I have been thinking about subscription services a lot lately. Newspapers, cable TV and streaming services, and most recently, podcast subscriptions. The only Apple subscriptions that I currently have are iTunes Match (yes, it’s still a thing) and the iCloud 200GB storage plan so I can share my iCloud storage space with my family using the Family Sharing feature.
One-Time Transactions vs. Recurring Revenue
Back in a time before the App Store, consumer software was a one-time transaction. Think back to how you purchased productivity software at the consumer or “prosumer” level a decade ago. You purchased a new PC and the software came pre-installed and you used it. Prosumers might have purchased big packages like Microsoft Office or Adobe Photoshop. You paid hundreds of dollars up front and ran the software until you needed a feature that was in a newer version or would no longer run on your PC’s operating system after an upgrade, at which point, you would purchase the software again. To reward customer loyalty, software developers would often offer customers a discount on the purchase of the current version.
For businesses customers, the software model worked differently. Business customers would purchase a software license and with it, annual support agreements. Annual support agreements gave IT departments access to frequent software updates and technical support. The annual software maintenance agreements would typically run between 20-30% of the original purchase price.
Fast forward to today. Subscription services are a lot like the maintenance agreements, where each subscription provides the software developer with a sustained revenue stream in exchange for regularly updated software packages.
App Store and the Race to the Bottom
With the introduction of the App Store on July 10, 2008, the consumer software model was forever changed. The iOS App Store was the point in time the popularized the idea of paying for software once and then getting free updates for life. The problem with that model is that it is not sustainable long term. Eventually, you will reach a peak customer base. When no new purchases coming in, there is no revenue to sustain development efforts. The lack of an upgrade system in the App Store further complicated matters. In the App Store, there was no way that developers could release, in effect, a 2.0 upgrade of their product and charge existing users a fee to recoup the development costs for the new features. To try and get customers to buy software, developers kept lowering and lowering prices to the point where many people would scoff at the idea of paying, $9.99, $4.99, $1.99 or even 99-cents for a game or app. This model, several years on, has proven to not be sustainable.
Then, in 2016, Apple introduced the idea of app subscriptions. Rather than purchase an app, you subscribed to the app or a family of related apps from a single developer. You got the software for a monthly fee. Some developers offer a slight discount when a subscription is purchased annually. In exchange for the recurring subscription fee, developers would have the capital to fund the further development and support of their software.
The notion of software subscriptions are not new. Looking to corporate IT solutions, annual software maintenance programs have essentially been rebranded as subscription services. Software subscriptions are also known as software-as-a-service, or SAAS – because IT loves acronyms. I first noticed SAAS software with the introduction of the Microsoft Office 365 service, now known as Microsoft 365. About the same time, Adobe started talking up their subscription product suite, Create Cloud. The Microsoft 365 and Creative Cloud SAAS subscriptions offer customers a lower annual software cost in exchange for software suites with guaranteed feature enhancements and bug fixes. I happily moved from a retail one-time purchase of Microsoft Office 2007 to Office 365 and Office 2013. Rather than spending $400 every few years, I would spend $99 annually. In exchange for my Microsoft subscription, I could share Office with my family and get additional OneDrive storage space. A lower price with more features. That sounds like a fair trade to me.
Where’s the Apple Bundle? On the Way, Likely.
Which brings us back to Apple and their subscription services. Apple, back in 2018, publicly started to talk about “services” as being the next revenue generating product. The iPhone has been the largest revenue generator for the company for many years, however, iPhone sales have stabilized. The company needed a plan for sustained revenue. The answer that Apple has turned to is a synergy between hardware and online products. Customers would by the hardware and then buy monthly subscription services. The hardware plus services model gives Apple a sustained revenue stream like the ones that Microsoft and Adobe have for Office 365 and Creative Cloud.
Apple has released a scatter shot of services: iTunes Match, iCloud storage upgrades, iCloud Photo, Apple Music, Apple News+, Apple TV+, and Apple Arcade. If you subscribe to a small number of Apple services, say Apple Music and Apple Arcade, the cost is $15/mo or $180/yr. Subscriptions to Apple Music (Family), Apple TV+, Apple Arcade, and a bump to iCloud storage can easily coast $336/yr. What is missing is the bundling of services at a lower price. Adobe’s Creative Cloud works that way. So does Amazon Prime. Why hasn’t Apple gotten into the bundle game?
There have been a number of possible explanations for this this. The first being one that I mentioned earlier, that Apple is just bad at services. Another is that Apple is having trouble with the licensing terms of bundling Apple Music with other services, as suggested by Chance Miller writing for 9to5Mac. In the early days of online music sales, record companies saw Apple become a powerful middleman between they and the music download buying customers, dictating terms of how music could be purchased through the iTunes Music Store. It was a cautionary lesson for the music industry, for sure, and I feel a contributing factor in the rise of direct to customer streaming services like Disney+. Why share revenue with Apple when studios can have a direct relationship with their customers. Along those same lines, it is possible that Apple News+ could be suffering from a similar content licensing and customer relationship headaches.
Despite the challenges of navigating the legal implications of bundling Apple’s own in-house services (i.e.: Apple Arcade, iCloud Storage, Apple TV+) with services that are built on top of content licensing deals (i.e.: Apple Music, Apple News+), there seems to be a light at the end of the tunnel. Leaker Mark Gurman, writing for Bloomberg, suggest that Apple could finally be readying a services bundle as early as this fall alongside the launch of new iPhone hardware.
Apple Inc. is readying a series of bundles that will let customers subscribe to several of the company’s digital services at a lower monthly price, according to people with knowledge of the effort.
As someone who has been eyeing Apple Arcade as a way to get away from freemium games which require In App Purchases (IAPs) to advance, the idea of being able to get a bundle with more iCloud storage and a games subscription is appealing. I suspect that Apple will focus on the high visibility services of Apple Music, Apple TV+, and Apple News+ to drive adoption and that the smaller servers, like extra iCloud storage and Apple Arcade will be relegated to “sign up and get them for free” status in the bundle.
Could we get an Apple One service this fall that includes Apple Music Family, Apple TV+, Apple News+, Apple Arcade, and 200GB of “free” iCloud storage? How much would this service offering cost? Assuming that someone subscribes to those services, one would spend about $38/mo. What would a price that a customer would shrug and automatically subscribe to a service for? My guess is that for a made-up bundle like the one I mentioned, a customer might expect a 20% discount, bringing the cost down to $25/mo. That seems reasonable. You end up paying for the “big” services and get the “smaller” services included in the monthly price.
The idea of an Apple bundle, like the recently rumored Apple One, is one that customers have been asking about since Apple first started playing with services. I think that Apple customers will go for a single monthly plan that will enhance the experience and joy of using their Apple devices, particularly the iPhone in the vein of an Amazon Prime service.
For me, a $3/mo 200GB iCloud plan is sufficient to prevent my family from seeing the dreaded “Your iCloud storage is almost full” pop-up on a regular basis. Being able to play games on all of my Apple devices for $5/mo without questionable game mechanics is nice. While I do not use a streaming music service, my wife and kids do. Being able to add an Apple Music Family subscription would be a nice perk for them to listen to their music ad-free. For me, would an additional $15-20/mo make sense? To give my family an ad-free music listening experience and some extra TV content, I can see myself signing up Apple One this fall.