Apple’s multi-sided game

There were quite some surprises unveiled at Apple Event today:

  • Apple Arcade: $4.99/month for a whole family
  • Apple TV+: $4.99/month for a whole family and free if you buy a new iPhone, iPad, Apple TV or Mac
  • Price cuts for devices such as iPhone and Apple Watch Series 3

For a company notorious for ripping off consumers, a notoriety that they earn to a large extent, undercutting competitors and lowering prices for their high-end products are unusual. However, it may make sense in the game that Apple is playing.

Formerly relying on hardware, especially iPhones, for their revenue, Apple has been transitioning to be more of a service company. They have been pushing hard on the service part, including but not limited to Apple Pay, iCloud, Apple Card, Apple News+, Apple Arcade, Apple Care. However, to sell these services, they first need to find a way to put hardware into humans’ hands.

In return, hardware would be just boring pieces of metal without great user experience that comes from the operating system and ecosystem, including apps and services. There is no shortage of alternatives to expensive products that Apple offers. To really convince a consumer to dole out a significant amount, they need to present compelling reasons. Hence, the gradual updates to operating systems and a slew of services.

But Apple can’t do everything alone. They need partners. They need content partners such as publishers, game companies and producers as well as strategic partners like Goldman Sachs. These partners, I guess, are interested in the reach that Apple has through its installed base. By working with Apple, they hope to leverage the media coverage that Apple enjoys and get to many customers as quickly as possible.

By lowering entry prices for Arcade and offering TV+ on a very attractive term, I suspect that Apple wants to expand the subscriber base quickly from the existing user pool. The bigger the subscriber base, the more leverage Apple will have with content and strategic partners, whose future creations in turn will increase the appeal of Apple’s services.

By lowering hardware’s prices, there may as well be other reasons and I am so speculating here, Apple wants to lure non-Apple users and expand its user pool. It’s a two-pronged approach to grow the ecosystem.

It’s truly remarkable to me how a company this size can keep adapting to the changing landscape of the business environments to be competitive in a highly competitive industry. Some folks say Apple isn’t taking risks. But any strategic mistake by omission or commission may result in at least two years behind competitors and billions in market valuation. Others complain that the Cupertino-based company is no longer innovating. It’s tricky to tell if it’s completely true or false. But it’s worth remembering that Wearables & Accessories, including Watch and Airpods, generated $5.5 billion in revenue in 90 days last quarter while the main products still remain sticky to consumers.

As a student of business, I admire the company. No company is flawless, but it’s amazing what Apple has been able to do to navigate through competition and constantly changing business environments.

Disclaimer: I do own Apple stocks in my humbly small portfolio.

Apple Event

I have always been a fan of Apple, but the admiration for the company grows every year.

The company often draws criticisms such as lack of innovation, predatory practices and pricey products. While some of their practices such as expensive accessories or making features obsolete after only 2-3 years are good points (I am on my 3rd Mac charger that costs $85 more or less each), I wouldn’t do it any differently if I were in Apple’s management team. The same goes for high prices. If my company had such a degree of inelasticity (demand isn’t much affected despite higher prices), I’d do the same. Plus, Samsung increased the price of its flagship phone to $1,000 too but it hasn’t sold as well as its Apple counterpart. Granted, Apple is rarely the first to introduce stuff. They prioritize in doing it right and I like that approach. What’s the point of introducing new stuff if it doesn’t work well? Ask Samsung 7.

Instead, innovation from Apple is the ability to deliver more performance and add more features to a small device year after year. Imagine the yearly tasks of coming up with the design of the hardware, getting it right so that customers are so happy, deciding on what features to add, manufacturing the chips, rewriting the software, integrating the hardware and software, planning the distribution, strategizing the line-up to avoid cannibalization…It sounds exceedingly complex and difficult to me. The result? They are the first American company to reach a trillion dollar market cap. Their average selling price for phones increased after the introduction of iPhone X. Revenue and profit keep rising. And customers are happy. I have a mid-2012 Mac and an iPhone 5S. They are still working well and I don’t imagine I’ll come back to Windows or Android any time soon.

This morning, Apple did it again with a plethora of updates to their Watch and iPhone. A lot of new features and performance are added to small devices. Some enhanced products come at more or less the same price as last year’s new-then arrivals. I was impressed by the Apple Watch. It is now FDA-approved and can detect irregular heartbeats, ECG as well as falls. At this rate, I’d not be surprised in a 3-4 year time that their Watches will be instrumental to people’s health tracking and safety.

I think Apple is a brilliant example of focus, product-centric design, strategy and execution.