Nimish SawantSep 11, 2019 15:51:33 IST
Apple's annual hardware event concluded last night with the announcement of three new iPhones, 7th generation iPad, Apple Watch Series 5 with four finishes, pricing plans for Apple TV+, and Apple Arcade.
As expected, the hardware upgrades saw a lot of internal refinement on most devices. The iPhone 11 got a new ultra-wide angle camera and the 11 Pro and 11 Max Pro received an additional tele camera. The cheapest iPad on offer also saw a new design and added support for Apple's smart connector.
But what stood out for me throughout the 90-minute Apple Event was the aggressive pricing strategy for two of its flagship services. It looks like Apple is finally reacting to market forces, and not going about with its ultra-premium pricing, which has no logic other than to get higher margins and making a huge profit.
Dropping iPhone sales
Well, there's nothing wrong with making a profit, but over the years, Apple's hardware pricing has not been too well received.
Apple has not been able to sell the current generation iPhones at the same rate as a few years ago. People are holding on to their older iPhones for longer periods of time. This factor added with the fact that new iPhone prices are increasing over the years gives fairly little incentive to upgrade. iPhone is a huge revenue generator for Apple. A sure sign of its dropping sales is identified by the fact that Apple no longer shares volumes of iPhones sold on its earnings call. At every Apple Event, we generally used to see CEO Tim Cook spend at least the first five to ten minutes talking about highlights regarding iPhone sales, app sales, Watch sales, and so on — that didn't happen last night. The pinch is certainly being felt.
With the ongoing US-China trade war, although the iPhones are currently exempt from any tariffs, one can never know what might rile up US President Donald Trump. Apple Airpods, Apple Watch and other Apple devices will be facing the 10 percent additional China tariffs. Even with the iPhones and Macbooks, the tariff exemption will only last till 15 December. This, along with Apple's dropping sales in China, and that market being usurped by Huawei (a brand in the eye of the US-China trade war), does not bode well for Apple. In India, Apple iPhones don't even make up two percent of total smartphone shipments. These two markets are critical for Apple, and if the last couple of quarters are any indicators, things haven't been too rosy for Apple.
To ensure more people buy its latest iPhone, Apple has, for the first time in many years, launched a new iPhone at a cheaper price than its predecessor. The iPhone 11 comes at Rs 64,990 in India whereas the phone it replaces, the iPhone XR, was launched in 2018 at a starting price of Rs 76,900 (it's now received a price drop and will start from Rs 49,900 which is an excellent price for this phone). The starting prices for the iPhone 11 Pro (Rs 99,900) and iPhone 11 Pro Max (Rs 1,09,900) are the same as that of the iPhone XS and iPhone XS Max when they were launched in 2018.
Services: The obvious growth segment
Apple iPhone sales still dominate Apple revenues, but the growth isn't as impressive. While iPhone sales aren't too appealing, its the services segment that is seeing steady growth. Apple services, which include iTunes, the App Store and Apple Music, among others, have two more additions now in the form of Apple TV+ and Apple Arcade. It has only been going up from Q2 2017 from around $7 bn to $11.5 bn in Q2 2019. Apple has 390 mn paying subscribers across its services and it expects to cross the 500 mn mark by 2020, and it's aiming to reach $14 bn quarterly revenue by 2020.
Going by traditional Apple logic, that would mean that prices of the new services such as the streaming service Apple TV+ and game streaming service Apple Arcade would be priced in line with the competition, or even higher. Instead, Apple surprised everyone by announcing a $4.99 per month Family plan for each of the two new services. In India, they're priced at Rs 99 per month. Apple certainly seems to have paid heed to market dynamics and has offered pricing which will make these services accessible to more people. Of course, you will still need an Apple device to access these services, so there's no escaping that.
It's still early days to comment on Apple TV+ and Apple Arcade, before trying out the services, but with Rs 99 as the entry barrier, it is a no-brainer that more people will at least try them out. Apple is offering one week of free access to existing users, and a year free for new buyers (more on this below). You will get access to a variety of shows such as the Reese Witherspoon, Jennifer Anniston and Steve Carell-starrer, The Morning Show, Jason Momoa-starrer See, space documentary For All Mankind, among many others.
It was disappointing to see absolutely no announcement on the iCloud pricing front. One would've expected Apple to at least offer more storage. This is a service that is critical if you are invested in the Apple ecosystem. The 200 GB per month plan is still priced at Rs 219 per month. With the improvements in the new cameras, it's a given that more photos and videos will be shot. You will have no choice but to opt for the paid iCloud plans. Apple isn't relenting on that front.
One year of 'free' Apple TV+ for buyers of new Apple devices
For me, this was the most un-Apple announcement of the day.
A couple of years ago, Apple even stopped bundling a lightning port to 3.5 mm audio jack with the new iPhones. If you want that, you spend another Rs 899 on it.
At a time when every Android flagship phone on the market was bundling a free fast charger, Apple was still offering the snail-slow 5 W charger which would take forever to charge an iPhone. If you wanted a faster charger, you had to pay Apple for it. Hell, they don't even bundle a USB-C to Lightning cable with their phones, forcing you to spend more on an adapter or a new cable just to connect your phone to your MacBook.
In light of these realities, to see Apple offering one year of 'free' Apple TV+ for those who buy a new Apple device from September 2019 onwards was surprising, to say the least. A fiercely competitive capitalist company such as Apple offering anything for free, and that too for a year, just sounded unreal.
Competition is fierce
Apple TV+, which is Apple's entry into the crowded streaming TV segment with original content, comes at Rs 99 per month in India. This is cheaper than the monthly subscription for Hotstar, Netflix as well as Amazon Prime. But the details as to which TV shows and movies will be part of Apple TV+ service are still scarce, apart from what's available on the Apple TV+ product page. Yes, we know that four original shows will be available on 1 November, when Apple TV+ starts officially streaming in 100 odd countries, with a new show/movie to be added every month. In comparison, Netflix, Amazon Prime and Hotstar have a bouquet of new shows and movies (original and syndicated), every other week. So, even though Rs 99 per month may seem quite an approachable price point, the competition, which is priced higher, still has the upper hand.
For starters, competing apps are available on Android devices, which makes up for over 97 percent of devices sold in India. Apple has said that Apple TV+ would be coming to the Amazon Fire TV Stick and Samsung Smart TVs eventually, but we don't have a definite timeline for that yet. If you want to watch Apple TV+ shows on your TV, you would most likely need an Apple TV.
So, even though Netflix, Disney (which owns Hotstar) saw a minor drop in share prices last night, I think they really don't have anything to worry about right now. For Apple, it was just logical to offer Apple TV+ at an affordable price point. What makes Apple TV+ even more enticing is that it is a Family plan.
Apple Arcade, on the other hand, could be a boon for gamers
Android doesn't have a game-subscription service yet, so Apple Arcade definitely has a first-mover advantage here. Given the graphics chops on iPhones, the excellent display, it's a no-brainer that gaming on the iPhone is a far superior experience than on a comparable Android flagship phone, even the gaming ones. Add to this a guarantee of ad- and microtransaction-free gaming, optional sign in and a promise of console-level graphics on some games, makes Arcade a great value proposition for gamers at Rs 99 per month.
With the aggressive pricing for its new services, Apple is certainly on track to continue its onward march in the services segment. A slowdown in overall smartphone shipments globally is a dead giveaway that relying on pureplay hardware sales isn't going to cut it for a company like Apple. The pivot to services is only logical. It's also the only insurance against random decisions which could be made as part of the US-China trade war outcome.