is - in true Apple form - the customer. Not only are we going to see more original content and new games, but more competition and innovation inevitably leads to more choice for the end users.

Paul Barnes, MD EMEA, App Annie
Image Credit: Syda Productions / Shutterstock