Apple's (AAPL) reported plans to launch subscription bundles should boost its services revenue. But that probably wouldn't be the only long-term payoff.
To recap: Bloomberg reported on Thursday that Apple is working on an effort -- referred to within the company as Apple One -- to offer discounted bundles for various digital services. The bundles will reportedly include a "basic package" featuring Apple Music and Apple TV+, a second tier that includes Apple Arcade, a third tier that includes Apple News+ and a fourth tier that includes extra iCloud storage.
Also: Apple is said to be prepping a subscription service for "virtual fitness classes" that will be provided in "a higher-end bundle with the rest of Apple's services." And the company is also reportedly prepping software/hardware bundles, including one that provides Apple TV set-top owners a free year of Apple Arcade.
Here are some initial thoughts on the report.
1. The Timing of the Bundle Launches Might Be Tied to Apple TV+ Promos
As many readers probably know, Apple has been providing a free year of TV+ to buyers of new hardware since last September. Starting on Nov. 1 -- the day that TV+ launched last year -- those free years will begin expiring.
This gives Apple an incentive to have some services bundles featuring TV+ in place as those expirations begin.
2. Providing Flexible Subscription Options to Users Could Prove Important
Needless to say, certain bundles will appeal a lot more to some Apple services users than others. For example, some users might be interested in a bundle that includes Apple Music, TV+ and News+, but have no interest in Arcade. And there could be others who want Arcade but not News+, and others still who want neither of those services but would like more iCloud storage.
Bloomberg's report doesn't make it sound as if users buying bundles will have a lot of flexibility to mix and match their preferred services. But it's hard to imagine that Apple isn't aware that there will be a lot of variety in terms of which particular services its users are keen on paying for.
3. The Bundles Could Make Current Services Revenue Estimates Look Very Beatable
Apple is coming off a June quarter in which its Services segment revenue rose 15% annually to $13.2 billion. This growth occurred even though COVID-19's impact on services revenue has been quite mixed -- while businesses such as the App Store and Apple Music appear to be doing quite well, businesses such as AppleCare and Apple Pay appear to have taken a hit, and so has revenue related to Alphabet's (GOOGL) Safari search ad revenue payments.
Rebounding demand for currently-pressured services revenue streams, together with the launch of bundles, could both act as growth drivers for Apple's fiscal 2021 (ends in Sep. 2021) Services revenue. Currently, the consensus is for Services revenue to rise 15% to $61.57 billion.
4. Apple Has the Option to Be Aggressive with How it Prices Certain Bundles
The content provided by TV+ is paid for up-front, as are the games provided by Arcade. And if a virtual fitness class service arrives, it might also be a business with more fixed costs (i.e., the cost of producing the classes) than marginal costs (i.e., the cost of streaming the classes to more users and processing their payments).
iCloud storage is a little different, in that a marginal cost (i.e., the cost of hosting extra storage, should it be consumed) accounts for a large portion of expenses. But like the aforementioned services (and unlike Apple Music and News+), Apple doesn't have to provide a large per-subscription revenue cut to third parties.
As a result, Apple has some leeway to be aggressive in terms of how much it charges to add such services to a bundle, or to obtain them in tandem with a device purchase.
5. The Bundles Should Boost the Stickiness of Apple's Broader Ecosystem
The more Apple services that a user is hooked on, the harder it becomes for him or her to stop using the devices that those services run on. And possibly, getting hooked on additional services will make the user more willing to buy additional Apple devices that support those services.Over the long run, the potential of bundles to boost customer loyalty and hardware cross-selling could prove more valuable than the incremental services revenue they deliver -- particularly as Apple's hardware lineup continues expanding.