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Analyst: Apple Music still has huge, untapped market potential

JP Mangalindan
·Chief Tech Correspondent
Apple Music has tapped just 5% of its market potential, says one analyst.
Apple Music has tapped just 5% of its market potential, says one analyst.

Apple Music may have a reported 36 million subscribers, but that’s just a small fraction of the potential upside for Apple’s (AAPL) growing music service, according to an analyst.

Horace Dediu, an analyst for Asymco, estimates that of the 1.3 billion Apple devices out in the wild today, 700 million of them are iPhones, which come loaded with Apple’s streaming service.

“Keep in mind that Apple’s 36 million music subscribers is a tiny percent of their 1.3 billion active devices,” Dediu told Yahoo Finance. “iPhone users alone probably number above 700 million, so they [Apple Music] are only at 5% of potential market.”

If accurate, that means Apple Music still has huge, untapped market potential as it passes its closest competition, Spotify, in the U.S. According to a Wall Street Journal report over the weekend, Apple Music’s monthly user growth in the U.S. is outpacing Spotify’s user growth — 5% to 2% — and remains on track to surpass the Swedish company in the states by this summer. That’s largely due to the fact that Apple Music comes loaded onto all Apple devices, from the iPhone and iPad, all the way up to the high-end iMac Pro.

Spotify dominance

But perhaps what is more surprising is Apple Music’s slow burn. Given the sheer number of Apple devices loaded up with Apple Music, the competition between Apple and Spotify shouldn’t have been much of a competition at all. But Spotify had a massive seven-year head start which helped cement its reputation as a pioneer in streaming music. (Apple Music, meanwhile, didn’t come out until 2015.) Which is why Spotify currently has almost doubled Apple Music’s subscriber base and still leads the way internationally.

“I think people are brand loyal when it comes to their music, and I think people were confused with Apple Music, initially: how it worked and why they should use it over a service like Spotify,” explains Paul Verna, an analyst for eMarketer.

Indeed, part of Apple Music’s slow adoption at first also had do with Apple Music itself. When the app first launched, it was cluttered with too much information and difficult to navigate — hardly intuitive for mainstream Apple users accustomed to devices and services that “just work.”

Meanwhile, Spotify — particularly Spotify’s desktop app — smartly modeled the nuts and bolts of its user interface after earlier versions of iTunes, making it both easy-to-use and incredibly familiar to people.

Apple Music’s upgrade

But Apple Music has since learned its lesson. In 2016, Apple released a major software update that streamlined the app and made it far easier and more intuitive to use. The company is also investing heavily now in machine learning and human curators to offer users personalized recommendations for say, playlists and albums, that make Apple Music more compelling beyond simply serving as a digital repository for tens of millions of songs.

“[Apple Music’s] music discovery is improving and they are doing some good curation,” Dediu contended. “The idea that music can be served to suit personal tastes is a very big idea. Getting that right through machine learning and human curators is where Apple is investing now.”

Which means for Apple Music, the streaming music race is really just starting to get interesting.

JP Mangalindan is the Chief Tech Correspondent for Yahoo Finance covering the intersection of tech and business. Email story tips and musings to jpm@oath.com. Follow him on Twitter or Facebook.

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