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Apple Might Make Its Ecosystem Even Stickier In 2021, the average U.S. consumer spent $273 a month on subscription services. That’s up from $237 in 2018, according to digital consulting firm West Monroe. Apple (AAPL) knows these numbers. As part of a larger trend, they’re set to continue to capitalize on them. That’s the investment case we’ll explain in our main story just a quick scroll away. But, first, consider this. The even more amazing part. When asked what they think they spend, people were way off. Source: West Monroe This is how some companies generate relatively easy revenue. They ding you monthly for something you barely use, if at all, amid this environment of having no real idea of what you’re actually spending. We have on again, off again relationships with a whole slew of subscription services. Just check your bank account or credit card statement. However, if a recent Bloomberg report holds true, Apple isn’t out for a casual relationship. It wants to charge consumers – monthly – for their iPhone. The piece of technology that’s in front of us more than any other. And Apple’s reported proposition isn’t merely spreading the cost of the phone over an interest-free installment loan. Rather, Apple apparently wants to charge you a monthly subscription fee to carry an iPhone with the flexibility to take on newer models as they come out. Like an auto lease. |
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Consumer products |
How Apple Might Extend Its Grip On Your Life |
Key Takeaways:
Our Lives Have Become A Series Of Monthly Recurring Charges Although we lose track of how much we’re spending, the West Monroe report reveals that “Newer subscriptions are more top-of-mind than ‘utility’ expenses like cable, cell phone.” Apple wins if you end up viewing your monthly subscription fee for iPhone as a newer subscription rather than a utility expense. Number one – we don’t know Apple’s exact plan. If the company bundles iPhone with more top of mind services, such as video and audio streaming, iCloud storage, and Apple Arcade (gaming), it can solidify the notion of the mobile phone as the intimate conduit for the things that matter most in your life. Number two – Apple has always been more of a lifestyle brand than other hardware producers. So, while Apple takes a page out of Microsoft’s book (think Office subscriptions for consumers and business), they’re doing it with something we don’t hate paying for. They’re doing it with something that’s still at least a little, if not a lot cool and useful in all areas of daily life. Consumers Likely Won’t Abandon Apple While churn will always happen, it’s difficult to envision people, especially loyal iPhone users, abandoning Apple in droves. Consider Spotify (SPOT) and Pelton (PTON). It’s hard to believe Spotify’s contention that Joe Rogan wasn’t to blame for the 1.5 million subs it lost in its Q1, 2022. As Peloton stock crashed, the company still grew its subscriber base by approximately 66% year-over-year in 2021. However, Peloton’s average number of monthly workouts per subscriber went from 21.1% to 15.5% – a 26.5% decline. You gotta think Peloton could be one of those forgotten and soon-to-be-cancelled monthly subscriptions, particularly as gyms and workout studios continue to drop restrictions nationwide. Apple’s Rapidly Growing Services Revenue Apple’s possible move fits into the aforementioned broader movement of increasing monthly subscription costs and Apple’s dramatic surge in its Services business. But Apple has something Spotify and Peloton clearly do not – strong consumer loyalty and far fewer embarrassing missteps. For the three months ending 12/25/2021, Apple’s Services revenue topped $19.5 billion, that’s up from nearly $15.8 billion the same period of the previous year. We’re talking a 23.8% increase. To drive the data home, in the previous three same year-over-year comparisons, Apple grew Service revenue by 32.9%, 26.6%, and 23.2%, respectively. Not all of Apple’s Service revenue comes monthly (some are one-off purchases) and we don’t how the company would report an iPhone subscription (as Product or Service revenue or a mix of both), however this potential move furthers Apple’s plan to keep you in its already super sticky ecosystem for as long as possible, if not forever. As an investor, the investment case attached to this goes beyond buy what you know. It’s about buying what more than a billion people know and, more importantly, what a significant chunk of that billion won’t mind paying for – for the rest of their lives. According to a Chase report, 60% of people make at least one recurring payment they’ve forgotten about. An iPhone absolutely will not be one of them. The Bottom Line: The best consumer tech ecosystems merge hardware and software into something so useful and addictive we don’t think we can – and probably can’t – live without them. That’s been Apple’s vision ever since Steve Jobs showed us the first iPod. With everything that’s come out since, it’s incredible to think we’re still not even in the seventh inning stretch of this story. |
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