Bloomberg reported that Apple will announce three monthly service bundles that will include variations of Apple Music, Apple TV+, Apple News +, and iCloud sometime in October. Separately, the report indicated a new Apple fitness service will be revealed this fall that would compete with Peloton’s fitness app.
Bundles increase retention and revenue per customer
By bundling services, customers get more for their money and Apple gets more money from each customer. To date, we believe consumer adoption of multiple Apple services is nascent, with the most common pair being iCloud storage and Apple Music. The revenue opportunity to cross-sell through bundling is measurable for Apple, given the company has a base of about 1 billion active iPhones from which it can increase the adoption of its services.
We estimate the following user bases for Apple’s existing services:
- iCloud has about 200 million paying subscribers, with the basic level priced at $0.99 per month for 50GB of storage. We believe the 50GB option represents the vast majority of iCloud storage subscribers, and estimate average revenue per iCloud Storage customer at $1.10 per month.
- Apple Music has about 80 million paying subscribers. The individual plan is priced at $9.99 a month, $14.99 for a family plan, and $4.99 per month for students. We believe average revenue per Apple Music subscriber is about $7 per month (family members are counted individually).
- Apple TV + has about 5 million paying users, along with 40-50 million free users, priced at $4.99 per month.
- Apple News + has less than 5 million paying users, priced at $9.99 per month.
We estimate the average Apple services customer is paying Apple between $8-$9 per month. Any bundle priced over $9 per month per user will be positive for Apple’s revenue.
The logical extension to a 360° hardware bundle
Apple’s upcoming service bundles may lead to a hardware bundle in the future. The goal of bundling is to deliver more value to consumers which strengthens loyalty, resulting in improved revenue growth and earnings visibility. It’s the same road map that Amazon used to grow its Prime membership base. For Apple to reach its full services potential, we believe the company should extend service offerings beyond content and storage to include hardware. The concept of hardware-as-a-service is not new for Apple. The company started its iPhone upgrade program in 2015. Eventually, the company could offer a 360° bundle, which could include iPhones, Macbooks, iPads, AirPods, services, storage, and support. This 360° bundle is the logical extension of what Apple has done so well over the last 15 years, making a combination of hardware, software, and services easy to use.