It sure seems like everyone is expecting me to comment on Apple this week. Happy to oblige!
So what was the highlight of Tuesday’s virtual Apple event? The new blood oxygen function on the Apple Watch? The new A14 bionic chip for the iPad? The fancy new retina displays? Nope. This week’s big news had nothing to do with hardware.
Apple’s Head of Services Lori Malm debuted Apple One, their long-awaited subscription service bundle. After years of rolling out their digital services on an a la carte basis, Cupertino is now letting you bundle them up for a simple monthly price.
Remember, this is a company that’s famous for its visual brilliance: the iPod that fits a thousand songs in your pocket, the Macbook Air that fits into an interoffice envelope, heck, some of us even remember the smiley face on the first Macintosh.
But what does Apple’s big 2020 product announcement look like? Well, it looks suspiciously like a SaaS pricing chart:
The announcement immediately dominated the online reaction to Tuesday’s event, because it made everyone respond to the same basic set of questions: Is this worth it to me? Is it worth it to my family? Is it a good deal? Does it make sense, given what services I’m already using and what I may be interested in trying out?
In other words, this is the pricing chart that launched a thousand tweets. Here are some typical reactions:
“I already pay $14.99 for music and $9.99 for 2 TB storage. So this is a steal for five dollars more!”
“What if I just want to keep Apple Music and extra storage? I don’t need anything else. They better not make us choose a bundle.”
“They should make it so you can swap out services for the lower tiers. Don’t want Arcade? Throw in News+ instead. Couldn’t care less about TV, but want some extra help with fitness? Swap out for Fitness+. I’d gladly pay $15 a month for a pick-4 option.”
“Still not appealing to me. The sheer value offered like an Amazon Prime-like bundle subscription is missing. That to me would make a compelling proposition.”
And my snarky favorite:
“Steve Jobs would be proud of Apple’s 2020 Game Changer: bundled billing.”
That’s right, it wasn’t a fancy new watch or tablet or electronic pencil that stole the show last Tuesday, it was a conversation about billing, services, and value. I love it.
We’re all much more sophisticated about bundles these days. We’re also much more cautious. We all know what it’s like to aspirationally sign up for some nifty new service, then let it languish for six months before cutting the cord. And if there’s anything that cable television has taught us, it’s that bundles can be used as Trojan Horses to smuggle in a bunch of stuff that we never wanted in the first place.
Here’s a helpful chart from Morgan Stanley (which I found on Stratechery) detailing the cost savings of Apple One compared to stand-alone services:
Naturally, if you were already subscribing to all the individual services included in one of these bundles, you would opt for Apple One in order to save money. That would make perfect sense. But guess what? That never ever happens. Well, if it does, it happens rarely. There’s usually at least one service that you’re not using or something that you like a lot that’s not included in the bundle.
And guess what? That’s by design. Welcome to the world of cross-selling and up-selling through the use of strategic pricing and packaging! “Pricing and packaging” is an old-fashioned sounding-term that might remind you of stocking grocery store shelves, but for subscription businesses, it is one of the most powerful growth levers you have.
For those unfamiliar with the term, “pricing” means exactly that — the dollar number you assign to the value of your service. “Packaging” refers to the decisions you have to make when associating a specific set of features with a particular pricing plan: what do people get for the gold plan versus the silver plan, etc.
In this case, Apple One is using their pricing and packaging to try to nudge you into trying out a new service (“Okay, I’ll check out some of these arcade games”) in order to lock in retention, or bump you up into the Premiere tier with some simple “anchor pricing” psychology (“I guess it’s only ten bucks more”). Notice how their most popular digital service, Apple Music, is included in all three bundles? Apple is using its most popular service to help seed the less successful ones.
That all makes sense. My biggest issue with Apple One, however, is that it’s aimed at the extras, and not the main event: the hardware. True, it might feel like you’re subscribing to an iPhone when you sign up for a monthly payment plan, but guess what? You’re still paying $800 bucks for that phone.
Today, Apple gets to have it both ways: sell the hardware for tons of markup, and then layer on the service revenue. That’s certainly a formula that seems to be working for them and the stock market right now. But customer expectations are moving fast. Hardware is dissolving into services. Why do I only get to subscribe to music, shows and games?
Why can’t I just subscribe to Apple?
For more insights from Zuora CEO Tien Tzuo, sign up to receive the Subscribed Weekly here. The opinions expressed in the Subscribed Weekly are his own, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.
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