Comment | Apple finally starts romancing services

Sounak Mitra

This was probably the first time that an Apple event had nothing to do with devices. It was all about services that consumers need on a daily basis — entertainment, news, gaming and financial services.

What can be termed as the biggest shift in the company’s history, however, did not come as a surprise. Apple chief executive Tim Cook has long been wanting to build its services basket—an area where Apple has had limited success in the past. One of the key reasons for this shift, undoubtedly, is that its flagship device iPhone is losing its charisma.

Apple has launched four key services: a streaming service (TV+), a news service (News+), gaming service (Arcade), and a full-fledged credit card in association with Goldman Sachs and MasterCard named Apple Card, which has been termed as the “thinnest and lightest status symbol ever” by The Verge.

All the four areas where Apple has put its bet on are crowded with multiple players and involves risks. It’s a gamble but Cook has few alternatives.

Apple’s revenue from services grew by around 33 percent in 2018 to $39.75 billion, accounting for around 15 percent of the company’s total revenue of $265.6 billion. In contrast, iPhone sales have been declining.

Apple’s ambition to make video streaming a big revenue earner is a well-known secret. While Apple TV did get takers outside its home market, the company’s long-term plan is to market its entertainment services across more than 100 markets worldwide. Though it may not become the Netflix killer in its current form, its initial budget of $1 billion for original programmes will surely attract enough users who would not mind paying for it.

However, this is not comparable to Netflix that plans to spend around $15 billion on content in 2019. Netflix has about 137 million users in 190 countries. As Apple has changed the way people communicate, it may be looking at redefining entertainment. This is possibly the reason why analysts are hopeful. Morgan Stanley estimated that Apple could generate around $37 billion from media services by 2025.

Apple’s $10-News+, termed as “Netflix for news”, is the outcome of its Texture acquisition last year.

As for gaming, it is a natural progression in the services space. In any case, the company has been talking about gaming for quite some time now, including in earlier launch events when it highlighted gaming features on iPhones and Macbooks. In each of these areas, there are hundreds of companies operating globally.

The Apple Card, again, can be termed as a logical extension of Apple Pay, Apple’s mobile payments service that has seen reasonable success. Here, Apple is playing on the security aspect, an area that has always been a concern for consumers. Apple Card is a number-less card that reduces the possibilities of theft. However, it may not be a cakewalk for Apple. Even if Goldman Sachs is a partner, the investment bank has its own reasons to push its digital consumer retail arm Marcus.

Besides market-specific big players, Apple will have to compete with the likes of Facebook, which has been expanding its presence in the payments space through its messaging services WhatsApp and Facebook messenger, among other things. E-commerce giant Amazon, which has a big presence in video and music streaming market with the reasonably priced Prime membership, is also pushing its payments service Amazon Pay.

The good news for Apple is that it has learnt from its mistakes with Apple Music which it had hoped to build all on its own. That’s simply the reason why all of Apple’s latest services are built in partnerships.

In the end analysis, except for the the fact that most of the new services will be restricted to Apple devices for now, Apple does not really have any key differentiator in the crowd full of competitors with deep pockets.

Considering the fact that Apple has opened up iTunes movies and TV shows for non-Apple devices earlier this year, it may also look at opening up other services for non-Apple devices.

For long, Apple’s uniqueness was its controlled end-to-end device-to-services environment which has always ensured the best experience for Apple users which unfortunately is diminishing fast. What Apple needs is to find a key differentiator – like it has done with most the devices that it brought to the world – to find that niche that could potentially determine its success in the over-crowded services market.

What about India?

None of these services is coming to India anytime soon, except maybe the gaming service Arcade. Before Apple brings TV+ to India, it will launch its TV, and the company is unlikely to launch its service without building special content suitable for local consumers. Besides, the proposed new e-commerce policy is likely to restrict foreign-owned companies from operating an inventory-led model that includes digital streaming services. That’s true for News+ as well. In order to enter India, Apple will have to first get into an arrangement with Indian news outlets. Otherwise, there will be very few takers.

Apple Card will have to wait. Apple has reportedly halted its plans to launch unified payments interface-based mobile payments service in India due to data privacy and localisation of data storage issues. Without Apple Pay, Apple Card just hits the wall.