Monday, February 5, 2018 [Tweets] [Favorites]

The Apple Music and HomePod Strategy

Joe Rossignol (Hacker News):

Apple Music now has 36 million paying subscribers around the world, an increase from well over 30 million reported last September.

Apple confirmed the updated total to The Wall Street Journal, which today reported that Apple Music is growing at a faster pace than Spotify in the United States, and could soon eclipse the service in popularity in the country.

Kirk McElhearn:

Also note that Apple Music is available in many more countries than Spotify. Spotify has a presence in 62 countries, and Apple Music is present in 117 countries, notably including India and China, where Spotify is absent.

Ben Thompson:

What HomePod shows, though, is that Apple Music is part of the strategy story. Remember, strategically speaking, the point of services is to differentiate hardware. To that end, HomePod is not exclusive to Apple devices to prop up Apple Music; rather, Apple Music is exclusive to HomePod to sell speakers. Most commentary has assumed that:

  1. Customer wants HomePod
  2. Therefore, customer subscribe to Apple Music
  3. Apple profits

Again, this doesn’t make sense because Apple Music isn’t profitable!

Instead, I think the order goes like this:

  1. Customer owns an iPhone
  2. Customer subscribes to Apple Music because it is installed by default on their iPhone
  3. As an Apple Music subscriber, customer only has one choice in smart speakers: HomePod (and to make the decision to spend more money palatable, Apple pushes sound quality), from which Apple makes a profit

If the goal is to sell speakers, why does HomePod lack an aux input and support for Bluetooth audio? You can’t use it from Android even if you subscribe to Apple Music there. You can’t even reliably play audio from third-party iOS apps.

Previously: HomePod to Arrive February 9.

Update (2018-02-05): Nick Heer:

More than anything, I think Simon falls into the same trap many others do: Apple isn’t setting out to build the biggest user base, but a large paying user base. A free trial accomplished that goal; a free tier does not.

Update (2018-02-06): Third-party app support may get better when AirPlay 2 is released and apps are rewritten to use it.

Update (2018-03-02): See also: Exponent.

6 Comments

HomePod is the clearest indication that Apple now has its own version of the Microsoft Strategy Tax. (https://arstechnica.com/staff/2011/03/the-apple-strategy-tax/)

"If the goal is to sell speakers, why does HomePod lack an aux input and support for Bluetooth audio? You can’t use it from Android even if you subscribe to Apple Music there. You can’t even reliably play audio from third-party iOS apps."

Ben Thompson, as usual, is about half right and half wrong. His imperative order is total nonsense.

But he gets it (sorta) correct above that where he writes: "Remember, strategically speaking, the point of services is to differentiate hardware", though he neglects to add that it strategically applies to Apple in a way it does not apply to any other service company.

The goal is to force folks towards the iPhone, lock-in folks who already have an iPhone, and as Fred McCann notes, add another level of strategy tax to the platform. If they get Lukas Mathas to go iOS with the HomePod, they win.

(And I'll add that Lukas's point on the HomePod from a previous thread is under-acknowledged: what Apple is really selling these days for discerning consumers is pretty much exclusively privacy/security. I can't think of any other reason I'd recommend folks go iOS over Android. Once you get past the ephemera, it is their core differentiation.)

I disagree that the goal is to force folks towards the iPhone. Apple went down that path with the iPod, and trying to force people who wanted to buy device A to also buy device B didn't turn out so great. Most people didn't buy anything instead of buying both. I started writing more but it got too long for a comment, so turned it into a blog post:

https://nigelwarren.com/blog/2018/2/homepod-strategy

[…] The Apple Music and HomePod Strategy, HomePod to Arrive February […]

@Nigel

"I disagree that the goal is to force folks towards the iPhone. Apple went down that path with the iPod"

Well, as you seem to understand, when Apple first started selling the iPod, they indeed were using it to enhance the Mac halo effect, just as they're using the HomePod for similar reasons with iOS and/or Apple Services today. But you seem to think that will change, as it changed for the iPod, and thus it's useful to review why the iPod took its particular path, and how the HomePod is different.

After Apple had been selling the iPod as a Mac halo enhancer a bit, they realized that that the iPod could be a more important product to Apple's future than the Mac, which led to the shift in strategy. And they were correct. It turned out to be a far more important and strategic product than the Mac. By the time the iPhone rolled out, the iPod was as large a product for Apple as the Mac, and crucially had a total monopoly in the PMP space. The monopoly provided high profit margins, and provided essential consumer leverage for the successful rollout of the iPhone in a way that changed history.

Compare and contrast to the HomePod:

- It's obviously never going to be as large a product as iOS devices, or even a meaningful fraction as large as iOS devices.

- It's obviously never going to establish a monopoly in its space. There are already very popular competitors in existence, and those competitors can always add more expensive sound quality if that turns out to be a major selling point. Further, the competitors will always be able to subsidize the cost of their hardware, as they get other revenue streams in terms of data collection for both Google and Amazon, and driving store sales for Amazon.

- In short, there is no potential way for it to be a game changing product for Apple like the iPod that would lead it to have strategic value separate from enhancing the iOS / Apple Services business.

None of this is to say that Apple will never open up the HomePod beyond the Apple ecosystem in any of the available ways. But the incentives that drove Apple to open up the iPod simply don't exist for the HomePod, and they won't exist in the future. Strategically, the HomePod is far more akin to the Apple TV than it is to the iPod. From Apple's POV, at best it'll be a mostly closed iOS / Apple Services enhancer. Opening it up would be a sign that Apple has given up on the HomePod's strategic value, and is just trying to wring a few more bucks out of a high margin accessory.

@Chucky those are all good points. You’re right that HomePod vs the iPhone is different to iPod vs the Mac.

That said, it’s unlikely that any single product will be game changing for them compared to the iPhone. So their strategy might be to build a set of smaller products (in terms of revenue). The Mac and iPad are good businesses that stand by themselves rather than solely supporting the iPhone. Why not the HomePod too?

After all, it seems to me that the weakness of a total lock-in strategy is that if the keystone product falls, the rest go with it. So it’s in Apple’s long term interest to develop products that play well together, but are valuable even if used independently. (FWIW this is why I don’t find their services revenue reassuring. Pretty much the entirety of this revenue seems to depend on the iPhone. If the iPhone wanes, services revenue will vanish too.) I think they've always tried to make the Apple TV it's own thing. It works fine as a streaming box, but with or without Apple services / other devices, they've never found a way to make it a great product.

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