By Jason Snell
November 1, 2019 12:30 PM PT
As Apple’s services grow, it’s ‘gifts’ for users and ARPU for analysts
You’ve got to hand it to Apple when it comes to saying the loud part loud and the quiet part quiet. The company has spent the last few years cranking up an enormous services business that’s growing by double digits quarter after quarter and generated nearly 50 billion dollars in the past 12 months—yet it tries very hard to emphasize that making customers happy comes first.
This week, Apple launched its subscription video streaming service, Apple TV+, and also released its quarterly financial results. In the regular phone call with Wall Street analysts, Apple CEO Tim Cook tried very hard to get investors excited about Apple’s opportunities to make lots of money while not making it seem like Apple’s lost its soul in the process.
Consider the soul-sucking term ARPU. It stands for Average Revenue Per User (or, alternately, Unit), and it’s a useful-yet-noxious lens through which businesses can view their customers. Of course, businesses should be aware about how much revenue their customers are generating—the issue is more that focusing on ARPU is often a sign that a business is on a path that will attempt to wring every last penny out of its customers. It’s a sign of nickel-and-diming, sliding in hidden fees, and all sorts of other questionable practices that make sense if you’re looking at a balance sheet—but are so infuriating if you’re a customer.
On the phone call, Evercore Analyst Amit Daryanani asked Tim Cook directly about whether Apple’s growth in services revenue was based on growing the overall number of people using Apple products, or scratching more money out of the collective wallets of existing Apple customers. Cook walked that line:
I think we have opportunities, Amit, in both… Ultimately the thing that builds the installed base is to make customers happy—and that’s always our top objective, to have satisfied customers. The other thing that is obviously happening is in many areas the ARPU is increasing…. If you look at the number of services that [Apple has] added over over the years, it’s significant. And people love them. And so it’s really both of those. And obviously and finally, in getting more people that are enjoying things for free to elect to pay for some of the premium services. So it’s all sort of all three of those.
Apple has been answering this question fairly consistently since 2016, when Cook said “The most important thing for us… is that we want to have a great customer experience.” I appreciate the consistency, even if the invocation of ARPU (which, to be fair, is a word in the native tongue of financial analysts) sends a chill down my spine.
Now here’s another funny thing Cook said. The analysts wanted to understand why Apple, after spending billions of dollars on developing a bunch of new premium television content, was going to give it away to purchasers of Apple hardware for a year. You know that the folks with the money never love it when you give something away. (Won’t someone think of the ARPU?!)
Again, Cook needed to walk a line between just saying “first one’s free, am I right?” and mumbling some hippy-dippy nonsense about how information (and Jason Momoa) just want to be free, man:
Yeah, it’s it’s a gift to our users, and from a business point of view, we’re really proud of the content, we’d like as many people as possible to to view it. And so this allows us to focus on maximizing subscribers, particularly in the early going. And so we feel great about doing that. I think it’s a bold move. And the price also, for those people that are not buying a device in the period of time that we offer this, the price is very aggressive as well. You think about the quality of content that you get for $4.99 and it’s amazing. It is amazing.
On two occasions Cook referred to the year-long Apple TV trial as a “gift,” a word choice that I find fascinating. But the strategy makes sense. Apple’s launching with a very small collection of shows, and by giving this “gift” to recent hardware buyers, the service is going to be seen by far more people than who might otherwise give it a try. It gives Apple time to continue growing the service, and of course, all of those people who received this “gift” will get charged $4.99 on November 1, 2020, for their first paid month of Apple TV+, unless they cancel. It’s a gift that keeps on giving.
Some analysts, like Toni Sacconaghi of Bernstein, asked about whether Apple would give away more of its services or make additional bundles, and Cook wanted to provide reassurances that this was a unique situation—while leaving the door open for similar moves in the future:
We look at each service and decide what’s best to do for it and with TV+, we concluded that a great way to get more people to see the content would be to do this, and it would be a good gift for our users…. You can also see that on the other services, we’re not doing that. And so it’s not part of a broader pattern, although I wouldn’t want to rule out for the future that we might not see another opportunity at some point in time.
In other words, don’t expect a year-long gift of Apple News or Apple Arcade for buying an iPad next spring. But if Apple needs to aggressively build a subscriber list for a strategic new service sometime down the road, don’t rule out the possibility that we might all get another visit from a tall, thin man in a Santa suit speaking with a strangely familiar southern accent 1.
“It’s Tim,” he’ll say. ↩
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