What if Apple had a free, ad-supported option like Spotify’s?
From a note to clients by RBC’s Amit Daryanani that landed in my inbox Sunday:
While paid subscribers accounted for 90% of Spotify’s total revenue, ad-supported user base of ~159M users serves the important function of acting as a ‘funnel’ that accounts for 60% + of Spotify’s paid subscribers since 2014.
We wonder if an ad-supported version of Apple Music represents an untapped opportunity for Apple. We also note that traditional US radio market is ~$14B in size, which is not insignificant. Thirdly, the long tail of users from ad-supported base provide substantial data about content consumption and user behavior. It is worth noting that Spotify’s data set of 200PB is significantly greater than that of Netflix. Arguably, similar amount of data available to AAPL would carry even higher monetizing potential (high disposable income of iOS users). Finally, an ad-supported version might increase penetration into markets outside the US, which for Spotify comprised 68% of total users.
My take: If Spotify’s business model is so great, why is it losing money?
Below: Market shares as of mid 2017.
Click to enlarge.
But to an ANALyst, anything that looks like it might make a buck, no matter how much it would damage the brand, looks like A Good Idea.
This kind of thing seems to be working for AMZN and Costco.
Certainly they could do it with iCloud tiers and/or Apple Music.
Have a Mac, an iPad and an iPhone all connected to the same iCloud account? We’ll bump you up a tier or two as a way to say thanks.
They could also do it with comped AppleCare.
The fact that they’ve never had a program like this has bothered me for years.
Apple Music isn’t a stand alone product. It serves the Apple ecosystem. Apple doesn’t WANT customers on ad supported services. The goal is to make the overall ecosystem more attractive, not provide users with the horrible user experience that comes part and parcel with ad supported services.
I received my HomePod on day one. Setup was stupidly easy. Since then, using my 3 month Apple Music trial, I have listened to more music than I have in years. The sound quality is just superb. This got me to thinking about how Apple may release what appears to be stand alone products, then announces a product or service that incorporates all those seeming disparate products as a “whole” that is greater than the sum of its parts.
The way I see it, core to Apple’ Service’s ecosystem is Apple Music, Apple TV, HomePod, and Apple Movies.
Having control of all four will allow Apple to produce 4K HDR movies with audio and video syncing markers, separated by Apple TV, then synced for playback on generic TVs and HomePods.
With that combo Apple will have the best quality (viewing technology) video AND the best sound.
Apple doesn’t need, or want, ad supported streaming music because streaming music isn’t the goal, an industry best (with premium pricing) home entertainment experience is the goal.
ARkit enabled 3D headsets that allow the user to view content from INSIDE the action.
All the parts are there, it just takes being able to control the hardware and software to enhance audio/video experience to a whole new level.
Now, as an investor, here’s the part I really like. Viewing this very real possibility, which firm is positioned to compete (at this level) with Apple?