How Apple Wins by Sensing and Responding

Apple no longer sits at the cool kids’ table. It runs the table. 

The company recently reported quarterly revenue of $91.8 billion, an increase of 9 percent from the year-ago quarter and an all-time record, and quarterly earnings per diluted share of $4.99, up 19 percent, also an all-time record. Apple continues to make fools of analysts who’ve questioned the company’s relevance, especially amid a slump in iPhone sales. Well, guess what: iPhone sales are doing just fine after all. And so is Apple’s stock price year over year:

Now consider this:

  • Siri, once the weak sister among smart voice assistants, has the world’s largest market share, even more than Amazon Alexa, Google Assistant, and Microsoft Cortana. Turns out the never-say-die iPhone and the release of AirPods Pro have helped propel Siri to a wider base of users.

What do all the above statistics tell you? Apple is defining its market as well as it always has, just in different ways that are perhaps not as earth shattering as the launch of the iPhone in 2007. (Let’s face it: the iPhone was like Van Gogh’s “Starry night over the Rhone” – a masterpiece and highwater mark that is seldom if ever matched again). For example:

  • Apple saw the rise of wellness care coming and positioned the Apple Watch not as a cool wearable but as a healthcare device. As CNBC reported, “Apple’s wearable category which includes the Apple Watch and AirPods wireless headphones, has been growing strongly. In the December quarter, that division brought in over $10 billion in net sales, a near 27% year-on-year increase.” In a newly published Hacker Noon article, I dig into the reasons why the Apple Watch has flourished in context of Apple’s strategy to be the data backbone of healthcare. 
  • Apple saw a growth opportunity in services (as opposed to hardware sales). Its Services division reported an all-time high in revenue growth for the most recent quarter, $12.7 billion versus $10.8 billion year over year. For its fiscal year 2019 (ended September 28, 2019), Apple reported $46.3 billion in Services, a 16 percent year-over-year increase. 
  • Apple got out in front of the rise of the voice-first world and introduced Siri in 2011, beating Amazon Alexa to the market by three years. (But Amazon completely outflanked everyone, including Apple, in the smart speaker market with the launch of the Amazon Echo in 2015.)

What’s next for Apple? Becoming a credible player in the streaming wars. Apple TV+, launched in November 2019, has a long, long way to go. Apple TV+ is being met with the same derision that Apple Music once faced. And whereas Apple Music could play catch-up by developing an formidable library of someone else’s music, Apple TV+ needs to develop original content to compete with Amazon, Prime Video, Disney+, and Netflix. 

But don’t ever underestimate Apple. The company has a huge reservoir of cash, and it’s willing to dip into it an example being the recent hiring of Former HBO CEO Richard Plepler to run Apple TV+. 

Do you really want to bet against Apple?

Drake’s “Scorpion” Defines Success in the Streaming Era — for Better or Worse

The glory years for the record album are over, but the record album isn’t dead yet. In the age of streaming, it actually might benefit artists to release long albums consisting of multiple tracks, as the success of Drake’s Scorpion demonstrates.

Drake released Scorpion on streaming services on June 29, and a compact disc released followed July 13. The CD is inconsequential. The real barometer of Scorpion’s success consists of streams. Within two weeks, Scorpion sold more than one million copies based on streams (per Billboard, 1,500 on-demand streams equals one LP).

Incredibly, all 25 of the album’s tracks hit the Billboard Hot 100 charts. As Rolling Stone explained, the long-form format of Scorpion– clocking in at one hour and 30 minutes – was crucial to the album’s success:

Drake’s supremacy on the Hot 100 was made easier by the popularity of music streaming. Because streaming services like Spotify and Apple Music charge a buffet-style monthly fee to listen to music rather than a per-song price à la iTunes downloads, long albums benefit artists by giving them more chances to rack up listens. Drake also partnered with Spotify for an all-out “takeover” of the platform in the days after his album dropped, which forced tens of millions of users to encounter his album. (They weren’t required to actually stream it – but the all-you-can-listen model of streaming services made it appealing and cost-free to do so, and the real estate on their homepage contributed to the average listener’s awareness Scorpion.)

Drake is not the only artist to capitalize on the vagaries of streaming. As Rolling Stone reported earlier this year, Migos released an album, Culture II, that clocked in at a whopping one hour and 46 minutes. Culture II debuted at Number One on the Billboard album chart. Culture II was eventually certified Platinum by the Recording Industry Association of America (RIAA) for combined sales, streaming and track-sales equivalent of a million units.

Because an album’s sales via streaming are measured by 1,500 cumulative streams, it behooves an artist to release a longer album with more tracks to stream, which can lead to Gold and Platinum status. These accomplishments still matter as a barometer of an artist’s marketability to corporate sponsors.

But releasing lengthy albums to encourage streams comes at a cost. Listeners have short attention spans in the streaming era. Reportedly, one quarter of all songs on Spotify are skipped within the first five seconds. The typical listener skips a song once every four minutes, and there is nearly a 50 percent chance that a song will be skipped before it ends. In addition, according to Midia, “58% of subscribers report listening to individual albums and tracks just a few times while 60% are doing this more than they used to because they are discovering so much new music.” Continue reading

Is HomePod Apple’s Death Star in the Music Streaming Wars?

Apple’s newly announced HomePod smart speaker is more than Apple’s answer to Amazon Echo and Google Home in the battle for your home – it’s quite possibly Apple’s major advantage in the music streaming wars.

In unveiling the HomePod June 5 at its Worldwide Developers Conference (WWDC), Apple announced that the voice-activated speaker will be a music-first experience that combines both the quality of high-fidelity Sonos speaker and the intelligent interface of the Amazon Echo – with a focus on providing users access to the Apple Music catalog. As Apple noted in a press release,

Designed to work with an Apple Music subscription for access to over 40 million songs, HomePod provides deep knowledge of personal music preferences and tastes and helps users discover new music.

At WWDC, Apple Chief Executive Tim Cook said the speaker has “amazing sound and incredible intelligence that will reinvent home music.”

Why the focus on a high-fidelity experience with an emphasis on music? One reason is that Apple wants to be the leading music streaming provider – badly. After disrupting the music industry through iTunes and the iPod, Apple found itself looking behind the times when consumer tastes shifted from downloading songs on iTunes to streaming them on apps such as Spotify. And looking outdated is strange ground for Apple. Apple’s desire to play catch up with streaming was a big reason why the company paid $3 billion for Beats in 2014. Months after buying Beats, Apple launched its own service, Apple Music, in 2015.

The good news for Apple is that within two years, Apple Music has become the Number Two streaming service as measured by paid subscribers. And these are heady times for streaming services such as Apple Music and Spotify. In 2016, for the first time ever, streaming music platforms generated the majority of the U.S. music industry’s revenues. As the RIAA noted, the biggest contributor to growth was a doubling of revenues from paid streaming services. But for Apple, there is also some bad news:

  • Amazon has been rapidly encroaching upon music streaming. It offers a limited service to Amazon Prime customers (Amazon Prime Music) and recently launched a subscription service, Amazon Music Unlimited.

Spotify and Amazon are significant competitors with their own strengths and weaknesses:

  • Spotify enjoys the strong brand affiliation with music, its customer base, and outstanding personalized playlists, but the company is losing money.

  • Amazon enjoys an advantage with its deep pockets and the popularity of Echo speaker, which provide a natural platform for streaming music. But Amazon Music Unlimited is an upstart (and Amazon Prime Music is a feature of Amazon Prime, not a pure streaming service, per se).

The Echo factor is big. Echo has experienced astounding growth to dominate the market for voice-activated home speakers, as people become more comfortable with the voice interface. It’s like a Swiss Army knife for doing everything from controlling the temperature in your home to ordering products.

And in addition, Echo is also a platform for playing music through voice commands (“Play the new Lorde song”), something Spotify does not offer. In 2017, according to eMarketer, 35.6 million Americans will use a voice-activated assistant device at least once a month, and 71 percent of them will use Echo. (Google Home has the second highest marketshare behind Echo, at 24 percent, but Google does not release user figures for its Google Play streaming service.)

No wonder Amazon offers Amazon Music Unlimited at its lowest price to owners of Amazon Echo speakers: Echo is a Trojan Horse for Amazon’s music streaming product.

But Swiss Army knives, while being useful, are not great at everything. The Echo is not engineered specifically to listen to music. HomePod is. At WWDC, Apple Senior Vice President of Global Marketing Phil Schiller said that HomePod will provide the high quality of a Sonos speakers and the smart interface of the Echo.

“These aren’t smart speakers, Schiller said of Sonos. “They don’t sound so great when you listen to music,” he said of the Echo. But HomePod will sound great and act as a home musicologist, he said.

He indicated that the HomePod will make it possible for consumers to call up music using complex voice searches and then listen to music through a product that provides state-of-the-art sound including spatial awareness, which adjusts the audio depending on where you are sitting in the room.

But the ace in the hole is the integration with Apple Music. As Apple announced,

By saying, “Hey Siri, I like this song,” HomePod and Apple Music become the perfect musicologist, learning preferences from hundreds of genres and moods, across tens of thousands of playlists, and these music tastes are shared across devices. Siri can also handle advanced searches within the music library, so users can ask questions like “Hey Siri, who’s the drummer in this?” or create a shared Up Next queue with everyone in the home. HomePod, Apple Music and Siri deliver the best music experience in the home that streams ad-free directly to HomePod.

HomePod will also provide the same functionality as Echo, providing functions ranging from turning on the lights in your home to providing sports and weather information.

The HomePod should be available in December at a cost of $349, a cost that is significantly higher than Amazon Echo and Google’s own Home speaker. By pricing the HomePod at the high end, Amazon is banking on consumers:

  • Accepting Apple’s position as a premium brand.
  • Caring enough to pay more for better sound.
  • Subscribing to Apple Music because it’s so easy to listen to music with voice commands on HomePod. (I wouldn’t be surprised if Apple offers an incentive for bundling Apple Music paid subscriptions and HomePod.)

It’s an interesting bet. Consumers have been indifferent to sound quality on mobile devices, not caring enough about sound quality to buy high-end mobile streaming products such as Pono. Meanwhile in the home environment, the growth and popularity of Sonos speakers for years showed that people would pay for premium sound  – but then Amazon’s encroachment on Sonos suggest that consumers were willing to sacrifice the fidelity of Sonos for the convenience of Echo. And now Apple believes consumers will do the same with HomePod.

Apple won’t put a dent in Echo’s 71-percent market share anytime soon, but Apple doesn’t need to. Apple is not offering a utility that competes on price as Echo does. Apple is selling a high-end experience first and utility second. Apple Music is central to that experience. Will HomePod be a catalyst for Apple Music to eat into Spotify’s lead?

6 Predictions for Music Streaming

StreamingMusic

Forget Taylor Swift’s futile Spotify boycott. The real news emerging from the music industry this week was the launch of YouTube’s streaming service. The new service consists of YouTube with streaming functionality (as opposed to being a new product with a different name, thus benefitting from YouTube’s brand reach). On November 17, YouTube is also launching (in beta form) YouTube Music Key, a paid streaming option offering ad-free online and offline listening for $9.99. YouTube now enters an increasingly crowded streaming industry that ranges from all-purpose services such as Pandora and Spotify to specialty offerings such as Muzooka (which matches emerging artists with both fans and members of the music industry). And YouTube, owned by the world’s most valuable brand, has more power to disrupt the game than anyone. In the aftermath of YouTube’s entry to the streaming field, I predict six possible directions for the streaming business:

1. We will see a shakeout among major streaming platforms. The survivors, faced with fewer competitors, will call the shots on artist compensation even more so than they do today.

2. We may see the emergence of a few more specialty streaming services, such as Muzooka, to act as the intriguing alternatives to big players. For instance, we could see an alternative boutique streaming service by an artist consortia (involving someone like Jay Z, whose brand transcends music). We also may see the launch of private-label services from music-savvy brands such as Pepsi. A house service by an American Express, offered exclusively to its customers, could act as an effective music discovery platform as well as a customer acquisition and retention tool. (Moreover, in a combination of the artist-owned and corporate private label approaches, we could see a a corporate service launched in association with a star like Jay Z acting as investor, brand partner, curator, or any combination of those roles.)

3. The conversation about fair artist compensation that Taylor Swift reignited with her Spotify boycott will subside without effecting any change in artist compensation, just as the debate eventually petered out after Thom Yorke and the Black Keys boycotted Spotify. Another artist may make the topic trend again with a well-publicized boycott, but the conversation will remain contained to pundits who won’t move the needle.

4. The have-not artists — the vast majority of artists who are not superstars — will keep their content on streaming services and continue to be compensated as they are now. Why? Because they lack the choices that Taylor Swift has.

5. Savvy artists will learn how to use streaming as a promotional platform together with other digital platforms. They will rely on their recorded content to support touring, merchandising, song licensing revenue, and co-brands with businesses.

6. Finally, and most importantly: fans will continue to stream music, legally or illegally (as they are doing with Taylor Swift’s new album, 1989). When it comes to music streaming, fans are loyal to songs, not artists. Fans don’t care about boycotts. And fans are no longer willing to risk money on an entire album’s worth of songs from artists they do not know. Fans don’t necessarily take time to write Wall Street Journal editorials about fair compensation or blog posts about the future of streaming. Fans simply shape the future of music with their listening and buying habits. Album sales continue to slide, and Apple’s iTunes business is slumping. As Adele’s manager, Jonathan Dickins, says, “Streaming is the future.” Why? Because fans make it so.

Oh, and here’s one more related prediction you can take to the bank: Taylor Swift will continue to build her empire from touring, brand deals, and merchandising sales. Any revenue lost from boycotting Spotify will have little impact on her success. The release of the album 1989 in 2014 is all about priming the pump for the 1989 World Tour, which kicks off in May 2015 — which is where the real money is going to be made. (Her Red tour, which concluded in 2014, grossed $150 million.) Taylor Swift’s approach to building her career — writing her own songs, creating music that crosses genres, building a fan base through touring, and honoring her fans in person and on social media — is the blueprint for aspiring artists to emulate. And artists will need to include streaming in the process.

What are your predictions?