Many Apple pundits and analysts point to its services business as the future of the company and a major source of future revenue. I don’t deny that services revenue is steadily going up while hardware revenue is heading in the opposite direction.
Yet, I still see Apple as primarily, fundamentally and foundationally a hardware company. Its services exist to sell more hardware. When Apple makes money on services — sometimes, a lot of money — it only adds to the bottom line.
As a hardware company, the true bottom line will continue to rest on Apple’s hardware: iPhone, iPad and Macintosh devices as well as the ever-growing “other” category that includes things like Apple TV, Apple Watch and HomePod.
If Apple’s hardware business is both its legacy and its future, why spend large sums of money on content for a video streaming service that doesn’t exist yet?
On a recent episode of Upgrade, Jason Snell and John Siracusa seemed unable to consider the idea that Apple is spending hundreds of millions of dollars on content to sell more Apple devices.
I don’t see this as merely a possibility. Rather, it’s the only reason I see the company doing it. I don’t think Apple is delusional enough to believe it can roll out a true Netflix competitor and take over video streaming. Thus, if the goal isn’t to be Netflix, what is the goal?
To sell more Apple devices.
But Snell and Siracusa didn’t seem to think it’s a winning strategy. In fact, they outright dismissed the notion that selling more devices based on unique, desirable content is possible. They agreed that a guy who has an iPhone, iPad and Apple Watch but no Apple TV won’t give in to purchasing an Apple TV just to watch Apple’s video content on his big screen.
That’s nonsense. Apple’s intention is that their content convinces that guy — and everyone else — to buy the Apple TV they don’t yet have. And, not just their content. Everything that constitutes the Apple ecosystem including its original content is what gets people over the hump and to an Apple store to purchase another Apple device.
Apple Music Isn’t a Harbinger of Apple’s Video Strategy
The recent addition of Apple Music to Amazon Alexa-enabled devices seems to run counter to my argument.
Music is a different industry than television and has evolved differently. While subscription-based streaming models have come to the foreground in both, experimentation with music exclusives has largely fallen flat. Thus, there are several good music services including Apple Music but the catalog of each is generally the same with a few minor exceptions.
The same is not true for television streaming, in which each service has exclusives and it’s common to subscribe to more than one to be able to watch certain shows.
Want to watch “Game of Thrones”? An HBO subscription is required. “Stranger Things”? Netflix. “Counterpart,” a new personal favorite of mine? Starz. The list goes on and on and the limit of what consumers will put up with doesn’t appear to have been met — at least not yet.
Since consumers have shown that the concept of original video content is enough to warrant paying a subscription fee, it stands to reason that Apple’s new video effort with its abundance of original content in the pipeline will be able to carve out its own niche.
Apple’s hardware play adds a new element. HBO, Netflix, Starz and the rest haven’t asked consumers to purchase a dedicated box to consume their streaming content via television. It would be outlandish to do so — imagine having a hardware component for each subscription service.
The ecosystem created by Apple behaves differently and puts Apple in a unique position to redefine the rules. Those who live inside of the ecosystem don’t do so just to have a slew of Apple logos around them at all times. They do it because of the benefits — both tangible and intangible — of living in Apple’s ecosystem.
In Praise of Apple TV
Besides being a conduit for Apple’s upcoming streaming content, the Apple TV is simply a good media consumption device because it just works.
In my home, I have access to Roku’s offering on two smart TVs. I also have an Apple TV attached to one of them. Given the choice — and this is a choice I make frequently — I always choose to use the Apple TV over the Roku not because I’m consuming something that’s exclusive to the Apple device but because the Apple TV is better.
It’s smoother, faster and the controls are more intuitive. Even the universally derided touchpad remote works well enough that I wouldn’t choose Roku’s conventional D-pad over it.
While Roku devices may be available everywhere and are more affordable than anything Apple offers, universality comes with a cost.
Living inside of Apple’s ecosystem is exactly where I want to be, and I’m convinced Apple’s video content will live there, too.