
The iPhone and Apple's Services Strategy - kaboro
https://stratechery.com/2019/the-iphone-and-apples-services-strategy/
======
achow
Not announced in the event but mentioned in the article; this is a very
telling indicator as well of Apple's service strategy..

AppleCare+ monthly plans switch to subscription model

[https://9to5mac.com/2019/09/10/applecare-monthly-
subscriptio...](https://9to5mac.com/2019/09/10/applecare-monthly-
subscription/)

~~~
rietta
How will the subscription work in relation to credit card company's automatic
extension on manufacturer's original warranties is a question. AppleCare is
not like an extended warranty from another party, it's direct from Apple. This
is a big deal when it comes to credit card warranties.

When someone buys an Apple device with a major credit card they can get the
time Apple offered the warranty and then an extra year (2 years for American
Express) after the conclusion of the original warranty. With a subscription, I
suspect the credit card warranty may become voided or would only extend the
original default warranty of the device.

Amex has refunded me money to repair multiple MacBook Pros and an iPhone when
the devices failed after AppleCare expired but before the automatic extension
had expired.

~~~
rietta
There are numbers in the article.

So pay up front on the more expensive phone is $149 for 24 months or $7.99
monthly. 24 x $7.99 = $191.76 (42.76 more than up front). But what for the
American Express customer, buying the phone. He or she gets the Apple 2 years
plus 2 years from Amex so 48 months of coverage for the original $149 vs
$383.52 paid via subscription (a $234.52 savings).

Someone keeping the phone the full 60 months it receives support from Apple
would pay a total of $479.40 in AppleCare+ premiums. They did get an extra
year of support from Apple vs that of the American Express customer paying up
front at an effective aggregate cost of (479.4−149)/12 = $27.53 per month in
the final year for coverage.

The American Express customer must of course also be saving for the
replacement of his or her iPhone in 48 - 60 months. Presuming he or she wants
to have the cash ready if the phone dies in month 49, they must be setting
aside (999 × 1.08) ÷ 48 = $22.48/month for 48 months and then can coast for
the final 12 months maybe earning a little interest before buying the new
phone released in September 2024.

~~~
someguydave
Are you sure that the Amex coverage actually stacks with the extended coverage
purchased through Apple care in your scenario? (ie does it kick in at month 12
or 24)?

Edit: found a link with some information [https://www.uponarriving.com/amex-
extended-warranty/#Warrant...](https://www.uponarriving.com/amex-extended-
warranty/#Warranty_less_than_two_years)

“The question gets a little tricky when you’re talking about Applecare. Amex
should provide you with two additional years of coverage with Applecare since
plans are usually 2 to 3 years. The issue is that some have reported they were
denied coverage since Applecare was considered secondary coverage”

~~~
rietta
That is interesting. I've not had my claims denied. I even had it approved by
showing that I bought AppleCare 11 months after buying the MacBook Pro in
2011. I attached scanned copies of both receipts with the claim and was
approved.

~~~
someguydave
Reading the Amex coverage, it does address this issue
[https://www.americanexpress.com/content/dam/amex/us/credit-c...](https://www.americanexpress.com/content/dam/amex/us/credit-
cards/features-
benefits/policies/pdf/EW%20Benefit%20Guide_Tier%201%20Rev%2007-18.pdf)

“If the item is also covered by a purchased service contract, the Extended
Warranty Period begins at the end of the purchased service contract and
extends the original manufacturer’s warranty for a period of time equal to the
warranty, up to two (2) additional years.”

So yes I think Amex extends the warranty after (prepaid 2 year) AppleCare
expires for a term of one additional year, taking coverage to 36 months.

~~~
rietta
Amex coverage is now 2 additional years, but yes. It was one year for a long
time.

~~~
someguydave
I'm not so sure that's the case, when combined with an extended service
contract. The "original warranty" was only one year, and this language seems
to say that the length of the extended warranty offered by Amex after the
service contract is equal to the length of the original warranty, not the
length of the service contract. Although I admit, the language is ambiguous
and you might luck out with the right Amex agent (when attempting to make a
claim in months 36-48)

------
localhost
I really like how Ben framed Apple's announcements through the lens of a
services strategy, i.e., it's not about the hardware anymore. Instead he
presents a solid argument for how keeping lower-priced cost-optimized SKUs
around increases the addressable market for Apple Services. Aggressive
promotion of Apple TV+ as a way to drive new subscribers to other services (an
aggregation theory play) is going to be a fun thing to watch over the next few
years.

The only quibble I have with this piece is where Ben got the information about
the Apple Arcade games being a fixed cost: "the company is paying a fixed
amount for those games overall".

~~~
1123581321
Here’s an article saying something similar about how Apple is financing the
games. It doesn’t list its sources, though.
[https://9to5mac.com/2019/04/14/arcade-500-million/](https://9to5mac.com/2019/04/14/arcade-500-million/)

~~~
localhost
Thanks, but there's this quote in the article that you linked:

"it is believed that game developers will receive ongoing revenue based on how
much time users spend playing their games"

So it looks like they're paying advances (significant - $1-$3M) against some
kind of royalty agreement based on time spent playing their game. So not a
fixed cost (but perhaps not everyone gets the advances against royalties
deal?)

Edit: I just looked over at the Stratechery forums and it seems like others
are questioning this as well

"For it to truly be a fixed cost, the participating game developers must be
commoditized. Otherwise, they will demand increased payments as Apple’s
revenues go up.

That may well be the case for games, but I think it’s worth noting because Ben
has repeatedly made the same claim respecting Netflix, where talent is not
commoditized, and has a history of negotiating a fairly consistent share of
revenue over time. There, it’s not reasonable to characterize Netflix’s costs
as fixed, in the big picture. So it’s importantly to look more closely, rather
than to assume that outright purchases of content translate to a long-term
fixed cost structure independent of subscriber count/revenues."

~~~
anoncareer0212
For better or for worse, and it hurts me on a personal level to say this, but
from Apple's perspective, the talent creating these games _is_ a commodity.
Those rates are insanely high, there's not a remotely similar substitute
available in the market, and you get the halo of Apple for the rest of your
career.

Apple's "services" strategy amounts to "commoditize complements; charge using
monthly subscriptions". There is a fair distance between this and how other
companies use "services". Trade carefully.

------
kart23
Its smart. A lot of people didnt upgrade to the X, and the lower price makes
it very appealing to get the 11. Apple tv+ seems like a great deal at only 5
dollars, and should attract tons of new customers, even though the service
really doesnt have a great width of content, but apple is good at hiding that,
marketing it as a viable alternative to netflix. Shareholders will be very
happy at the next earnings call, and the stock has already been showing that.

------
edmoffo
The service is not the weakest part of Apple. Instead, is the complete lack of
innovation nowadays. They lost everything since the death of Steve Jobs.
Unfortunately.

------
mikorym
Did anyone notice that nowhere in their keynote address they mentioned
macbooks/laptops?

Maybe I missed something, but that is crazy to me. Sure they make their money
with iPhones, but their macbook lineup is what I am interested to hear about.

~~~
nkkollaw
They'll have another event in October for that.

~~~
mikorym
Ok right, then it makes sense.

------
addicted
I think stratechery has some good analysis, but too much of it is framed from
an Apple fanboi perspective. It reminds me of what a grown up, financially
focused, version of RoughlyDrafted would look like. And after having been an
Apple fanboi for a few years but not anymore, it’s hard for me to read.

As an example, this article itself justifies Apple’s 2016 keynote as being
innovative because accessories revenues have doubled since. Doubling of
revenues could mean and imply many things, but innovation is hardly one of
them.

------
neya
That stil doesn't explain why the keynote was so boring. For the first time, I
had had enough and closed it and walked away. Usually, Apple's iPhone
announcements are pretty exciting. This time around, even the presentation
itself felt like a giant corporate presentation sprinkled with keywords like
"innovation" to make me believe they were innovating. There was nothing
innovative about the keynote. The iPhone is a laggard at this point and there
are far superior offerings at this point.

A few years ago, I wouldn't have said the same and would have even ridiculed
if someone claimed Android phones were better, but after playing with an S10+,
iPhones really don't impress me anymore.

"But it offers more privacy?" Nope. Didn't you read about the part where all
your personal siri recordings were played out by contractors? Including sex
acts and arm deals? What happens on your iPhone does NOT stay on your iPhone
because it's proprietary software. Duh.

I'm done with Apple. But I'm also looking for something beyond Android at this
point. Wish there was a truly 100% open source phone I could trust.

~~~
simonh
Pretty much all the voice assistant companies have been caught having people
listen in at this point. Amazon, Samsung and Google for sure at least. It is
pretty disappointing to find Apple in on the act as well though.

~~~
snowwrestler
There is literally no other way to apply machine learning to such a large
problem. The system must have training data to learn from; as you expand the
scope of your ML system, you must expand the scope of your training data.

Every large commercial ML system works this way. Google for years has paid
people to manually score and categorize search results pages, to provide
training data for ML web search systems.

It would have been better if companies were up-front about this when talking
about "artificial intelligence" in their voice products, so it doesn't look
like a nasty surprise.

And in the long run, everyone will benefit from some consistent regulations on
ML data scoring, like HIPAA for health care (another industry where for-profit
companies handle very sensitive customer data).

------
alexashka
Apple's strategy is holding on to the brand, while competitors slowly chip
away at their market share, awaiting a mortal blow to their entire hardware-
centric business strategy from cloud-first computing.

Once most business software has a cloud equivalent that can run via an
internet connection (Google is already trying to roll this out for gaming,
wrong direction of course), Windows and Mac are finished.

Once Windows and Mac are finished, it'll only be a matter of coming up with a
new phone os that can run on 50-100$ devices (or android, yuck) and then Apple
is really finished.

Who's going to spend 2k on a macbook, 1k on an iPhone and 500$ on a watch,
when you can have a 200$ computer, 100$ phone and 50$ watch that do nearly the
same thing. Oh, and a 200$ point-and-shoot camera that'll forever beat any
phone-camera due to camera size limitations inherent to phones. In fact I
predict the next big consumer hit will be a point-and-shoot camera with a
phone os.

Microsoft knows this, Google knows it too - they're building out planet-wide
infrastructure for cloud-first computing that's coming. Apple is jerking
around with 0 progress on all of its platforms, milking brand loyalty,
producing pretty, severely over-priced trinkets (awful battery life, awful
keyboards, awful screen burn-in, insane ssd prices, awful ports requiring
insanely over-priced adapters) to signal allegiance to a middle-class or up
caste, and making their shareholders short-term rich, while long-term poor.

~~~
majormajor
> Once most business software has a cloud equivalent that can run via an
> internet connection (Google is already trying to roll this out for gaming,
> wrong direction of course), Windows and Mac are finished.

The desktop software I use day to day (IntelliJ, Zoom, Slack) already runs on
Linux. The rest is already in the cloud.

And yet, of my coworkers, we have about 1 in 50 folks running Linux instead of
Mac. It's been this way for the last 6 years - I was actually on Linux in
2013, but have come back to Mac because it's still just all put together a bit
nicer in both software and hardware. My last job even discontinued Linux
support in that time period.

At my partner's job, they also run on google docs and gmail, but since it's
not a software dev job, it's 100% on Mac, without even that small Linux
fraction.

~~~
nojvek
Running crap on cloud works great until you’re above the cloud or really below
the cloud. Powerful edge devices will always be valuable. iPhone is prolly one
of the most powerful edge devices out there

