Apple shifts focus from products to services
Our expert's opinion
“Interesting development from Apple as they look to focus more on selling services instead of devices. It will be intriguing to see how they tackle TV streaming. Will they look to rival Netflix or will they find another innovative way to challenge classic television? Or will they seek to enhance classic television by offering subscriptions to specific channels? Let’s see what the future brings!”
- Aristide Giramahoro, Associate Consultant
Apple's 2019 must-see list starts with its new TV streaming service
Next year could be more about services than the devices they're running on.
The biggest innovations from Apple in 2019 likely won't be its devices. Instead, it'll be the services that run on them.
iPhone sales just aren't soaring like they used to, and it's getting harder to make smartphones flashier each year. Apple's ability to woo users increasingly may come from the software and services -- like Apple Music and the upcoming Apple video service -- we use on those devices.
That's partly why Apple will no longer break out iPhone unit sales. Tim Cook wants everyone to think about Apple differently, as hard as that may be.
"Given the momentum that we're seeing across the board, we feel great about our current services," Cook said during the company's earnings call in July. "But obviously we're also thrilled about our pipeline that have some new services in it as well."
Apple in the coming years may look very different from the company in the past decade, when it got about two-thirds of its revenue from its smartphone lineup.
That doesn't mean Apple's reliance on iPhones will decline anytime soon. But it does mean the services running on its devices are about to get supercharged. Think: a new video streaming service, a news magazine-like subscription service and improved health features. They're all subscription-based offerings that could finally make an appearance next year.
"Apple's going to be a different kind of company," Technalysis Research analyst Bob O'Donnell said. "It was only a question of when."
Apple declined to comment.
Lots of people already subscribe to Apple's services, thanks to the company's massive base of device users.
Consider the numbers: More than 1.3 billion Apple devices are actively being used by people around the globe, and as of the end of September, the company had 330 million paid subscribers, up 50 percent from the previous year. That translated to $37.2 billion in service sales, or 14 percent of overall revenue in fiscal 2018, which ended in September.
"We set new Q4 records in all of our geographic segments and new all-time revenue records for the App Store, cloud services, AppleCare, Apple Music and Apple Pay," Cook said during an earnings call with analysts at the beginning of November.
Still, Apple's services success isn't guaranteed. For one, there's a limit to how many subscriptions people are willing to pay up for. And its services are still closely tied to the number of iPhone users out there.
Apple and TV streaming
One possible boost could come from Apple's long-rumored video streaming service.
Over the past year, Apple has deployed a $1 billion budget to develop content from high-profile film and television stars, including Oprah Winfrey, Reese Witherspoon, M. Night Shyamalan and Steven Spielberg. The company has hired two top executives from Sony Pictures Television to lead the effort. Apple's also hinted that there's something big in store. It may be a streaming video service that would rival Netflix, Hulu and Amazon Prime, or some other model, like a big package of services that includes Apple Music.
Many expect the video service will arrive early next year.
Apple's also expected to launch a subscription news service based on Texture, dubbed a "Netflix for magazines," which offered unlimited access to magazines and news outlets for one fee. Apple bought Texture in March and may relaunch the service under its own umbrella as early as spring -- if it can actually get publishers on board.
Media executives reportedly are worried about Apple wooing away their current subscribers with lower bundled pricing. Why pay $10 each month for a specific newspaper when you can get a subscription to a bunch for the same price?
Then there's iCloud. Millions of users rely on the internet service to back up and sync their mobile devices and store their photos, but Apple hasn't updated iCloud -- including the storage tiers and pricing offered -- for years.
The company could also do even more in health and fitness. The ECG app on the Apple Watch Series 4 already lets you use the watch's digital crown and sensors to monitor the electrical patterns of your heart rate and analyze them for potential health issues.
And in June, Apple announced that an update to its mobile operating system would allow patients at more than 500 hospitals and clinics to share their electronic medical records with third-party iOS apps. Now Apple reportedly is in talks with the US Department of Veterans Affairs to give 9 million veterans access to their electronic medical records via their iPhones.
Electronic health records "are in desperate need of being completely changed from the bottom up," Technalysis' O'Donnell said. "It's not sexy, but it's important."
Moving beyond the iPhone
But for those services to really take off, Apple may have to make them work with products from other companies. Even for many diehard Apple fans, it's still a mix-and-match world -- with many buying TVs from Samsung or LG, computers from Lenovo or Dell, and smart speakers from Amazon or Google.
After all, Microsoft reversed its fortunes in part by making its Office apps -- Word, Excel, PowerPoint, Outlook and OneNote -- run on the iPad and on Android tablets. Amazon rules the smart speaker market by allowing its Alexa voice assistant to run on appliances from a range of companies. Even the Big Mouth Billy Bass talking fish is Alexa-powered.
Apple can look to its own iTunes music store as a model, given that downloads jumped when it became available on Windows PCs in late 2003, about six months after the service launched on Macs.
Since then, Apple's services have primarily stayed inside the Apple ecosystem, aside from Apple Music. There's an Apple Music app for Android, which Apple began offering as a beta in August 2016. And this week, the company rolled out Apple Music for Amazon Echo speakers, allowing users to ask the Alexa voice assistant to play tracks from Apple's streaming service.
"When Apple decided to allow Music on the Echo, it's clear they were putting -- maybe for the first time after iTunes -- more of a focus on the services and not the hardware," said Carolina Milanesi, an analyst with market researcher Creative Strategies.
But that's an exception. Services like Apple News remain limited to Apple products. If Apple wants its new offerings -- including its upcoming video service -- to soar, it may have to give them to products outside its ecosystem.
"Are we going to see TV as an app that's going to run on Chromecast or on a PC?" Milanesi said. "Are we going to have an Apple News app I can download on a Windows 10 PC? Because for Apple, it then becomes about users and not hardware."
In 2019, we'll find out if that's the case.