What Apple’s approach to building services income tells us

Apple is doing it.

Spotify I have always done it.

Even starbucks want to do it.

Attempts to turn pay customers in subscribers they are gaining momentum in all industries. And Apple has successfully transitioned much of its business in this way. So what lessons can we learn from how Apple did what it did?

Apple has built a $ 86 billion service company

Apple’s services segment is not just News +, Music, TV +, Arcade, Fitness, and iCloud. It also includes AppleCare, the App Store, Apple Pay, Apple Card, the iTunes Store, and a variety of lesser-known manifestations, likely including the cash the company is paid to make Google’s search engine default across its entire range of products. .

The services element of Apple’s business has tripled in the past six years and now generates about $ 86 billion in revenue, the company said during his most recent tax summons.

That’s more than $ 7 billion a month in predictable earnings.

Apple CEO Tim Cook has said that the company now has 745 million paid subscribers to its services, including in-app subscriptions. “That’s 160 million more year after year, which is five times more in five years,” he said.

Apple’s growth mimics the trend. Zuora Subscription Economy Index shows that underwriting businesses have grown six times faster than the S&P 500 in the past nine years.

The services are not new

From cars to real estate rentals to magazine subscriptions, people have always been willing to pay to access what they need.

The evolution of the Internet and the technology that uses it has expanded the scope of the idea across all industries, as long as a business can identify or repurpose an asset to make it available in this way.

Apple seems dedicated to identifying and introducing new service-based companies, like Apple Business Essentials, for example. Another is continuous speculation the company can enter the Buy Now Pay Later (BNPL) market.

Through an external partner, Apple recently introduced what could be another NBT (Next Big Thing) in the form of equipment leasing for commercial users. As the IPhone update program, the scheme points to a future in which Apple will offer its hardware as a service, in exchange for a monthly fee.

That’s good for consumers who can access solutions they couldn’t easily afford otherwise, but it also has a significant advantage for business users.

Businesses like services too

Enterprise markets are migrating fairly rapidly to “As-a-Service” models for everything from networking to hardware, business services, and third-party cloud storage.

Businesses small and large like the ability to rapidly scale deployments in response to the business needs unlocked by these models. They also like costs to become much more predictable. McKinsey once claimed that 82% of companies would rather subscribe to software than purchase a perpetual license.

Don’t ignore that Apple now offers a service for business users with Apple Business Essentials, as this may become more important over time.

Starbucks attempt to create a subscription tier for coffee reflects this trend as much as all tech bloggers silently asking for support (NB: even this author is trying this).

On a much less mundane level, mobile networks figuring out how to separate network technologies from the hardware that runs them also reflects this change, prompting the introduction of key services such as unified communications, SD-WAN, or endpoint security solutions. network for a monthly fee. . This transition to subscription-based access rather than ownership is happening across all industries.

How do companies make this transition?

So how do you turn your business towards subscription-based income? Every business is different, but I think courage is a good starting point.

One thing Starbucks and Apple have in common in their approach to creating services to attract subs income is that in both cases they have taken over an existing business and been brave enough to cannibalize it.

Apple owned the world’s largest music store before launching its music streaming service, while Starbucks already makes many pole Rushed latte. Both needed some strength to risk transforming their existing profitable concerns into new business models.

Lateral thinking also helps. AppleCare shows that many users will pay a regular fee in exchange for service and maintenance of the equipment. Other companies, including smaller ones, may already offer support packages that could be turned into services.

Flexibility is one of the biggest benefits of underwriting.

You should be able to subscribe, unsubscribe, scale up and down what you pay at will. “We recommend that companies design their offerings to achieve maximum flexibility and freedom for the consumer, so that customers can access them anytime, anywhere and as they choose,” he says. Zuora President Amy Konary.

But deep down, business is still relationships

Relationships matter.

Apple’s Mac, iPhone and iPad customers are happy customers showing customer satisfaction scores above 90 points. This happy band of Apple acolytes has already shown a willingness to invest in new Apple services as they emerge; maintaining them is the challenge.

Transactional flexibility services provide means that dissatisfied customers quickly abandon.

Good experiences help build strong customer loyalty, which in turn translates into better acceptance of your mistakes and more interest in your company’s future services. It also collects more customer data, which can inform future product development.

There are risks

Are there risks? Of course. For example, during the transition to subscription, revenue may fall below operating expenses for a time as the service develops.

At the same time, you need to be sure that you are offering a service that really brings value to the subscriber. A focus on customer needs (in Apple’s case, as evidenced by customer satisfaction) is vital to underpin that transition.

This must also be reflected in your business culture. (That is important. CFO Research / Salesforce Survey showed that two-thirds of companies trying to build subscription businesses face operational challenges within their own internal culture.)

Apple recognizes that customer communications are critical to its success, but it also knows that it must deliver products and services that its customers really need.

Marketing always works best when applied to Apple’s retail mode, which is about offering solutions that customers really need, rather than forcing them to adapt.

That approach helped Apple’s retail stores become some of the most profitable on the planet. It is also ingrained at the core of the company culture. Apple’s famous human interface guidelines have always aimed to put the user at the center of the experience.

To take people with you, you must find them where they are.

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Copyright © 2021 IDG Communications, Inc.

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