A Blog by Jonathan Low

 

Mar 27, 2019

Apple Is Reinventing Itself As the Ultimate Middleman. Collision Course?

Amazon, Netflix, Disney, Google, Facebook, Alibaba, Tencent...

Not that it wasnt already competing implicitly with most of these equally popular and well-heeled giants, but now the challenge is explicit.

Apple is betting that its investment in its electronic ecosystem will now pay off in hoovering up subscribers. But it is not the only one with network advantages. And at a $1,000 a pop for iPhones, loyalty, especially in the emerging markets where future growth lies, may less secure than previously. JL


Will Oremus reports in Slate:

To keep growing, Apple has to find a new way to extract money from the hundreds of millions of people who have already bought its devices. This is the new Apple then: a company that doesn’t just sell you devices, but inserts itself into an ever-growing number of transactions that it wants you to make on them. It’s setting itself up as the middleman between its users and TV, gaming, the news, and whatever else it might think of next. But unlike the iPhone, all of the company’s new services face substantial existing competition.
Are you ready to pay Apple a monthly subscription fee for access to a bunch of magazines on your phone? Apple News+ might be for you.
How about a monthly subscription fee for access to a bunch of games? Apple Arcade might be for you.
And could Apple interest you in paying a third monthly subscription fee for an ad-free streaming TV service? Then Apple TV+ might be for you!
If that’s all starting to sound like a lot of payments to manage, Apple has just the thing for you: Apple Card. It’s a new Apple credit card, built into Apple Wallet, that you can use to pay Apple for all the things you do on the devices you bought from Apple. And if you use Apple Card with Apple Pay, you’ll get cash back delivered daily to your Apple Wallet.
This is the new Apple: a company that doesn’t just sell you devices, but inserts itself into an ever-growing number of transactions that it wants you to make on them. CEO Tim Cook calls this “services,” and it’s at the heart of a transformation the company is just beginning to make. Whether it works will depend on Apple’s ability to keep happy both the people who make the content and the people who consume it—a delicate balancing act that will test the company’s diplomacy as well as its pricing acumen.
For the past 12 years, Apple’s primary goal has been to sell more and more iPhones, for more and more money. Its enormous success in selling iPhones made it the world’s richest company—until recently.
Now, iPhone sales are finally leveling off, and at $1,000-plus, they’re pushing the limits of what people are willing to pay. And while Apple has developed a number of other successful gadgets, from the iPad to the MacBook to Apple Watch and AirPods, it’s clear by now that not one is on track to become “the next iPhone.” That’s part of why Microsoft passed Apple in November to become the world’s most valuable company by market capitalization.
To keep growing, then, Apple has to find a new way to extract money from the hundreds of millions of people who have already bought its devices. At an event on Monday in Cupertino, California, Cook finally showed us what that will look like.
In a world where more and more people are willing to pay for content online, Apple has decided to throw its energy toward capturing as much of that revenue as possible. To do so, it’s setting itself up as the middleman between its users and TV, gaming, the news, and whatever else it might think of next. And while that might sound like a losing proposition for both content creators and consumers, there are reasons to believe it might work.
At a time when magazines and newspapers are increasingly putting up paywalls and turning to subscriptions for revenue, Apple News+ promises to let you read stories from more than 300 magazines for $9.99 a month. Making it sound like the sort of deal you’d find on a TV infomercial, Apple noted that subscribing to each of those magazines individually would cost more than $8,000 per month.
That could indeed be a solid deal, depending on how many you’d otherwise subscribe to. But “News+” is a bit of a misnomer, at least for now: The deal includes content from just two major newspapers, the Wall Street Journal and the Los Angeles Times. And CNN’s Brian Stelter reports that only a portion of WSJ content will be available as part of the package. This makes sense when you consider that Apple News has a history of squeezing its news partners—and reportedly continued to do so in talks over Apple News+ by demanding a 50 percent cut of the revenue from each subscription.
Details on Apple Arcade and Apple TV+ are fuzzier, and the company has said nothing about pricing yet. In both cases, as with Apple News, Apple plans to charge one monthly fee for access to a wide range of content that you might otherwise pay for individually. And in the case of Apple TV+, the company will also develop its own star-studded programs, following the model pioneered by Netflix and Amazon.
Apple Card, the new credit card on which Apple is partnering with Mastercard and Goldman Sachs, has already been dismissed by Lifehacker as “an average rewards card.” But it does promise some nifty privacy and security features: The card itself has no number on it and no security code, relying instead on Face ID or Touch ID for authorization. Apple has also integrated some Mint-like software to help you track and budget your spending.
Apple is not new to the role of intermediary, of course. It upended (and infuriated) the music industry when it launched iTunes in 2003. Its App Store, which opened in 2008, is both a huge success in its own right and a critical factor in the iPhone’s success. More recently, it took on Spotify with Apple Music, which appears to be the template for its new services. Apple has a huge captive audience, a well-earned (if slightly battered) reputation for user-friendly design, and at least some history of success negotiating with media and entertainment giants.
On top of that, the company continues to push privacy as a selling point, promising that Apple News+ won’t allow advertisers to track you and Apple Card won’t track or sell your purchase history. Apple also says the new services will work with family sharing, meaning that one subscription can serve your whole household. And they’ll come with personalized recommendations powered by a carefully designed form of machine learning that Apple maintains is compatible with its privacy pledges.
This would all be rather expensive, of course, for the people Apple expects to sign up for these services. But many iPhone users are already paying for news, gaming, and TV in various forms. Apple’s proposal in each case is to package, in user-friendly form, a bundle of subscriptions, some of which customers might have otherwise purchased piecemeal. In other words: Yes, it’s a lot of subscriptions—but maybe fewer than some would have been tempted to buy otherwise.
In short, Apple could be very good at this game. But unlike the iPhone, all of the company’s new services face substantial existing competition. And at some point, if Apple’s customers really do track their spending the way the Apple Card allows, they might start to worry that they’re paying Apple, itself, entirely too much.