Why Apple's streaming video service should lead to 'Apple Prime' subscription bundle

With Apple's video service on the runway, the company has enough parts to create subscription bundles that rhyme with what Amazon offers. A little business model innovation could be in order.

As Apple pushes services, a subscription bundle could be in the future ZDNet's Larry Dignan tells TechRepublic's Karen Roby about a potential 'Apple Prime' subscription bundle. Read more: https://zd.net/2UMIpNd

Apple's likely move to launch a streaming video and subscription news products highlights the company's effort to bulk up its services business -- already topping a $40 billion annual revenue run rate -- but the company may want to consider a larger bundle.

The company's video service is entering a crowded space with the likes of Hulu, Amazon Video, Netflix and a bevy of other over-the-top efforts. On its own, Apple may have a tough sell without more original content. As bundle of services, Apple's video effort can be handy.

Also: CBS Interactive's Marc DeBevoise on Streaming Boom, Content Strategy and Apple 

Is it time for "Apple Prime"?

Apple has already proven adept at taking your money on a subscription basis. Its services business, which includes everything from AppleCare to iCloud storage to Apple Music is the fastest growing business in the company. 

aapl-services-q1.png

aapl-services-10k-2018.png

Nevertheless, Apple may run into subscription fatigue at some point. The cure would be a bundle.

Consider the following:

  • AppleCare will run you anywhere from $129 to $199 depending on your iPhone model over two years.
  • 2TB of iCloud storage is $120 a year.
  • Apple Music goes for $120 a year.
  • And now there's Apple's video effort, which may land somewhere between Netflix's $12.99 standard plan, HBO Now's $14.99 and Netflix's top of the line $15.99 plan. Call Apple video $120 a year as it tries to gain share.

Add it up and you're paying $460 a year to Apple in subscriptions should you opt for all of those services. Wouldn't it make sense for an Apple bundle that would run $300 a year that includes all of those services? Apple could also do tiered accounts ranging from $150 to $300 a year.

Now it's easy to smirk at this Apple Prime concept, but the customer base would go for it as long as there is value. Apple customers are also accustomed to paying premium prices so a $300 a year subscription may actually resonate. Microsoft 365 is a spin on a software subscription equivalent.

The Next IT Transformation

What you need to know before implementing edge computing

These are the questions your firm should ask before going down the route of edge analytics and processing.

Read More

Amazon Prime is the natural comparison to whatever Apple bundle could be created. As far as value goes, there wouldn't be much comparison. Amazon Prime has a series of benefits for $119 annually, but the big ones are free two-day shipping, same-day delivery in eligible zip codes, Prime Video, Prime Music (2 million songs in the U.S.), Amazon Music Unlimited discounts, Whole Foods Market discounts, Prime Reading and Amazon Photos.

Also: Quitting the five tech giants: Could you abandon Amazon? 

The catch is you'll also join Amazon Prime and buy a lot more stuff.

An Apple subscription bundle would have a different motive: Keeping you on the platform and the iPhone/iPad/Mac. Should Apple hold the fort with services, it can wait out customers' elongated upgrade iOS device strategy. Apple has sold about 2 billion iOS devices.

In fact, Apple Prime could turbocharge a services business that is already growing nicely. Consider Apple's first quarter and fiscal 2018 results.

And now consider what Amazon has been able to do with Prime. For 2018, Amazon's subscription services -- excluding Amazon Web Services -- delivered revenue of $14.2 billion. AWS is another cash cow that plays into Amazon's subscription orbit because the cloud unit is what gives the company the scale to discount.  

amzn-prime-subs.png

amzn-prime-subs-2.png

Cowen & Co.'s Consumer Internet Survey reckons that Amazon has 63 million Prime subscribers, up from 58 million a year ago. Apple has a 1 billion devices in the field and could ultimately garner similar numbers.

Wedbush Securities analyst Daniel Ives said in a research note:

We (and many others) are finally getting what we hoped for and predicted as the company is set to announce its inaugural streaming video content service that will be a linchpin in further expanding its services wings into areas such as video content and potentially gaming over the next decade. Taking a step back, the services business remains the wild card in driving the valuation higher for Apple as we estimate the valuation of the services franchise for the company is worth roughly $400 billion on a standalone basis with this highly profitable segment poised to exceed $50 billion in revenues by FY20 and doubling from FY16 levels.

Ives said that Apple is likely to have to pull off a big content acquisition to really be a player, but the company can be a video player.

Will we see an Apple Prime service March 25? Probably not given it's unclear how much Apple is willing or able to discount a large services bundle. Amazon Prime is based on a lifetime value of customer calculation as well as scale via AWS. Apple may not have the cloud scale and efficiency to deliver a value bundle.

In the end, Apple's video splash will be just the beginning of an innovation push for services. Just keep in mind that the real innovation may be in the financial modeling and bundles to deliver more recurring revenue to Apple.

Previous and related

Amazon's next big thing? Prime, but for healthcare 

Amazon has been making a series of moves into the healthcare space. Put them together and you have the outline of a plan for a radical shakeup of the industry.

Apple's growing services business depends on lower-cost iPhones

 Apple has saturated the "rich people" market, and China won't help it out any longer. The company needs to introduce cheaper ways to hook customers on its services.

Amazon Prime vs Amazon Business: Everything you need to know

You've probably heard about Prime. But did you know it's more than just free two-day shipping? And what about Amazon Business? Yes, Amazon also offers a marketplace with Prime-like benefits just for businesses. Here's what you need to know about both. 

The end of Blu-ray 

Thanks to the rise of streaming, Samsung is discontinuing its Blu-ray and 4K Blu-ray player lines. That's lousy news for people who love older TV shows and movies.