Summary
- Apple is facing a slowdown in its device sales, but the solution may lie in its new and future streaming services.
- Apple may have already shifted its priority from device innovations to streaming services that when well-adopted like its iPhone, can boost sales of its existing devices.
- With its own device platform for streaming, Apple will have a competitive advantage over streaming service providers that don't have their own device platforms, such as Spotify and Netflix.
Apple's (NASDAQ:AAPL) revenue has come in lower for two consecutive quarters because of recent slowdown in its iPhone sales. Apple Watch, its newest product, is not generating nearly the amount of consumer enthusiasm as the iPhone once did. Considering the increased difficulty to develop another killer device like the iPhone, is Apple stuck with declining device sales going forward? Potentially yes, if all that Apple focuses on is trying to replace its own iPhone with something else. The answer would be likely no, however, if Apple could find a way to foster sales of its existing devices through services like digital streaming to take full advantage of the Apple ecosystem.
Apple will no doubt continue with device innovations. But as digital consumption takes stronger hold with each generation of new devices, Apple can't afford to let others be the sole providers of digital services, most noticeably music and video streaming. Such service markets are directly tied to device uses and can further boost the device market with expanded services.
Selling devices without offering relevant services not only gives up on shares in the service market, but may also lose a portion of one's own device market. There would then be a double loss effect. Future challenges for Apple may be not so much about coming up with new devices, but a lot to do with getting more involved in providing digital services on its existing devices.
Apple's acquisition of Beats Electronics and the subsequent launch of Apple Music have received relatively less attention, compared to coverage of past iPhone introductions. It may have appeared to some that spending $3 billion for Beats, a headphone maker with an obscure music streaming service, Apple was not showing proper regard for shareholders' money.
The market also seemed lacking a positive view on Apple's new, music-streaming service, having traded the stock down to below its 200-day moving average in less than a month, as earnings reports showed dismal device sales. Few seem to be making the connection between Apple's device sales and its emerging streaming services.
Although Apple is late to the music-streaming business, it can still get up to speed by leveraging its iPhone's popularity, similar to the iTune's success in music downloads that were initially tied to its iPod. With little notice from the public, Apple may have shifted its priority to reclaiming the lead in the digital music market and likely later, competing in digital video distribution as well.
Both streaming services require a device platform, and Apple has its own, the iPhone and iPad. Given that Spotify and Netflix (NASDAQ:NFLX), leaders in their respective markets, don't have such a platform of their own, there can be rooms for Apple to play out its strengths against rivals' weaknesses. Having one's own device platform can be a x-factor to help fine tune a service to outplay those that lack one.
Apple may try to offer two streaming versions for its services: one for its own platform of iPhone and iPad, and the other for other device platforms. The Apple-platform version would have full streaming features, while the non-Apple version would provide only limited functions. This way, Apple could try to sign up as many streaming subscribers as possible from non-Apple device users.
Meanwhile, its premium streaming services, available only on Apple's own device platform, could be used to persuade users of other devices, for example, die-hard music fans, to switch to an Apple device. This would ultimately lead to increased device sales for Apple. Such a switch has already been made easy with the move-to-iOS app, aimed at quickly transferring data to iOS from other systems.
Apple could also make it more difficult for competitors' streaming services to operate on its platform, such as those from Spotify and Netflix, as long as it's not considered anti-competition. Depending on how rules governing future streaming services may shake up differently, Apple might even exclude others' streaming apps from its platform, reducing user exposure of competing services.
This would not necessarily reduce Apple's device sales even though it may appear to be the case. Streaming is not the only use for a device owner and it's not likely that someone would abandon an Apple device altogether upon the exclusion of a competitor's streaming service. The user would have to either get another device for which the competing streaming service is available, or simply sign up with Apple's streaming service.
Apple has much to gain from the burgeoning streaming markets by leveraging the wide uses of its existing devices. Offering streaming services will give Apple its rightful share in the streaming markets where it should be a natural participant. Moreover, the more attractive and accessible Apple's streaming services become, the more Apple can sell its devices.
