Sep 12, 2019 21:00:00

The full picture of Apple's strategy as a “service company” from the new iPhone

Apple has been announcing innovative products one after another, but in recent years it has been pointed out that there is no innovation. Whether this is true, analyst Ben Thompson is analyzing changes in Apple's strategy from the new iPhone.

The iPhone and Apple's Services Strategy – Stratechery by Ben Thompson

https://stratechery.com/2019/the-iphone-and-apples-services-strategy/

Is Apple no longer innovative?
At the Apple presentation held from 2:00 am on September 11, 2019 in Japan time, the new iPhone 11 , 11 Pro, Pro Max, Apple Watch Series 5 , and the new 10.2-inch iPad appeared.

Apple Special Events summary announced details of new terminals & services such as iPhone 11/11 Pro and Apple Watch Series 5-GIGAZINE

It was an event where a number of new products were announced, but some point out that nothing was considered “innovation” as it was when former CEO Steve Jobs made an announcement.

Nothing shown today really qualifies as meeting high “innovation only” expectations: Apple delivered the smallest Watch update ever, an iPad with a slightly bigger screen and nothing more, and iPhones with cameras equal to or less than many other devices.Apple needs a big 2020. Https://T.Co/jGhKcYHQSU

— Mark Gurman (@markgurman) September 11, 2019

However, this is not the only presentation that has been pointed out that there was no innovation. Even at the 2016 event where the iPhone 7 and Apple Watch Series 2 were announced, journalist Farhad Manjoo told the New York Times that the new iPhone has some new features, but it is almost the same as the previous terminal I wrote On the other hand, Thompson analysts that it was one recital of 2016 with much more meaning than the majority to assess says .

In 2016, the abolition of iPhone 7 earphone jack was announced, and 'AirPods' appeared. In addition, GPS is added to Apple Watch Series 2, increasing the function as a single unit, not an iPhone accessory. With these, Thompson says the iPhone is approaching the future of “mandatory items” to “options”.

With 2016 as a turning point, Apple's `` wearable, home, accessories '' category, centering on Apple Watch and AirPods, doubled its revenue, and revenue for the past 12 months was $ 22.2 billion (about 2.4 trillion yen) It was. In other words, the 2016 presentation was “innovative” in the light of business metrics.

In addition, wearables as well as service categories have increased revenue over the past three years, with revenues of $ 23.1 billion (about 2.3 trillion yen) over the last 12 months to $ 43.8 billion (about 4 trillion yen). It has grown to 700 billion yen).

◆ Apple as the former “hardware company”
Apple clearly stated that `` Apple is not a service company '' in 2016, but from the announcement in 2019, it can be read that Apple is taking a strategy as a service company, Mr. Thompson pointed out It is. Hardware companies and service companies have very different strategies, and service companies have a strategy of maximizing the market in which they can intervene, while hardware companies maximize differentiation.

The fact that Cook CEO from 2016 to 2017 took the strategy as a hardware company can also be read from the pricing of the iPhone. Until then, the latest Apple was released at around $ 649 (about 70,000 yen), and at the same time the old iPhone was discounted at $ 100 (about 10,800 yen). Later, in 2017, Apple introduced a high-end iPhone X that cost more than $ 999 (about 108,000 yen), which is `` the customer who wants the best iPhone '' and `` the highest status in the market It was a strategy for two markets, “customers who want to have a smartphone”, and obviously not a strategy of a service company.

◆ Conversion from “Hardware Company” to “Service Company”
On the other hand, Thompson said that the biggest news in the 2019 launch is Apple has 'price cut the iPhone'. The price of iPhone 11 Pro, the successor model of iPhone X and XS, is not noticeable because it has not changed, but the price of iPhone 11, the successor of iPhone XR, is decreasing.

The figure below shows how the prices of iPhone 7 to iPhone 11 fluctuated in the release year, first year, and second year. Looking at this, the iPhone 7 and 8 were discounted at $ 100 in the second year, but the iPhone XR was discounted at $ 150 (about 16,000 yen). In addition, the latest terminal iPhone 11 also started from $ 699 (about 75,000 yen), which is $ 50 cheaper than iPhone XR.

	Release year	One year later	2 years later
iPhone 7	$ 649	$ 549	$ 449
iPhone 8	$ 699	$ 599	$ 449
iPhone XR	$ 749	$ 599	—
iPhone 11	$ 699	—	—

The price of the flagship and mid-price models from 2016 to 2019 is like this. In 2017, we can see that not only high-end flagships have appeared, but the flagships so far have been positioned as “intermediate price layer models”. This has changed Apple's previous approach to 'sell $ 100 off flagships in the second year and beyond.' In addition, as a result of the original flagship, the discounted price since 2018 has also increased by $ 50.

	Flagship	Middle price layer model	One year later	2 years later
2016	$ 649	—	$ 549	$ 449
2017	$ 999	$ 699	$ 599	$ 449
2018	$ 999	$ 749	$ 599	$ 449
2019	$ 999	$ 699	$ 599	$ 449

The mid-priced model iPhone XR released in 2018, iPhone XR was the same as the iPhone XS, such as Face ID and processor, was a sufficiently high-quality terminal. However, the difference with iPhone XS was small, and it was not possible to become a best seller like iPhone X. For this reason, Apple has decided to cut the price of the iPhone XR to $ 150, rather than the $ 100 discount that followed the previous example.

While the success of iPhone X was largely due to sales in China , on the other hand, in China where the censorship problem by the government is taken away, iOS is not a special OS, iPhone is `` one of the choices of high-grade smartphone Will be . Therefore, the iPhone in the Chinese market is said to be the least differentiated iPhone compared to other countries. Apple has increased revenue by lowering the price of Apple XR in China at the beginning of 2019, but this is not due to differentiation as a product, but the natural flow that `` the number of sales increases as the price decreases '' was.

What is the new direction Apple is aiming for?
For this reason, Apple is moving from hardware strategy to service strategy, and in 2019 Apple announced the subscription game service 'Apple Arcade' and original content distribution 'Apple TV +' It ’s a natural flow.

Apple announces its own subscription game service `` Apple Arcade ''-gigazine

Apple TV has evolved, original content distribution `` Apple TV + '' and `` Apple TV channels '' that can subscribe to paid channels have appeared-GIGAZINE

In Apple Music, the cost of Apple's payment increased as sales increased, but in Apple Arcade, regardless of the number of subscribers, the cost of Apple paying to the game company is a fixed amount, and the number of subscribers increased Apple's revenue increases as the number increases. Thompson believes that this is why Apple is on a strategy to increase sales even if it lowers the price of the iPhone.

Thompson pointed out that Netflix is not competing with Apple TV +, a service that distributes original video content. He said that the purpose is to sell Apple TV , which is compatible hardware, and thereby increase the number of subscribers to Apple TV Channels, which allows users to watch multiple channels including Apple TV +.

At the event in September 2019, we introduced a system that allows you to get a new iPhone cheaply when you trade in an old iPhone. At the same time, AppleCare + has been changed to a subscription model, and we offer an upgrade program that combines iPhone and AppleCare +. The new AppleCare +, which can be purchased as a single unit, means that Apple has changed its relationship with users to a subscription type. Even if this point is taken, Apple is not a hardware company but a service company Thompson concludes that it means that the strategy is being advanced.