Boyden Executive Search

With iPhone sales slowing, Apple is rolling out new offerings that build on the success of its thriving services business and legions of customer relationships.

Apple still earns most of its revenue from devices, but its services business is growing rapidly, accounting for nearly $40 billion of its $266 billion in revenue in 2018. Some analysts estimate that Apple’s services business, led by the App Store and Apple Music, is worth more than its hardware business. The tech giant’s next move, announced by CEO Tim Cook on March 25, is a suite of products and services including video streaming, news, games and a credit card.

This brings Apple into new competitive arenas – and the 900 million iPhones distributed worldwide could give it an edge in just about all of them. In taking on Netflix in streaming video, for example, Apple already has access to a much larger audience: iPhone users outnumber Netflix subscribers six to one. Analysts say the new offerings could eventually comprise a service similar to Amazon Prime, with customers paying a flat monthly fee for news, games, cloud storage, music and video.

Cook discussed rolling out five separate offerings, including some spruced-up iterations of existing services, chiefly expanded versions of the company’s subscription services. The updated Apple News will include a number of magazines as well as newspapers, including the Wall Street Journal. In the U.S., premium networks such as HBO, Showtime and Starz will also be included. A new subscription service for gamers, Apple Arcade, will include more than 100 titles.

Another evolving service is Apple TV+, which will offer original programming in over 100 countries. Apple’s investment in original programming is dwarfed by that of Netflix and Disney, which plans to launch video streaming in the near future. But Apple has a different strategy. Its programming, at least at the outset, is meant mainly to draw customers into its ecosystem of apps and services.

Customers will be able to pay for all of their Apple services with the new Apple credit card, developed in partnership with Goldman Sachs.  It has no fees and will give customers 2% cash back on purchases made through Apple Pay, the company’s payments system, and 3% on purchases of Apple products and services. This puts Apple in direct competition with banks.

Among content providers, reactions to Cook’s announcement have not been positive. The New York Times and Washington Post, for example, have declined to participate in Apple’s news services. Similarly Netflix and Disney will not be a part of Apple TV+, which they see as a threat. The Economist reports that according to industry insiders, “The future of media will belong to whoever controls relationships with consumers”. This is where the iPhone’s ubiquity gives Apple a big advantage; namely, hundreds of millions of established customer relationships.

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