When speaking or writing about Apple we have spent much of the past 18 months beating up on the iPhone. Yesterday’s “Apple Event” didn’t engender confidence in the firm’s content strategy. Anchored by a curated, walled garden approach, Apple’s strategy seems mired in the early 2000’s at a time when young people have migrated to open, cloud-based systems. On a positive note, we are fans of Apple’s Fintech strategy – the Apple Pay/ Apple Card combination.
The Good, The Bad and The Retro
- The Good: Apple Card (mostly good news)
- The Bad: Apple News+ and Apple TV+
- The Retro: Apple Arcade
Apple Card: Let’s begin with the good news. Apple Card is a no fee consumer credit card (Goldman Sachs moved into consumer banking to facilitate this offering). Apple Card will leverage Apple Pay’s infrastructure – meaning it will reside on iPhones – and will be accepted wherever Apple Pay is accepted. Apple Card is both a digital and a physical credit card. In the event a business does not accept Apple Pay, you may pay for goods and services with the physical card (see pic), which is part of the Mastercard network. Our point-of-view is simple, if you have access to billions of consumers, Financial Services/Fintech/Payments is always a good place to play. These businesses are scalable, profitable and benefit from recurring revenue and transaction revenue models that provide a level of operational predictability that allows for long-term strategic planning and investment. No company has done this better than Amazon with its Prime bundled service. Privacy is core to Apple’s strategy. A noble idea but the genie is already out of the bottle. Apple Card won’t share your purchase history with third-party advertisers. Even Apple won’t store your purchase activity in their data centers. This is good news for privacy-sensitive consumers but bad news for Apple investors as the privacy-centric strategy means Apple will miss out on advertising revenue opportunities.
Apple Arcade: I kindly placed Apple Arcade in the “retro” bucket but there is a lot that qualifies as “bad”. Namely, Apple’s downloadable, on-premise, curated, walled garden approach to games is reminiscent of a time when enterprise software was purchased and shipped on CDs, installed behind the firewall and not connected to the Internet. Apple’s gaming strategy is dated, there is no other word for it. A curated universe of games by definition means a smaller universe. Apple has invested heavily in downloadable, curated games at a time when game play, game discovery, interaction and viewing takes place in the cloud. Not just any cloud – YouTube is the dominant media platform. 85% of teens use YouTube. Gaming is the largest, fastest-growing, most important content segment and Apple is missing the boat.
Apple News+: Apple News+ feels frivolous. Surface-level access and design aesthetic over substance. $9.99 per month for access to a curated universe of newspapers and more than 300 magazines. For that price you may have guessed that while the breadth of magazines and newspapers is wide, access to content is limited. For example, Dow Jones has provided access to certain general interest Wall Street Journal articles only. The publication’s core business news is not part of the bundle. Think of this offering as a curated, skinny content bundle for the monthly price of $9.99.
Apple TV+: This offering also feels dated. The search & navigation feature appears clumsy especially when compared to YouTube and YouTube TV. This is a problem as Apple TV/Apple Channels wants to be a hub for all of your content including streaming services from other providers. It seems that Apple TV would add complexity and friction to the user experience rather than remove it. Siri powers much of Apple TV’s feature set which isn’t encouraging as Siri lags Google Assistant and Amazon Alexa from a speed and accuracy standpoint. Similarly, I’m skeptical of Apple’s machine learning-powered recommendation engine given that Apple isn’t exactly known for killer AI and machine learning capability (see our previous note – “Siri – Apple’s Downfall?“). I prefer the Stadia YouTube combination to Apple TV+ and Apple Arcade. Further, I’m not sure how Apple’s original content will ever match Disney’s formidable library, which is best-in-class. In a race for the second best original content library, it’s not clear how Apple plans to catch Netflix, which is investing at a $15 billion annual rate.
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