By Tripp Mickle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 27, 2019).
When Apple Inc. launched the iPod with iTunes, Steve Jobs fought
efforts to make them accessible on rivals' devices. He wanted the
newest Apple products to benefit the company's own hardware
business
Nearly two decades later, the tech giant is changing its
philosophy as it tries to maximize the reach and revenue of newly
launched services. The change is a step to venture beyond the tech
giant's user base, which is large but currently tethered to device
owners, to effectively compete with companies that have a big head
start in arenas like entertainment.
Announcing a suite of new services Monday, Apple said it struck
agreements to bring its enhanced TV app -- with access to a la
carte network subscriptions and, eventually, Apple's original
content -- to smart TV devices from rivals like Samsung Electronics
Co., Amazon.com Inc., and Roku Inc. Apple also said it would
provide a physical credit card, so people who sign up for its new
Apple Card payment service can make purchases at locations that
don't accept Apple Pay.
Those offerings follow recent announcements that Apple Music
would become available on Amazon's Echo smart speaker and Apple
AirPlay on some TVs, allowing iPhone owners to stream content
directly to devices made by Vizio Inc., LG Electronics Inc. and
others.
Such deals are a departure from a formula that has been at the
center of Apple's success since the original Macintosh: selling
gadgets and software that were inextricably linked -- you couldn't
buy one without the other. That approach, which gives Apple control
over users' experience, has proven enormously profitable. Apple
cleared nearly $60 billion in profit last fiscal year on $266
billion in revenue; about two-thirds of sales came from the
iPhone.
But the approach also has limited Apple's reach. Despite
launching its own streaming-TV box a decade ago, the company can
claim only about 25 million active Apple TVs in the U.S., just over
a tenth of connected TV users, according to eMarketer. Apple's
HomePod smart speaker has sold a small fraction of the tally for
Amazon's Alexa-based speakers, which has a 70% share of the U.S.
market. And Apple Pay is still not accepted by some merchants.
Apple has to address those gaps in its network to make its new
paid services succeed, said Ben Bajarin, a technology analyst with
Creative Strategies. He pointed to Netflix Inc., which has 139
million paying subscribers across an array of devices, as evidence
that a cross-platform strategy is required to compete.
"The more money you give Apple, the less restrictions you want
on how you consume it," Mr. Bajarin said. "Apple has to meet
customers where they're at and that may not always be on Apple
hardware."
Apple didn't respond to requests to comment. Dow Jones &
Co., publisher of The Wall Street Journal, has a commercial
agreement to supply news through Apple services.
Apple has some experience extending services to other devices.
Beats Electonics LLC, which Apple acquired in 2014, already had a
streaming-music service on Android. The service, which became Apple
Music in 2015, has been installed about 40 million times on Android
devices, according to app-use tracker Sensor Tower.
Still, Apple Music with 50 million monthly paid subscribers
trails Spotify AB and its 96 million.
Apple executives have said the company had been too narrow in
its view of rival platforms like Android, The Wall Street Journal
previously reported.
Apple's shift speaks to larger challenges, notably for its
bread-and-butter iPhone business. In January, Apple reported its
first decline in sales and profits for a holiday period in more
than a decade, and total sales this fiscal year are expected to
decline by $25 billion, according to Sanford C. Bernstein.
Forcing would-be subscribers to buy an Apple device to access
its new services would create an impediment to the growth that
Apple needs to offset the iPhone's decline, said Bernstein analyst
Toni Sacconaghi.
"Clearly, they're doing this to try and drive revenue rather
than create platform loyalty," he said.
Even many iPhone owners may need persuading. At least 50% of the
world's approximately 900 million iPhone owners don't own another
Apple device, said Neil Cybart, who runs Above Avalon, a site
dedicated to Apple analysis. He said Apple must make services that
also run on other devices those users own to encourage them to
subscribe.
Offering its app to other devices requires more than a
philosophical adjustment. Apple on Monday demonstrated features on
its Apple TV app, such as swiping up to view a movie, that could be
hard to replicate on rivals' smart TVs, said Gene Munster, managing
partner at Loup Ventures, a venture-capital firm specializing in
research. He said Apple engineers will have to try to create as
close to an authentic Apple experience as possible on someone
else's hardware.
Apple executives have told partners in recent years that it has
been difficult to recruit developers to work on its Android app for
Apple Music because those engineers are skeptical that the iPhone
maker is as committed to Google's operating system as it is to its
iOS system, a person familiar with those discussions said.
"That's a reason they haven't done this in the past," Mr.
Munster said. "It's a little complexity that shows: It's not that
easy."
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
March 27, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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