The Latest from Apple: Subscription Services and Changes to the App Store

Apple has launched two major service updates: a new bundled subscription service, called Apple One, and reduced App Store fees for small developers. GLG spoke with Serge Kassardjian, former Global Head of Media Apps for Google Play, back in September to discuss Apple’s future in subscription services, as well as mounting pressure for the company to change its fee structure.

Below are a few select excerpts from our broader discussion.

How do you think Apple’s new bundled subscription service, Apple One, will help advance the company’s services revenue?

Two types of revenue opportunities could happen immediately: first party and third party. First party is obviously through subscriptions like Apple TV+ and Apple Music. Third party is potential revenue share with other subscriptions, like Netflix and HBO. Apple would take a cut of these subscriptions because the App Store is where sign-ups were initiated.

Why do you think criticisms of the App Store policies are emerging?

App stores have taken 30% of revenue since 2002 and 2003, when iTunes started selling music digitally. Right now that precedent has come under criticism because of the growth of subscription services and the willingness to be more flexible with subscription services. Gaming companies like Epic and others have a lot of market and consumer power right now, and they’re trying to figure out what they can do with Apple.

Where do you see the biggest growth opportunity in Apple’s bundle?

Third-party services. First-party services, such as Apple Music and Apple TV, can help get more logins and credit cards and standardize the process of logging in and paying — all making users stickier within the Apply ecosystem. But there’s an unlimited number of third-party services, so the opportunity is massive. The goal is to take a cut of every single one.

What are the most important services for iPhone consumers in terms of anchoring and customer retention?

Any core services where a user saves their data. iMessage is a really good example. Places where people live and can’t move data over. These are the core platform features that they’ll continue to invest in and continue to give away for free because the cost of switching is too great. Unfortunately, something like an Apple TV+ isn’t necessarily what keeps people around. It only brings people in.

How global and scalable is Apple’s bundle considering the emphasis on regional offerings around media, news, and fitness?

Scaling globally has become much easier than it was five years ago. Historically, the biggest issues around scaling globally were content rights and localization issues. There was a big inflection point that happened at CES when Netflix announced that it was going global and started building the capability to have localized content and tracking. Technology is helping with localization, and Apple owns the global rights at this point. And most of these content companies are taking a global approach now.

How important is Apple’s install base in terms of active phones or units, and how much room do you think they have left to grow?

It all depends on the pricing of the product. Android grew very quickly and took a lot of market share early on because there was a phone for everyone. Apple historically has been very restrictive on the number of their main types of phones.

And this is why services, apps, and subscriptions are still important to them, if it’s not neccissarly about launching cheaper phones, they need to find other places for growth. The issue they’re going to run into in the next couple of years is that the phone’s form factor has stopped innovating over the course of the last three to four years. The only growth on the hardware side is to find a cheaper phone, because the upgrade cycle is already fast enough and it’s very difficult to see innovation within the form factor.

How do you think Apple will be able to grow subscribers in the next quarter?

The tailwinds are there. They kind of just have to not mess it up. People are flocking to more digital content, more digital bundles. People are moving to a subscription-first mindset, and buying their subscriptions from their technology providers. And Apple can compete. They’re fortunate enough that they can compete on price when it includes their own first-party services, and they can bring in those third-party services.

Apple has its own ad network, Apple Search Ads. Considering their emphasis on privacy, how can we expect them to monetize this product?

I think that’s a nonfactor for them. It’s a nice-to-have, but I’d be surprised if they’re putting any real resources toward that. Privacy would be a much higher priority than anything ad-related for Apple because privacy enables them to sell more devices. And more devices let them sell more services.

How serious is the risk of regulation due to recent App Store criticisms?

There’s always the risk. The challenge of regulation is, why regulate now versus 5 or 10 years ago? There’s no specific thing that is happening now that’s any different from what’s happened in the last 12 years. But some of these antitrust issues tend to be more political battles, both from Silicon Valley politics with companies competing against each other, and politics from our government system.

Do you think Apple will ever reduce the initial 30% in-app purchasing fee?

I think so. I think how we decide on who gets a shift in the rev share will probably be standardized in some way or form, which I disagree with. I would tend to hope that you could go and negotiate those deals one-off. But from what they’ve done in the past, they probably will have a universal view on who deserves it, based on the threshold and type of content.

Do you think we’re likely to see hardware as part of Apple’s bundle in the future?

I absolutely, completely see that. I also think if there is enough demand for future devices, there could be early access for people, almost like a Restoration Hardware model, where you buy a membership and you’re able to upgrade and get discounts and services that you typically wouldn’t. I don’t think they would sell two products together, though.

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About Serge Kassardjian

Serge Kassardjian is currently the Founder and CEO of StayTuned Digital. StayTuned is building a platform that facilitates conversational commerce using transactional notifications. Serge was previously the Global Head of Media Apps for Google Play and Android, leading global business development efforts with media companies including entertainment, video, sports, news, virtual reality, augmented reality, and cable verticals. He also was Venture Capital Investor at Globespan Capital Partners and a Corporate Development Director in Sony Music’s Global Digital Business. He is currently an active angel investor and advisor in various start-ups. He received his MBA from Harvard and bachelor’s and master’s degrees in engineering from Stanford, where he was the President of his class.

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This industry article is adapted from the September 29, 2020, GLG teleconference “Apple Services and the App Store.” If you would like access to this teleconference or would like to speak with Serge Kassardjian, or any of our more than 700,000 industry experts, contact us.