Yahoo Finance Apple's future involves you paying it every month
We are resigned to certain things taking cash out of our bank accounts every month. The gas bill, council tax, our rent or mortgage payments. In the not-too-distant future, expect another regular charge to start showing up on our bank statements: the Apple bill.
On Tuesday, the iPhone maker announced its long-rumoured equivalent of Amazon’s Prime or Microsoft’s Office 365: a subscription called “Apple One”. The bundle, which will cost between £15 and £30 a month, will include the company’s digital services of video games, music, cloud storage, fitness, news and video streaming, with the combination changing depending on what tier you choose.
Each service is available separately. But by offering them as a set menu, rather than a la carte, Apple is hoping to raise the total amount that its customers spend on services, drawing more people into its web in a way that makes it increasingly difficult to leave.
The prospect of Apple One being a success already has competitors worried. On Tuesday, Spotify, which has claimed Apple gives its own music service an unfair advantage, accused it of “disadvantaging competitors and depriving consumers by favouring its own services”.
"We call on competition authorities to act urgently to restrict Apple's anti-competitive behavior, which if left unchecked, will cause irreparable harm to the developer community " the music streaming company said.
iPhone game developers, which fear that upcoming privacy changes in Apple’s software could make it harder to make money from adverts, may argue that Apple is unfairly boosting its own Apple Arcade game subscription.
In a statement, Apple said the bundle was aimed at existing users of its services and that "customers can discover and enjoy alternatives to every one of Apple’s services.
But it's not just music streaming and gaming. Apple also has its sights set on fitness companies as Peloton, which offers a connected exercise bike that starts at £1,750 alongside an online fitness class subscription at £12.99 per month.
Apple's rival service, Fitness+, powered by its watches, will deliver virtual workouts for £10 per month and be available before the end of the year. Apple said that most of its workouts were designed to be conducted with either no equipment or minimal gear such as a set of dumbbells. Peloton's workouts typically require either a bike or a treadmill.
"Apple's services strategy is the gift that keeps on giving. No other smartphone maker has managed to find a way to make money from their devices after the initial sale," says Ben Wood, industry expert and chief of research at CCS Insight.
"Whether it's a brand-new iPhone or one that has been sold second or third-hand, there's still an opportunity for Apple to bring in revenue and get users hooked on its services."
But Apple One may be just the start of Apple’s subscription plans. Many expect that the ultimate goal for Apple is an all-encompassing bundle, a hefty monthly payment that pays not just for digital items, but your smartphone, smartwatch and the insurance on them.
For years, Apple has been taking advantage of the steady decline of the 24-month mobile network contract to sell phones to customers directly. It has offered financing on those deals, running a programme that spreads the cost of buying an iPhone over several months, rather than up front. Many buyers effectively treat this as a subscription service that upgrades them to the latest phone each year.
The Apple credit card that the company launched last year in the US has intensified this focus, since it means a direct relationship with a person’s finances. Last year Apple started letting iPhone buyers pay for their phones over two years without interest, as long as they did so with an Apple Card. The company recently extended that to its other products. Recent reports have suggested the card is expanding outside of America.
For an increasing number of buyers, an iPhone is an expense more like a car: rarely paid for up front, and replaced when it is showing signs of age. And as all good car dealers know, the more that spending is deferred, the more the customer is willing to pay in the long run.
With some iPhones now costing more than £1,000, softening the blow helps. It is not hard to imagine Apple packaging these various purchases - of devices and of services - coming together. Consumers might pay a flat £100 a month for “Apple One Plus”, a top-end iPhone that automatically upgrades to the latest model each year, or “Apple One Ultimate”, which would also include the latest smartwatch each year. The cost would land on your Apple credit card statement each month, becoming an expense as reliable as the gas bill.
“The iPhone’s up front four-digit number is a tough pill to swallow. In the next two years they could include an iPhone in the bundle,” says Daniel Ives, an analyst at Wedbush Securities. “Apple is really starting to head down the path that Amazon did with Prime. iPhone users stay within the Apple ecosystem, and it makes it that much stickier.”
Apple is not the only technology company doing this. Microsoft announced last week that buyers of its new Xbox consoles would be able to subscribe to a package that includes the console itself and its game subscription service, paying over 24 months. In marrying the cost of an iPhone with a package of services, Apple would tangle itself more deeply into iPhone users’ digital lives.
A more uniform stream of revenues would also please Wall Street. Apple’s revenues are disproportionately weighted to the final three months of the calendar year, after its new devices have gone on sale. Spreading this out over the course of the year with monthly subscriptions, "recurring revenue" in finance parlance, would decrease the possibility of a financial shock. Apple, which raises billions in debt each year to fund share buybacks, to do so at even lower interest rates.
Apple One, the services-based subscription the company announced this week, has a Tolkien-esque air of completeness to it: one bundle to rule them all. But it may only be the start of Apple’s goal to take a monthly bite out of people’s pay packets.
