Sep 16, 2020 - Technology

Apple just significantly deepened its bet on services

Apple's new Apple Fitness+ subscription service
Photo: Apple

As expected Tuesday, Apple debuted new iPads and Apple Watch models featuring new colors and modest hardware advances. But the really significant long-term move for Apple was the further expansion of its services business.

Why it matters: With the slowing down of the smartphone market, Apple has turned to services to become its key growth engine.

Apple made two big announcements on the services front:

  1. Apple Fitness+. The service. It costs $9.95 a month (or $79.95 a year), with three months included with the purchase of a new Apple Watch
  2. Apple One is actually a set of new bundles. The basic service, at $14.95 per month, includes Apple Music, Apple Arcade, Apple TV+ and extra iCloud storage. A $19.95 family bundle provides household access to the same services, while a $29.95 per month service includes Apple Fitness+ and Apple News+.

The big picture: Both moves extend Apple's services push and, with Apple Fitness+, the company is expanding into a new area. That's important because consumers' tech budgets won't necessarily scale up to match Apple's ambitions.

  • At a certain point it's simply easier for Apple to supplant others than to try to create whole new markets.
  • With fitness, for example, Apple can take money that has been going to digital fitness companies like Peloton and ClassPass, as well as traditional gym memberships.

Yes, but: With each move, Apple risks not only frustrating its new competitors, but also raising the ire of regulators. One company none too happy with the Apple One announcement was Spotify, which has already lodged complaints that Apple isn't playing fair when it comes to digital music.

What they're saying:

  • Spotify, in a statement to The Verge: "Once again, Apple is using its dominant position and unfair practices to disadvantage competitors and deprive consumers by favoring its own services. We call on competition authorities to act urgently to restrict Apple’s anti-competitive behavior."
  • Apple, in a statement: "Customers can discover and enjoy alternatives to every one of Apple’s services. We’re introducing Apple One because it is a great value for customers and a simple way to access the full range of Apple’s subscription services."

Our thought bubble: Apple One puts Spotify in an even tougher position than it was already in on Apple devices.

  • Music subscriptions are fairly low margin businesses, meaning Spotify doesn't have a lot of room to lower its price.
  • Apple, though, can bundle other services with more margin room, as it has done with Apple One, which includes cloud storage as well as the Apple-run video and video game services, where Apple has more pricing flexibility. (Spotify has done bundles with video services, including Hulu and Showtime, but, even there, it doesn't have much room to maneuver on price without losing money.)
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