Apple’s New Bite

In a long presentation on Monday, Apple Chief Executive Officer Tim Cook announced the consumer electronics giant was set to launch several ventures. These will piggyback the Apple brand and leverage the dedicated user-base while looking to make inroads into some new areas. Apple will launch a credit card this autumn, in partnership with Goldman Sachs and MasterCard; it will set up a cross-platform arcade gaming service which is also due to launch in autumn; it will launch a streaming TV service, with new content generated by icons like Oprah Winfrey; and it is rebranding and re-launching its news service. Apple being Apple, every player in these diverse markets will sit up and take note. It is worth remarking that this diversification is alien to the company’s corporate DNA since it has hitherto preferred to be narrow-focus. Changes will be required in the company’s mindset if it is to make a go of such a portfolio of unrelated businesses.

All the new ventures rely on the global club of 900 million-odd “iManiacs” who swear by Apple devices. Apple will be looking to that dedicated user-group to generate initial signups to the new services and it must anticipate that the new services will, in turn, boost demands for its gear. Insofar as information is available, it is keeping users tied to its dedicated ecosystem. The games will work only on Apple devices, the credit card will be tied to the Apple Wallet and the streaming content will be available on Apple TV. The initial signup terms and conditions appear attractive. The Apple Card, for instance, will not have late fees or penal interest charges, and there will be cashback offers for use within Apple Wallet, and for the purchases of Apple products and services. However, the card would also work anywhere that MasterCard does. The Arcade games library is new. Subscribers can download these games on to their Apple device of choice and play offline. The TV channel offers new content as well, while the news subscription services offer a wide range of magazines (though few newspapers seem to have signed up as yet).

The diversifications may seem unusual in isolation. But more broadly, the company is seeking new revenue streams as the smartphone and tablet segment slows. Apple’s iPhone sales have slowed. So have the sales of competing high-end smartphones. While this may be a cyclical phase, some analysts suggest the high-end smartphone market is now saturated, with few users seeing a pressing need to upgrade their current devices. Apple already has a significant presence in the services segment. In 2018, it generated roughly $40 billion of its revenues of $266 billion from services. The high growth rates of Netflix and Spotify clearly indicate that content generation and streaming present a big opportunity. Apple already has the popular iTunes service so this is, in one sense, an extension, though content generation represents vast new challenges.

Gaming is another high-potential area. Google is also entering the gaming arena, although it is using a very different model of streaming. Most gamers are youngsters in the 12-25 age cohort. Growth is expected to rise exponentially as Third World nations with young populations enter the smartphone era. Apple must hope that gamers, who typically buy high-end expensive PCs, will opt for iPads and Macs instead. A lot depends on whether gamers think Apple Arcade plus the cost of devices presents a value-proposition versus high-end gaming PCs and more freely available games. That will depend on both content and subscription rates.

The new services are set to roll out over the next six months or so. This announcement creates a buzz but analysts will not have hard numbers until late autumn or winter. It will be interesting to see how the company manages the transition to becoming a more diversified entity. The going will be tough, no doubt, considering that the company, in an unprecedented retreat, on Friday cancelled its highly anticipated AirPower wireless charging mat and apologized to customers who were waiting for it.―Business Standard