The Bundle Is Back
From Spotify to Apple News, bundles are back; are they better than ever?
One of the business world’s great apocryphal sayings goes something like this: “there are only two ways to make money in business: One is to bundle; the other is unbundle.” Netscape founder Marc Andressen attributes it to his buddy Jim Barksdale.
A recent spate of bundling news makes it clear that a new age of bundling is upon us:
- Hulu and Spotify announced a $12.99/ mo bundle that includes unlimited access to both services. It’s a nice savings, as Hulu (with ads) cost $7.99/ mo and Spotify premium costs $9.99/ mo. It’s an expansion of the two companies’ partnership: last year, they offered a student bundle for $4.99/ mo.
- On the heels of acquiring Texture, “the Netflix of magazines,” there are now reports that Apple is working to launch a subscription news in its Apples News app later this year. Apple has recently been pushing to bring in more revenue from its Services (think App Store and Apple Music), so this move fits in line with its broader strategy. Speaking of Apple Music, it was also recently reported that Apple Music now has 40 million subscribers, creeping towards Spotify’s 70 million.
- Comcast and Netflix announced that customers will soon be able to add a Netflix subscription to new and existing Comcast Xfinity packages.
- Medium’s Ev Williams wrote about the Medium model, bragging that it’s “one of the largest bundles of original content of its type, so it’s a great value for readers.” Medium launched its subscription model a year ago, and apparently it’s going great (graph without a y-axis be damned).
- Jeff Bezos revealed in his annual shareholder letter that Amazon Prime — the bundle of all bundles — has over 100 million subscribers. By tacking on benefits at recently acquired Whole Foods, the scope of the Prime bundle continues to expand.
In addition to Netflix and Spotify proving that subscription bundles can work, the recent fire Facebook and other ad-driven companies have come under has give the bundle even greater tail winds.
Meanwhile, with the official launch of ESPN+, the sports broadcasting giant has dipped its toes in the water of the over-the-top future, albeit cautiously. ESPN won’t offer many of its flagship sporting events on ESPN+, indicating a reluctance to fully embrace a digital future. Despite staff upheaval and non-stop talk of “cord cutters,” ESPN’s cable TV business remains profitable. Further, ESPN owns (and continues to bid on future) rights to sporting events, meaning it has an intellectual property moat that others don’t necessarily have. Sporting events need to be seen live, while very few other events do. As such, ESPN doesn’t want to make the shift to digital too soon, thereby undercutting its existing cable business before it needs to do so.
Really though, the pendulum swinging from bundled to unbundled and back again is a reflection of the underlying technology: in the early 2000s we all carried around individual songs on our iPods. They took forever to update — and we had to hardwire the iPod into our PC — so it was fine if we just bought a few songs. Then, as cloud storage and streaming became technically (and economically) feasible, consumers shifted to streaming services. Chris Dixon has a great explainer on bundling economics here, but the conclusion is this: in the end, bundling is beneficial for buyers and sellers.
But, bundling can also be used as an anti-competitive mechanism. I recently warned that Google’s Chrome ad-blocker may be an attempt to do this:
This forced tying of products together is what often gets monopolies in trouble with the law, in one way or another. AT&T’s attempt to force consumers to buy its own phones and network attachments was eventually deemed unreasonable and unnecessary by the FCC. Similarly, Microsoft’s attempt to bundle Internet Explorer with the OS eventually caught the DOJ’s attention, leading to a landmark antitrust case. And now Google is attempting to leverage its browser to squeeze the ad blocker market.
Of course, Spotify is nowhere near anti-competitive behavior: it’s not even profitable, and tech giants like Apple and Amazon are nipping at its heels. In fact, the bigger anti-competitive worry is these tech giants that can bundle together any number of services making it almost impossible for startups to compete.