8 ms·

The iPhone and Apple's Services Strategy

136 points by kaboro 7y ago

localhost 7y ago
I really like how Ben framed Apple's announcements through the lens of a services strategy, i.e., it's not about the hardware anymore. Instead he presents a solid argument for how keeping lower-priced cost-optimized SKUs around increases the addressable market for Apple Services. Aggressive promotion of Apple TV+ as a way to drive new subscribers to other services (an aggregation theory play) is going to be a fun thing to watch over the next few years. The only quibble I have with this piece is where Ben got the information about the Apple Arcade games being a fixed cost: "the company is paying a fixed amount for those games overall".
- scarface74 7y ago
  I don’t see any reason they wouldn’t be paying a fixed cost. It would allow Apple to offer Arcade at a low cost and high marginal profit and it would mean that game developers don’t have the risk of it not succeeding. Netflix also license it’s non original and original content for a fixed priced
  - simonh 7y ago
    Apple don't pay a fixed cost to the game studio, see other comments. Netflix don't buy at a fixed price either, the production company gets recurring fees based on views.
    - scarface74 7y ago
      No Netflix doesn’t. It’s a frequent complaint from producers of Netflix originals that Netflix doesn’t share viewership numbers with producers. If you look at all of their published deals like with STARZ, NBC for Friends, Disney etc. you can see they pay one fixed cost.
      - simonh 7y ago
        Aren’t those all reruns though, not originals? That’s quite a different situation. Existing shows are a known commodity. One of the things that enticed the producers of House of Cards was the revenue deal.
        scarface74 7y ago
        https://www.looper.com/164533/the-real-reason-netflix-wont-share-viewer-numbers/ https://www.looper.com/164533/the-real-reason-netflix-wont-s... Typically, licensing fees are negotiated for a few seasons at a time. It's a flat rate per season, so whatever production costs are incurred, they're paid for by the studio — not Netflix. If something goes over budget, Netflix has already paid to use it. Likewise, if a show is immensely successful (like, say Orange Is the New Black), Netflix doesn't have to worry about paying more for that, either. So by keeping viewership numbers private, Netflix actually has an edge in licensing negotiations between studios. Because if a studio doesn't know how popular a series is, it's harder to push for more money.
- 1123581321 7y ago
  Here’s an article saying something similar about how Apple is financing the games. It doesn’t list its sources, though. https://9to5mac.com/2019/04/14/arcade-500-million/ https://9to5mac.com/2019/04/14/arcade-500-million/
  - localhost 7y ago
    Thanks, but there's this quote in the article that you linked: "it is believed that game developers will receive ongoing revenue based on how much time users spend playing their games" So it looks like they're paying advances (significant - $1-$3M) against some kind of royalty agreement based on time spent playing their game. So not a fixed cost (but perhaps not everyone gets the advances against royalties deal?) Edit: I just looked over at the Stratechery forums and it seems like others are questioning this as well "For it to truly be a fixed cost, the participating game developers must be commoditized. Otherwise, they will demand increased payments as Apple’s revenues go up. That may well be the case for games, but I think it’s worth noting because Ben has repeatedly made the same claim respecting Netflix, where talent is not commoditized, and has a history of negotiating a fairly consistent share of revenue over time. There, it’s not reasonable to characterize Netflix’s costs as fixed, in the big picture. So it’s importantly to look more closely, rather than to assume that outright purchases of content translate to a long-term fixed cost structure independent of subscriber count/revenues."
    - anoncareer0212 7y ago
      For better or for worse, and it hurts me on a personal level to say this, but from Apple's perspective, the talent creating these games _is_ a commodity. Those rates are insanely high, there's not a remotely similar substitute available in the market, and you get the halo of Apple for the rest of your career. Apple's "services" strategy amounts to "commoditize complements; charge using monthly subscriptions". There is a fair distance between this and how other companies use "services". Trade carefully.
    - simonh 7y ago
      This is a very familiar model for Apple. It's how they approach innovative new hardware development as well. For example with retina Displays they paid for the tech development and even bankrolled construction of the manufacturing facilities in exchange for exclusive rights to buy their output. They did the same with lots of things. This is the same approach. Bankroll the initial development costs of the game, in exchange for exclusive rights to 'buy' the product (user attention).
- ksec 7y ago
  Fix Cost in the sense that it likely doesn't go up with more players. Apple are like the Game Publisher here where they pay a specific price for games from Studio. And remember all these games are exclusive to Apple Arcade. You see comments questioning whether this is fair. And of course it is, Gaming Business are quite risky, Out of 10 games you could have one Game that makes all the money while the other 9 have millions throw out of window. Apple is letting these developers avoiding those risk for a likely fixed up front price and terms. And it is the same with Apple TV+, all the shows are Apple Exclusive, it doesn't matter if they have Zero viewership. Apple has already paid for it. This is compared to Apple Music, where Apple have to paid for every song streamed. And it is not a fixed cost. I sort of disagree about "Pure Profits" from Services like Apple TV+. Name me one of these business that is even profitable, especially when you are looking ahead with Disney+. The Roku platform examples completely ignore they sell data to advertiser. Apple is using this to dilute their profits margin from Services, or add value to their Active Users. Both the App Store and Google Search Engine Placement revenue has close to 100% margin. Something you don't want to show up in your quarterly report. By having Apple Music, Apple TV+, Apple News that operate at close to 0% margin, Apple manage to make that 100% margin down to ~50%. And it will be another moat in their ecosystem, who wants to enter a business, News, Music, or TV when there are no money to be made?
achow 7y ago
Not announced in the event but mentioned in the article; this is a very telling indicator as well of Apple's service strategy.. AppleCare+ monthly plans switch to subscription model https://9to5mac.com/2019/09/10/applecare-monthly-subscription/ https://9to5mac.com/2019/09/10/applecare-monthly-subscriptio...
- Spivak 7y ago
  I think overall people are right that Apple wants to get in the services game but this specific example I don't think is particularly telling. This is something people have been asking for for a long time since the 2 year policy is super awkward for a device you might keep for 5 years. It will be telling when the monthly cost is lower than the up-front price.
- gumby 7y ago
  Do they plan to switch or merely offer it as an option? A monthly fee has been available for a while; what's new is that you can go beyond two additional years.
- agumonkey 7y ago
  Naively I thought it was apple watch + healthcare::
  - tibbydudeza 7y ago
    Coming soon ... republicans will disparagingly call it TimCare.
    - Dude2029 7y ago
      Nah, it's opt-in.
    - dang 7y ago
      Please don't post unsubstantive comments to HN, and certainly not partisan flamebait. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
brentis 7y ago
The most tired narrative ever.
neya 7y ago
That stil doesn't explain why the keynote was so boring. For the first time, I had had enough and closed it and walked away. Usually, Apple's iPhone announcements are pretty exciting. This time around, even the presentation itself felt like a giant corporate presentation sprinkled with keywords like "innovation" to make me believe they were innovating. There was nothing innovative about the keynote. The iPhone is a laggard at this point and there are far superior offerings at this point. A few years ago, I wouldn't have said the same and would have even ridiculed if someone claimed Android phones were better, but after playing with an S10+, iPhones really don't impress me anymore. "But it offers more privacy?" Nope. Didn't you read about the part where all your personal siri recordings were played out by contractors? Including sex acts and arm deals? What happens on your iPhone does NOT stay on your iPhone because it's proprietary software. Duh. I'm done with Apple. But I'm also looking for something beyond Android at this point. Wish there was a truly 100% open source phone I could trust.
- saagarjha 7y ago
  > there are far superior offerings at this point Such as? > all your personal siri recordings were played out by contractors Nit: not all, just a fraction.
- simonh 7y ago
  Pretty much all the voice assistant companies have been caught having people listen in at this point. Amazon, Samsung and Google for sure at least. It is pretty disappointing to find Apple in on the act as well though.
  - snowwrestler 7y ago
    There is literally no other way to apply machine learning to such a large problem. The system must have training data to learn from; as you expand the scope of your ML system, you must expand the scope of your training data. Every large commercial ML system works this way. Google for years has paid people to manually score and categorize search results pages, to provide training data for ML web search systems. It would have been better if companies were up-front about this when talking about "artificial intelligence" in their voice products, so it doesn't look like a nasty surprise. And in the long run, everyone will benefit from some consistent regulations on ML data scoring, like HIPAA for health care (another industry where for-profit companies handle very sensitive customer data).
alexashka 7y ago
Apple's strategy is holding on to the brand, while competitors slowly chip away at their market share, awaiting a mortal blow to their entire hardware-centric business strategy from cloud-first computing. Once most business software has a cloud equivalent that can run via an internet connection (Google is already trying to roll this out for gaming, wrong direction of course), Windows and Mac are finished. Once Windows and Mac are finished, it'll only be a matter of coming up with a new phone os that can run on 50-100$ devices (or android, yuck) and then Apple is really finished. Who's going to spend 2k on a macbook, 1k on an iPhone and 500$ on a watch, when you can have a 200$ computer, 100$ phone and 50$ watch that do nearly the same thing. Oh, and a 200$ point-and-shoot camera that'll forever beat any phone-camera due to camera size limitations inherent to phones. In fact I predict the next big consumer hit will be a point-and-shoot camera with a phone os. Microsoft knows this, Google knows it too - they're building out planet-wide infrastructure for cloud-first computing that's coming. Apple is jerking around with 0 progress on all of its platforms, milking brand loyalty, producing pretty, severely over-priced trinkets (awful battery life, awful keyboards, awful screen burn-in, insane ssd prices, awful ports requiring insanely over-priced adapters) to signal allegiance to a middle-class or up caste, and making their shareholders short-term rich, while long-term poor.
- majormajor 7y ago
  > Once most business software has a cloud equivalent that can run via an internet connection (Google is already trying to roll this out for gaming, wrong direction of course), Windows and Mac are finished. The desktop software I use day to day (IntelliJ, Zoom, Slack) already runs on Linux. The rest is already in the cloud. And yet, of my coworkers, we have about 1 in 50 folks running Linux instead of Mac. It's been this way for the last 6 years - I was actually on Linux in 2013, but have come back to Mac because it's still just all put together a bit nicer in both software and hardware. My last job even discontinued Linux support in that time period. At my partner's job, they also run on google docs and gmail, but since it's not a software dev job, it's 100% on Mac, without even that small Linux fraction.
  - nojvek 7y ago
    Running crap on cloud works great until you’re above the cloud or really below the cloud. Powerful edge devices will always be valuable. iPhone is prolly one of the most powerful edge devices out there
kart23 7y ago
Its smart. A lot of people didnt upgrade to the X, and the lower price makes it very appealing to get the 11. Apple tv+ seems like a great deal at only 5 dollars, and should attract tons of new customers, even though the service really doesnt have a great width of content, but apple is good at hiding that, marketing it as a viable alternative to netflix. Shareholders will be very happy at the next earnings call, and the stock has already been showing that.
mikorym 7y ago
Did anyone notice that nowhere in their keynote address they mentioned macbooks/laptops? Maybe I missed something, but that is crazy to me. Sure they make their money with iPhones, but their macbook lineup is what I am interested to hear about.
- nkkollaw 7y ago
  They'll have another event in October for that.
  - mikorym 7y ago
    Ok right, then it makes sense.
addicted 7y ago
I think stratechery has some good analysis, but too much of it is framed from an Apple fanboi perspective. It reminds me of what a grown up, financially focused, version of RoughlyDrafted would look like. And after having been an Apple fanboi for a few years but not anymore, it’s hard for me to read. As an example, this article itself justifies Apple’s 2016 keynote as being innovative because accessories revenues have doubled since. Doubling of revenues could mean and imply many things, but innovation is hardly one of them.
edmoffo 7y ago
The service is not the weakest part of Apple. Instead, is the complete lack of innovation nowadays. They lost everything since the death of Steve Jobs. Unfortunately.

136 points by kaboro 7y ago

I really like how Ben framed Apple's announcements through the lens of a services strategy, i.e., it's not about the hardware anymore. Instead he presents a solid argument for how keeping lower-priced cost-optimized SKUs around increases the addressable market for Apple Services. Aggressive promotion of Apple TV+ as a way to drive new subscribers to other services (an aggregation theory play) is going to be a fun thing to watch over the next few years. The only quibble I have with this piece is where Ben got the information about the Apple Arcade games being a fixed cost: "the company is paying a fixed amount for those games overall".

scarface74 7y ago
I don’t see any reason they wouldn’t be paying a fixed cost. It would allow Apple to offer Arcade at a low cost and high marginal profit and it would mean that game developers don’t have the risk of it not succeeding. Netflix also license it’s non original and original content for a fixed priced
- simonh 7y ago
  Apple don't pay a fixed cost to the game studio, see other comments. Netflix don't buy at a fixed price either, the production company gets recurring fees based on views.
  - scarface74 7y ago
    No Netflix doesn’t. It’s a frequent complaint from producers of Netflix originals that Netflix doesn’t share viewership numbers with producers. If you look at all of their published deals like with STARZ, NBC for Friends, Disney etc. you can see they pay one fixed cost.
    - simonh 7y ago
      Aren’t those all reruns though, not originals? That’s quite a different situation. Existing shows are a known commodity. One of the things that enticed the producers of House of Cards was the revenue deal.
      - scarface74 7y ago
        https://www.looper.com/164533/the-real-reason-netflix-wont-share-viewer-numbers/ https://www.looper.com/164533/the-real-reason-netflix-wont-s... Typically, licensing fees are negotiated for a few seasons at a time. It's a flat rate per season, so whatever production costs are incurred, they're paid for by the studio — not Netflix. If something goes over budget, Netflix has already paid to use it. Likewise, if a show is immensely successful (like, say Orange Is the New Black), Netflix doesn't have to worry about paying more for that, either. So by keeping viewership numbers private, Netflix actually has an edge in licensing negotiations between studios. Because if a studio doesn't know how popular a series is, it's harder to push for more money.
1123581321 7y ago
Here’s an article saying something similar about how Apple is financing the games. It doesn’t list its sources, though. https://9to5mac.com/2019/04/14/arcade-500-million/ https://9to5mac.com/2019/04/14/arcade-500-million/
- localhost 7y ago
  Thanks, but there's this quote in the article that you linked: "it is believed that game developers will receive ongoing revenue based on how much time users spend playing their games" So it looks like they're paying advances (significant - $1-$3M) against some kind of royalty agreement based on time spent playing their game. So not a fixed cost (but perhaps not everyone gets the advances against royalties deal?) Edit: I just looked over at the Stratechery forums and it seems like others are questioning this as well "For it to truly be a fixed cost, the participating game developers must be commoditized. Otherwise, they will demand increased payments as Apple’s revenues go up. That may well be the case for games, but I think it’s worth noting because Ben has repeatedly made the same claim respecting Netflix, where talent is not commoditized, and has a history of negotiating a fairly consistent share of revenue over time. There, it’s not reasonable to characterize Netflix’s costs as fixed, in the big picture. So it’s importantly to look more closely, rather than to assume that outright purchases of content translate to a long-term fixed cost structure independent of subscriber count/revenues."
  - anoncareer0212 7y ago
    For better or for worse, and it hurts me on a personal level to say this, but from Apple's perspective, the talent creating these games _is_ a commodity. Those rates are insanely high, there's not a remotely similar substitute available in the market, and you get the halo of Apple for the rest of your career. Apple's "services" strategy amounts to "commoditize complements; charge using monthly subscriptions". There is a fair distance between this and how other companies use "services". Trade carefully.
  - simonh 7y ago
    This is a very familiar model for Apple. It's how they approach innovative new hardware development as well. For example with retina Displays they paid for the tech development and even bankrolled construction of the manufacturing facilities in exchange for exclusive rights to buy their output. They did the same with lots of things. This is the same approach. Bankroll the initial development costs of the game, in exchange for exclusive rights to 'buy' the product (user attention).
ksec 7y ago
Fix Cost in the sense that it likely doesn't go up with more players. Apple are like the Game Publisher here where they pay a specific price for games from Studio. And remember all these games are exclusive to Apple Arcade. You see comments questioning whether this is fair. And of course it is, Gaming Business are quite risky, Out of 10 games you could have one Game that makes all the money while the other 9 have millions throw out of window. Apple is letting these developers avoiding those risk for a likely fixed up front price and terms. And it is the same with Apple TV+, all the shows are Apple Exclusive, it doesn't matter if they have Zero viewership. Apple has already paid for it. This is compared to Apple Music, where Apple have to paid for every song streamed. And it is not a fixed cost. I sort of disagree about "Pure Profits" from Services like Apple TV+. Name me one of these business that is even profitable, especially when you are looking ahead with Disney+. The Roku platform examples completely ignore they sell data to advertiser. Apple is using this to dilute their profits margin from Services, or add value to their Active Users. Both the App Store and Google Search Engine Placement revenue has close to 100% margin. Something you don't want to show up in your quarterly report. By having Apple Music, Apple TV+, Apple News that operate at close to 0% margin, Apple manage to make that 100% margin down to ~50%. And it will be another moat in their ecosystem, who wants to enter a business, News, Music, or TV when there are no money to be made?

achow 7y ago

Not announced in the event but mentioned in the article; this is a very telling indicator as well of Apple's service strategy.. AppleCare+ monthly plans switch to subscription model https://9to5mac.com/2019/09/10/applecare-monthly-subscription/ https://9to5mac.com/2019/09/10/applecare-monthly-subscriptio...

Spivak 7y ago
I think overall people are right that Apple wants to get in the services game but this specific example I don't think is particularly telling. This is something people have been asking for for a long time since the 2 year policy is super awkward for a device you might keep for 5 years. It will be telling when the monthly cost is lower than the up-front price.
gumby 7y ago
Do they plan to switch or merely offer it as an option? A monthly fee has been available for a while; what's new is that you can go beyond two additional years.
agumonkey 7y ago
Naively I thought it was apple watch + healthcare::
- tibbydudeza 7y ago
  Coming soon ... republicans will disparagingly call it TimCare.
  - Dude2029 7y ago
    Nah, it's opt-in.
  - dang 7y ago
    Please don't post unsubstantive comments to HN, and certainly not partisan flamebait. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html

brentis 7y ago

The most tired narrative ever.

neya 7y ago

That stil doesn't explain why the keynote was so boring. For the first time, I had had enough and closed it and walked away. Usually, Apple's iPhone announcements are pretty exciting. This time around, even the presentation itself felt like a giant corporate presentation sprinkled with keywords like "innovation" to make me believe they were innovating. There was nothing innovative about the keynote. The iPhone is a laggard at this point and there are far superior offerings at this point. A few years ago, I wouldn't have said the same and would have even ridiculed if someone claimed Android phones were better, but after playing with an S10+, iPhones really don't impress me anymore. "But it offers more privacy?" Nope. Didn't you read about the part where all your personal siri recordings were played out by contractors? Including sex acts and arm deals? What happens on your iPhone does NOT stay on your iPhone because it's proprietary software. Duh. I'm done with Apple. But I'm also looking for something beyond Android at this point. Wish there was a truly 100% open source phone I could trust.

saagarjha 7y ago
> there are far superior offerings at this point Such as? > all your personal siri recordings were played out by contractors Nit: not all, just a fraction.
simonh 7y ago
Pretty much all the voice assistant companies have been caught having people listen in at this point. Amazon, Samsung and Google for sure at least. It is pretty disappointing to find Apple in on the act as well though.
- snowwrestler 7y ago
  There is literally no other way to apply machine learning to such a large problem. The system must have training data to learn from; as you expand the scope of your ML system, you must expand the scope of your training data. Every large commercial ML system works this way. Google for years has paid people to manually score and categorize search results pages, to provide training data for ML web search systems. It would have been better if companies were up-front about this when talking about "artificial intelligence" in their voice products, so it doesn't look like a nasty surprise. And in the long run, everyone will benefit from some consistent regulations on ML data scoring, like HIPAA for health care (another industry where for-profit companies handle very sensitive customer data).

alexashka 7y ago

Apple's strategy is holding on to the brand, while competitors slowly chip away at their market share, awaiting a mortal blow to their entire hardware-centric business strategy from cloud-first computing. Once most business software has a cloud equivalent that can run via an internet connection (Google is already trying to roll this out for gaming, wrong direction of course), Windows and Mac are finished. Once Windows and Mac are finished, it'll only be a matter of coming up with a new phone os that can run on 50-100$ devices (or android, yuck) and then Apple is really finished. Who's going to spend 2k on a macbook, 1k on an iPhone and 500$ on a watch, when you can have a 200$ computer, 100$ phone and 50$ watch that do nearly the same thing. Oh, and a 200$ point-and-shoot camera that'll forever beat any phone-camera due to camera size limitations inherent to phones. In fact I predict the next big consumer hit will be a point-and-shoot camera with a phone os. Microsoft knows this, Google knows it too - they're building out planet-wide infrastructure for cloud-first computing that's coming. Apple is jerking around with 0 progress on all of its platforms, milking brand loyalty, producing pretty, severely over-priced trinkets (awful battery life, awful keyboards, awful screen burn-in, insane ssd prices, awful ports requiring insanely over-priced adapters) to signal allegiance to a middle-class or up caste, and making their shareholders short-term rich, while long-term poor.

majormajor 7y ago
> Once most business software has a cloud equivalent that can run via an internet connection (Google is already trying to roll this out for gaming, wrong direction of course), Windows and Mac are finished. The desktop software I use day to day (IntelliJ, Zoom, Slack) already runs on Linux. The rest is already in the cloud. And yet, of my coworkers, we have about 1 in 50 folks running Linux instead of Mac. It's been this way for the last 6 years - I was actually on Linux in 2013, but have come back to Mac because it's still just all put together a bit nicer in both software and hardware. My last job even discontinued Linux support in that time period. At my partner's job, they also run on google docs and gmail, but since it's not a software dev job, it's 100% on Mac, without even that small Linux fraction.
- nojvek 7y ago
  Running crap on cloud works great until you’re above the cloud or really below the cloud. Powerful edge devices will always be valuable. iPhone is prolly one of the most powerful edge devices out there

kart23 7y ago

Its smart. A lot of people didnt upgrade to the X, and the lower price makes it very appealing to get the 11. Apple tv+ seems like a great deal at only 5 dollars, and should attract tons of new customers, even though the service really doesnt have a great width of content, but apple is good at hiding that, marketing it as a viable alternative to netflix. Shareholders will be very happy at the next earnings call, and the stock has already been showing that.

mikorym 7y ago

Did anyone notice that nowhere in their keynote address they mentioned macbooks/laptops? Maybe I missed something, but that is crazy to me. Sure they make their money with iPhones, but their macbook lineup is what I am interested to hear about.

nkkollaw 7y ago
They'll have another event in October for that.
- mikorym 7y ago
  Ok right, then it makes sense.

addicted 7y ago

I think stratechery has some good analysis, but too much of it is framed from an Apple fanboi perspective. It reminds me of what a grown up, financially focused, version of RoughlyDrafted would look like. And after having been an Apple fanboi for a few years but not anymore, it’s hard for me to read. As an example, this article itself justifies Apple’s 2016 keynote as being innovative because accessories revenues have doubled since. Doubling of revenues could mean and imply many things, but innovation is hardly one of them.

edmoffo 7y ago

The service is not the weakest part of Apple. Instead, is the complete lack of innovation nowadays. They lost everything since the death of Steve Jobs. Unfortunately.