Apple One Bundle Looks Boring, But Serves The Purpose For Apple
[9/29/20] Apple One
Earlier this month, Apple (NASDAQ: AAPL) announced a digital services bundle called Apple One, that combines multiple services into a single monthly subscription. For example, the $15 tier, targeted at individuals, bundles Apple Music ($10 standard monthly pricing), Apple TV Plus ($5 monthly), Apple Arcade ($5 monthly), and 50 GB of iCloud storage ($1 monthly). This translates into savings of about $6 per month based on the standard monthly pricing of the apps. The $30 Premier version adds more storage, Apple News Plus, and the newly announced Apple Fitness Plus for $30 a month.
Our dashboard Breaking Down Apple’s Services Revenue estimates the revenue figures for AppStore, Apple Music, Apple TV+, iCloud, Third-party Subscriptions, Licensing, Apple Care, and Apple Pay.
While the bundles look underwhelming at first, they could help Apple reduce churn and improve ARPUs for its services, as we noted in our previous analysis in August (see below). Moreover, considering the way these bundles are structured, we think that Apple is looking to piggyback on its more popular services such as Apple Music and iCloud to drive the adoption of its new or less popular offerings. For example, Apple Arcade is a relative niche service, while Apple TV Plus carries just a handful of proprietary shows and has no licensed content yet. Apple’s new Fitness Plus – which launches later this year – looks interesting, but is far from a slam dunk. By bundling these offerings with the popular services like Apple Music – which had over 60 million subscribers as of mid-2019 and iCloud – which very likely has a couple of hundred million paying users, Apple could get users deeper into its ecosystem.
[8/14/20] How A Subscription Bundle Helps Apple De-Risk Its Services Business
Apple reportedly intends to launch bundled subscriptions this Fall, combining its various services including Apple Music, News, Arcade, and TV+ into a package priced at a lower monthly fee compared to subscribing for individual services.  We believe the launch could help to boost Apple’s Services Revenue and ARPU while reducing Apple’s dependence on commission Revenue.
Boosting Services ARPU, Reducing Churn
Services represent Apple’s fastest-growing and most profitable business. Over the first nine months of FY’20, Services Revenue rose 16% and Gross Profits from services rose by close to 20% year-over-year to about $26 billion, compared to hardware-related profits which expanded by less than 4%. While the aggregate numbers are large, Apple still has a lot more room to expand Services Revenue on a per-user basis. For perspective, we estimate Apple’s Services ARPU at under $4 per month ($46 billion in 2019 service revenue and an estimated 1 billion unique users). By bundling services, Apple could get users to pay for additional services they may have not signed up for individually and at the same time reduce churn and better lock customers into its ecosystem.
Reducing Apple’s Dependence on Commissions
We estimate that just about 40% of Apple’s Services revenue comes from proprietary services such as Apple TV+, Apple Music, and iCloud, with the remaining $60% coming from commissions – essentially taking a cut of app sales, third-party subscriptions, and traffic acquisition payments from search engine providers such as Google. Although commissions are lucrative, Apple is facing increasing scrutiny on this front, given its market power. For instance, Apple was part of the Congressional antitrust hearing for tech companies conducted in late July and now Epic Games has sued Apple on antitrust grounds after it removed Epic’s popular Fortnite game from the AppStore. However, if Apple is able to increase revenues from proprietary services such as Apple TV+, Apple Music, and iCloud via bundles, it could reduce the dependence of the services business on commission revenue.
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