(Bloomberg): Apple is finally getting real. With its most important product category not growing anymore, Apple Inc. confronted its changing circumstances by doing two unusual things: hustling hard and displaying a willingness to change its business model.
The hustle is all about Apple’s willingness to do something against its nature: go wide in the number of devices and internet-tethered products it offers. The company used to brag that all its products could fit on a single table. It was a symbol of Apple’s focus on a small number of devices that it could make obsessively perfect, along with software and apps that made them more useful.
Plug the iPhone sales drop
Hustling is more in Apple’s bag of tricks these days. The company’s annual iPhone extravaganza showed starkly that the table of Apple products would need to be the size of a convention center. Apple now has at least three different iPhone models that it refreshes every year, a dizzying number of iPad and Mac versions, many flavors of computers for the wrist, multiple headphones, a voice-activated speaker, smartphone cases, iPad keyboards, and a growing number of online collections of video entertainment, video games, news and much more.
The potential downside of this explosion of products is that some of them may not be very good or in demand. The HomePod speaker, for example, doesn’t seem to have sold well, and Apple executives barely mention the six-month-old Apple News+ subscription service other than to acknowledge that it exists.
The pragmatic impact of more products that Apple tweaks frequently is that they deliver more revenue and (usually) profits. Apple’s revenue from its shining star, the iPhone, has slid 15 per cent this year, and the company has run out of pricing tricks and other tweaks to prop up its smartphone growth. Apple’s willingness to rapidly expand its product lineup reflects that harsh reality. With its headline act not delivering, Apple needs a larger supporting cast to pick up the slack.
The bundling gameplan
It’s utterly pragmatic, but also surprising, that Apple is willing to shake up its plain vanilla product-pricing approach and actually - clutch your pearls, everyone - drop its prices.
Apple said at its event that it would include a one-year subscription to its new streaming-video service, Apple TV+, for customers who buy iPhones, Mac computers, iPads or the Apple TV media player. It’s baby steps, but this is a version of the “iBundles” - a single price for hardware products plus internet add-ons - that people have been urging Apple to try.
A free Apple TV+ subscription may persuade people who are on the fence about buying an iPhone or iPad to take the plunge. And it gives Apple a chance to hook customers on TV+ who then decide to keep paying - or forget to unsubscribe - after the year is up. This is an old business tactic, but it’s a departure for Apple.
I should say that with Apple giving up on potential direct subscription sales for TV+, and with a low monthly price of $4.99, its online video service isn’t likely to be the profit-lifting engine that investors are expecting from the company’s software and internet offerings. Strange times demand a departure from old tactics.
Apple also updated its least-expensive new iPhone and priced it $50 less than the comparable iPhone XR model of 2018, at $699. This is a reversal for a company that has been steadily increasing phone prices and helped the rest of the industry surge past the $1,000 barrier.
The iPhone XR model seems to have done well, and it’s interesting that with a price drop, Apple is willing to trade off some revenue to persuade more people to refresh their old iPhones.
It’s a smart idea if Apple is serious about filling that iPhone-sized growth hole and persuading more owners of Apple devices to try TV+ or other Apple internet add-ons. So is everything else that Apple is doing, from expanding the number of products it sells to its willingness to experiment with bundled hardware and software.
I don’t know if Apple’s new bag of tricks is going to work. Smartphone sales have stalled globally, and the trends toward more automated software, artificial intelligence and the globalization of technology are simply not in Apple’s wheelhouse. I do give Apple enormous credit for changing - finally - to confront a more difficult new normal.