Apple will launch Apple One alongside the new iPhone 12. That could take its valuation to $2 trillion, while hurting prospects for Netflix & Spotify.
There are already high expectations for the iPhone 12, likely Apple’s first 5G-enabled phone and the new 'Apple One' services bundles could be the icing on the cake.
The idea is to encourage customers to subscribe to more Apple services because they get a lower cost when bundled together. They may as well have called it ‘Apple Prime’ because this is using the Amazon Prime model.
Apple's services division includes: Apple Pay, Apple Music, iTunes, Apple TV+, News+, iCloud and the App Store among others.
Bloomberg reports there will be 4 categories for Apple One, which could change before launch with a basic package that includes Apple Music and Apple TV+ ranging up to a premium package that includes extra iCloud Storage.
The iPhone is what holds the ecosystem together, but Apple services are becoming an increasingly large revenue driver for Apple- in fact the division reached a record high revenue in Q2 2020. (see the chart below from Statista). It makes sense for Apple to push this even further- and it just so happens its good for us investors because it’s a reliable revenue source.
For now it is early days, but we suspect the end goal here is to include the purchase of the handset into the monthly bundle- then the customer is completely wrapped up in Apple products and services. If this can be achieved; Apple will probably be the first $3 trillion company too.
Adding multiple bundle options does carry risk- they need to be understandable or customers will get confused and shun it. The services themselves need to be up to scratch too. For example Apple TV+ has limited content and has seen a slow uptake. On the flip side by bundling the less compelling services with the more popular, they might see a faster uptake than they might have otherwise.
A 1-month comparison of Apple, Netflix and Spotify
Shares of Apple have leaped nearly 15% in the last month, while Netflix shares have slid 8%, reflecting the differing reaction to each company’s Q2 earnings and guidance for Q3.
If customers are drawn to Apple through the new iPhone model with 5G and Apple services are presented in a more attractive manner at a better price, rival services could come unstuck.
Many competing services are wrapped up into the big tech giants, which have a diversified list of services. YouTube Premium and Google Music are part of the Google universe, while Amazon Prime Music and TV are part of Amazon. Gaming services that might compete with Apple Arcade include Microsoft’s Xbox Game Pass and Sony’s PlayStation Now.
The biggest direct competitor to Apple Music is Spotify and the biggest competitor to Apple TV is Netflix. If you think Apple is onto a winner with Apple One, Spotify and Netflix are probably the losers.
Read our next article: Eur/usd fundamentals part1 treasury bund yield spread