Why Apple Is No Longer a Tech Company (And Doesn’t Want To Be)
Apple, the largest publicly traded company in the world. Notice what I didn’t say here. I didn’t label Apple as a tech company because arguably it isn’t one and it definitely doesn’t want to be. With its keynote event on March 2019, Apple made clear that it’s setting course for a new future, one following in the footsteps of Disney, Netflix and especially Amazon. In this post, we’ll see how Apple plans on breaking out from its history as a hardware seller and on transforming into a digital services company.
Apple undergoes digital transformation
In January 2019, Apple CEO Tim Cook sent a letter to Apple investors in which he addressed what was clearly a very disappointing quarter for the company. Apple’s largest hardware markets — smartphones, personal computers, and tablets — are all stagnating. And even though Apple is compensating to some extent by constantly increasing the price of everything, at the end of the day, there’s only so many people are willing to pay for an iPhone.
This is not to say that Apple’s hardware division is going out of business, no: Apple will continue sending hundreds of millions of iPhones in addition to wearables and iMacs.
However, it has become clear that hardware alone isn’t enough to keep Apple on top, at least not like it has done for the past two decades. Apple needs to branch out into new markets, not geographically, but digitally, and the frontier they’ve chosen to attack was the service business.
Now, this might not sound particularly innovative, and that’s true. Going into services seems to be the trend nowadays with Amazon, of course, being the most notable example as it continues to expand the full range of its services under Amazon Prime. On the other hand, Apple’s offerings are much more disjointed, but also tied with one common denominator; Apple’s hardware, the hardware ecosystem that keeps everything under the same roof.
Now and then
Let’s look at the current state of Apple services:
You have AppleCare warranties, iCloud storage for when your phone runs out of space, which it definitely will, and then you have Apple Music, which even though it reportedly has 50 million subscribers, it’s still nothing really revolutionary compared to its competition. All these services reflect Apple’s nature as a hardware-oriented business, a nature that Tim Cook is doing his best to outgrow.
So how is he going to do it? Luckily for Tim, he has a great example to go by — Jeff Bezos, the true vanguard of the services space at that scale with Amazon Prime.
Originally Prime began as a simple extension of the Amazon marketplace: you pay a subscription and you get cheaper and faster shipping. This core function is still at the heart of Amazon Prime, even after Bezos added free streaming, music, photo storage, eBooks, and everything else to it. If Tim Cook wants Apple to become a service company, he needs to find a cornerstone around which to base the entire service offering, and interestingly enough, he already has the answer.
In 2015 Apple launched the iPhone Upgrade Program where customers pay a monthly fee in exchange for having the newest iPhone every year. This Program transforms the iPhone itself into a service by moving away from device ownership and towards device leasing. With this Program serving as the foundation, we can easily imagine Apple Prime where you get the iPhone and the full range of Apple services in a single package.
Present Apple
Now, at present, there aren’t enough services Apple provides to warrant such a drastic move, but Tim Cook is doing his best to fix this. In the March keynote event, he announced a bunch of new services that would make Apple Prime a much more lucrative proposition. Perhaps the biggest one is Apple’s original content service called Apple TV Plus.
While to an outsider, this might seem like a declaration of war on Netflix and Disney who, by the way, are also setting up the service of their own in Disney Plus, in reality, Apple doesn’t have to compete at all.
Apple TV Plus has the significant advantage of being bankrolled by a company with very deep pockets, meaning that Apple TV doesn’t have to become profitable ever as long as it produces enough value for Apple Prime.
Although Apple TV Plus content doesn’t roll out until November 2019, we already know that it will be pre-installed on Apple’s base of 1.4 billion active devices. Giving it a huge advantage over streaming services that don’t have devices of their own. The biggest tip-off, however, is that Apple Prime is coming is Apple’s seemingly out of nowhere decision to also offer a credit card.
The aptly-named Apple Card shows Tim Cook’s intentions: he not only wants to sell you services but also wants to offer and monitor your means to buy them. That’s why the card comes with no annual fees, no late payment charges, and a lower than average interest rate. Its purpose isn’t to make money, but to make your entry into the upcoming Apple service system much more difficult to reverse.
The Apple card, after all, doesn’t have a card number, signature, or CVV code, and its whole idea is to be used as part of Apple Pay. When exactly will Tim cook formally announced Apple Prime is anyone’s guess, but the building blocks are already in place. Service revenue has only been going up these past few years, so it’s probably a safe bet that Apple Prime isn’t too far off.
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