Ecosystems

Why Me-Too Services Can’t Save Apple

apple card

Three years ago, I wrote a piece in which I said Apple had become the kind of company that Steve Jobs once said he never wanted it to be: one that follows the lead of others.

Jobs felt so strongly that he said he’d rather gamble Apple’s future instead of trying to one-up everyone else after the fact.

Today, Apple seems to be gambling its future by doing just that: being like someone else, often years after others have led the way.

Last week, the launch of Apple’s subscription news aggregator, its streaming content challenger and the Apple Card is more of the same old, same old: Apple playing “follow the leader” from way behind, instead of being the leader.

And a follower without a compelling hook for consumers to grab and get onboard.

Analysts and pundits have mixed views on what all of this means for Apple. The coverage, for the most part, has been on the pluses and minuses of each new service when stacked up against the competition.

For me, Apple’s announcement last week surfaces a larger and much more strategic issue for the world’s first (for a while) trillion-dollar company: The apps ecosystem that once kept consumers tethered to Apple’s iPhone has moved on, cross-device and cross-platform.

And it’s taken consumers with it.

It’s a shift and a sign of the eroding power of the ecosystem that Apple seems to have missed – a blind spot that could keep the company always playing the role of follower, always challenged to play catch-up.

A blind spot that could cast its fortunes – not as an ecosystem creator, but as a hardware manufacturer.

Copycatting in Cupertino

Last week’s announcements didn’t mark the first time we saw Apple play “follow the leader.”

What prompted my article three years ago were the company’s bullish remarks on its Services future a year after the launch of Music and News – then many years after competitors had beaten them to market.

We saw Apple Music debut in 2015, seven years after the launch of Spotify. Apple, the company that transformed how consumers listened to music with the iPod, was outplayed by an innovator with a new business model and a cross-platform, cross-device appeal. Spotify today has 200 million monthly active users and 96 million subscribers; Apple Music has 50 million. Amazon Music, which comes bundled with Prime and Alexa as its DJ, is expected to have 35 million subscribers by the end of this year.

Apple News, the company’s first entry into the news aggregation world, launched that same year. That, too, came seven years after Google News’ first public debut – a cross-platform, cross-device service. It’s a news feature that many consider the go-to for current news on the web and is triggered by search terms, while Apple News is based on the aggregation of approved publisher feeds.

The announcement last week that Apple’s streaming content challenger could have a dozen shows to launch at the end of the year left many shaking their heads. Meanwhile, Netflix and Amazon Prime Video offered 3,839 movies and 17,461 movies, respectively. Netflix has been around since 1997 and launched its streaming service in 2007. Amazon Prime Video launched in 2006 and now includes live sports.

It’s hard to attract users to a streaming content platform without content – and lots of it.

Then there’s the Apple Card, now one of literally hundreds of co-branded credit cards in the market. Co-branded cards, as all payments professionals know, have been around for decades. The first one, the American Airlines card, debuted in 1981.

Cash back as a reward isn’t exactly new, either – and Apple’s version, which pays 1 percent cash back on everyday purchases, seems particularly ho-hum. Discover was the first to make a splash with its cash back bonus back in 2006.

Daily Cash is a new twist on the theme, but it’s also not clear how much of a game-changer it will be. The example shown on the company’s Apple Card page highlights a $.37 credit based on an $18.50 purchase at a coffee shop – and that’s assuming one uses Apple Pay and gets 2 percent cash back on that purchase. (The 1 percent applies to everyday purchases that don’t use Apple Pay.)

As they say, don’t spend it all in one place.

Digital card provisioning is slick, but instant card issuing to a digital wallet is something startups have been doing for a while now, too. Despite its cool design, the titanium physical card is still a physical card – an innovation that is now 60 years old.

Even the titanium form factor is old news.

More to the point, introducing a physical card seems a tacit admission that Apple Pay and contactless mobile payments aren’t moving the needle enough on Apple’s payments ambitions. The launch of the lowly physical card was needed to give it some transaction mojo.

Now, nearly half a decade after the launch of the mobile payments wallet that Apple’s CEO told the world would eliminate the need for consumers to use a plastic card, Apple is embracing it with the hope that consumers will give Apple and payments another look.

From the iPhone to the Apps

Apple’s embrace of the universally accepted payments form factor is a telltale sign of Apple’s now bigger challenge: Consumers don’t want to be limited to using their favorite apps inside of a single, device-driven ecosystem any more.

And consumers do love their apps.

In 2017, they downloaded 178 billion of them, and are expected to download 205 billion this year. That’s remarkable, really, when one considers two-thirds of all consumers downloaded either one or zero apps in any given year.

When it comes to the apps consumers use the most, Apple reported at the end of 2018 the 20 that topped their list. The familiar names included YouTube, Instagram, Facebook, Messenger, Google Maps, Chrome, Amazon, Netflix, Spotify and Square Cash.

Although these apps happen to top the charts in Apple’s App Store, consumers use all of them across a variety of devices – including voice-activated speakers, smart TVs, appliances, security systems, tablets, PCs and even cars – without missing a beat.

Consumers can and do watch Netflix on their iPads and Samsung Galaxy phones and LG TVs. They can and do listen to Spotify on their Alexa devices, Windows OS ThinkPads, iPhones and Pixel phones. They can shop from Amazon and watch YouTube videos using any device connected to the internet, with or without using an app. They can connect to Google Maps via their cars’ in-dash systems and on their iPhones while walking around town. They can send money using Square Cash from any iOS phone to any Android OS phone and vice versa.

Consumers don’t (and won’t) choose apps based on the operating systems that enable them, but rather the use cases they support – and the now many connected devices that power them. The consumer’s choice and use of connected devices will only become more prolific as carriers roll out 5G technology.

Innovators interested in acquiring as many users as possible will follow their lead, developing apps and use cases that support this now platform- and device-agnostic, use case-driven consumer.

The Trillion-Dollar Company Dilemma

One doesn’t get to be the world’s first (for a while) trillion-dollar company without doing many things right.

Apple has obviously done a lot of things right.

The success of the iPhone put, to use Oprah’s line, nearly a billion phones in people’s pockets. The iPhone and the App Store helped accelerate the shift to digital and mobile commerce. It, along with Android and Google Play, provided unicorns-in-waiting with a critical platform and built-in user base to grow their businesses and introduce consumers to mobile and digital use cases.

Apple and Google both blurred the bright lines that once separated the physical and digital worlds, and transformed how people and businesses engage with each other.

Yet, Apple may have rested on its iPhone/App Store laurels for too long.

While Apple was cranking out new versions of the iPhone, iPad and Watch, innovators were expanding  the utility of their apps to new devices and end points to scratch the consumer’s “have apps will travel” itch.

For Apple, that’s a threat.

Consumers today do have more – and much easier – options for moving between hardware devices and the ecosystems that power them. Consumers think access, not operating systems.

Where I think this could be particularly problematic for Apple is in the coming era of voice, which I have long written will be the most disruptive commerce force in the next decade. It’s an area where Apple should have been the leader: They innovated voice with Siri, but have since ceded that position to Amazon, Alexa, Google and Google Assistant, and the voice-activated devices and massive skills ecosystem each has created.

Voice has the potential to shift the focus away from apps that live inside of app stores to skills attached to a voice assistant the consumer can take anywhere she goes.

It used to be that iPhone users were (happily) locked into the Apple ecosystem. They could download their music, movies and TV show reruns from iTunes and store them all in Apple’s iCloud. But now people are getting all those things from Netflix, Amazon, Spotify and many other sources. It is getting easier and easier for people to switch to Android devices and to new ecosystems, including Google’s and Amazon’s with Alexa.

The power of Apple’s ecosystem is diminishing at the same time that it hopes to make money from its Services. Netflix and Spotify have already balked at that, and are moving new subscribers to their own websites for acquisition and signup.

What’s Next

When asked last week about Apple Services (and streaming content in particular), Warren Buffett, one of Apple’s biggest investors, seemed lukewarm. Apple is a company, he said, that’s big enough to afford making a few mistakes.

Given its $245 billion in the bank, he has a point.

The larger point, though, isn’t about putting a dud of a product into the market and shutting it down, as Apple just did with its wireless charger – or signing on Oprah to help plug its new content biz.

It’s more about Apple’s mindset, and how it perceives its place in the mobile ecosystem more than a decade since launching the iPhone. And it’s about the role it has said Services will play in defining that future.

That’s not so clear.

One might look to China as an indication of how that future could play out everywhere else.

There, some consumers buy iPhones because of the status those devices give them. But for those Chinese consumers, the iPhone was just a piece of hardware connecting them to an ecosystem they already used, wanted to access and didn’t want to leave.

That wasn’t Apple’s iOS ecosystem – it was Tencent’s WeChat.

Apple has struggled in China, in part because its ecosystem isn’t that important. Aside from the status of a device, there’s not a lot keeping people loyal.

Devices, not services, drive sales – a very different story than the one that has been told over the last three years.

Over its history, Apple has taken big gambles, and made them pay off.

Hopefully, despite its loss of Steve Jobs, it will do that again – and change the world.

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Latest Insights: 

The Which Apps Do They Want Study analyzes survey data collected from 1,045 American consumers to learn how they use merchant apps to enhance in-store shopping experiences, and their interest in downloading more in the future. Our research covered consumers’ usage of in-app features like loyalty and rewards offerings and in-store navigation, helping to assess how merchants can design apps to distinguish themselves from competitors.

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