Apple is trying everything it can to build an internet services empire. It’s the only thing Tim Cook ever wants to talk about these days.
And you know what services companies love the most?
Subscription bundles.
So let’s talk about what an Apple Subscription Bundle would look like and why Apple would want to have one.
Two trends are clear at Apple:
1. Revenue from the iPhone is down and the Apple is trying to shift over to making money from internet services instead.
2. The company is preparing to launch a lot of new services. Beyond things like Apple Music and Apple Pay, they are rumored to launch a Netflix-like video streaming service including exclusive videos from the lives of Oprah, a gaming subscription service, probably focused on iOS games and even a news subscription service that would let you access all the pay walled news with one centralized subscription. Each for roughly 10 dollars a month.
And those are just the services we’ve heard of, but there are probably multiple more in the works too. So, we just know Apple is at least thinking about bundling those services together. I mean, nearly every successful services company does, because it’s really profitable to do so.
For example, Microsoft has Office 365, Google has a similar bundle for G-suite, Amazon has Prime, and Adobe has the Creative Cloud bundle.
The bundling trend doesn’t seem to show any signs of slowing down and I think Apple is positioning itself to do something similar with its product portfolio.
So there are really two questions to answer.
1. What would an Apple subscription bundle look like?
2. What’s the business logic behind this whole bundling thing?
Of course it’s hard to predict the exact bundles that will emerge, because we are speculating on yet unreleased services, but I think it’s both fun and kind of useful to make some educated guesses.
So, I’ll share 2 of my favorite potential bundles:
1. The Apple media bundle is what I’ll call the more realistic one in my opinion. It would include the existing Apple Music service together with the upcoming video streaming, news and gaming subscriptions, and maybe a few extras a month like special in-game items like exclusive Fortnite skins, App Store gift cards or credits and so on.
Imagine this thing for, say, 20 dollars a month instead of the $40+ the services would cost individually.
Just imagine Apple saying you get premium access to all 4 major forms of media, which is music, videos, games and news, for one subscription.
If those yet unreleased services end up being any good, I can see a ton of people finding that attractive and switching to it and away from having multiple solo subscriptions like Spotify and Netflix.
That’s a lot of recurring revenue for Apple, but a pretty good deal a lot of people would be happy to jump on, I think.
2. Now, less likely but more fun would be if, just like Microsoft is doing with Microsoft Managed Desktops, Apple would also consider offering hardware together with one of its bundles.
Like imagine a bundle where on top of the Apple media bundle I just talked above, you would also get a new iPhone every two years, and, say, 1 TB of iCloud storage for good measure.
Apple would then take back your used iPhone after the period, refurbish it and sell it on to customers, since extending the life-cycle of iPhones is a stated goal of the company.
A bundle like this is pretty extreme, I guess. It would probably cost like $50 a month, which comes from $20 for the media bundle plus $30 for the cost of the iPhone spread out over 2 years.
Quite a lot of money, but not a bad deal and it could mean that Apple could challenge mobile carriers like Verizon and T-Mobile and their subsidized plans.
People hate being tied to their carriers, but especially in the US, they have gotten too used to not buying a phone at full price. But with an Apple subscription, they could get an unlocked phone that is subsidized. Now they would be stuck with Apple, but I guess most iPhone users already are anyway.
Alright now, let’s move on to the business logic.
So, why would companies create bundles in the first place when they seem to make things cheaper for us, the consumer. So a subscription business can be simplified to 2 key elements.
Number 1, customer acquisition costs, i.e. how much it costs to convince someone to start using your service, and
Number 2, the customer lifetime value, i.e. how much money you will make from a user in total.
One acquisition gets many people to use many services, which is typically cheaper. And once acquired, companies can typically make more money form users with a bundle.
For a start, the bigger the bundle the harder it is to leave.
I might be ready to quit one service in my bundle, but maybe not all of them, and even if I do, I can’t convince all of my family members to leave all of those services behind as well.
Bundles are sticky and incredibly hard to leave and profitability is usually not bad either.
A typical bundle looks something like this: You get 5 services for the price of 2 or something.
Seems like a good deal to you and also a good deal to the company, because it doesn’t cost them 5 times as much to get you those services.
Typically software like Office apps and games, as well as self-produced media like TV shows cost a lot to make up front but there is no significant cost to delivering it to new customers.
They are not physical products that you have to manufacture again and again for each user.
So in a bundle you, the user, get to enjoy more services and the company manages to get you to pay a higher average price than you would have without the bundle without significantly increasing their costs.
There are some exceptions to this, like music streaming, where companies have to pay lots of royalties to a record label after every steam, but for most bundles this holds true.
So bundles are a cost-effective way to acquire new users, they increase total revenue of a company without proportionally increasing costs and they make an ecosystem extremely hard to leave.
Those are all things Apple loves.
So if indeed they come up with all the services they are rumored to come up with, I fully expect them to start bundling them up soon.
