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The Solution to Apple's Services Growth Puzzle? Package Deals

Travis Hoium, The Motley Fool

Recent reports from Bloomberg that Apple (NASDAQ: AAPL) will price its TV+ subscription at $9.99 a month were a bit jarring to industry observers, given that Disney (NYSE: DIS) has set the price of the soon-to-debut Disney+ streaming service at $6.99, and the base option from Netflix (NASDAQ: NFLX) goes for $8.99. But the Cupertino tech giant has never positioned its products to be the lowest-priced options in the market, and Apple TV+ isn't necessarily going to be a business designed to attract hundreds of millions of subscribers, as Disney and Netflix hope to do. 

What I think will be interesting to watch is how Apple starts to look at its full suite of services with Music, News+, iCloud, and upcoming TV+ and Arcade offerings. On their own, none are the best on the market, nor are they particularly compelling investments for Apple or its shareholders. But they could make an attractive package. Are we approaching the moment when Apple starts bundling services to bring more of its nearly 1 billion installed users into the services tent? 

Apple TV home screen.

Image source: Apple.

Apple's growing services business

Below, I've laid out Apple's most notable current services along with its two upcoming TV+ and Arcade offerings. You can see that the company is fond of the $9.99 price point. 

Service Description Price
Music  Unlimited access to streaming music catalog

$9.99 for individual

$14.99 for family

News+ Curated news and magazines $9.99 per month
iCloud  Cloud storage

$0.99 for 50 GB to $9.99 for 2 TB of storage

TV+ Streaming TV content $9.99*
Arcade Unlimited gameplay on a variety of games N/A

Source: Apple. TV+ price is reported but not confirmed by Apple. 

The challenge is that none of these products is a no-brainer purchase at its current price. Music is competitive with Spotify, but it's easy to argue that users have better values in news, cloud storage, and streaming at their fingertips. If Apple really wants to attract hundreds of millions of users, it will need to price its products accordingly. 

Is a bundle on the horizon? 

A services bundle already seems like a natural offering. If customers could get all of the above, including 2 TB of storage for say, $19.99 or $24.99 per month, that could be attractive to customers who might be on the fence about any of the services individually.

What makes this an uphill battle for Apple is an issue of scale. It's No. 2 in music, but it's still behind Spotify. In the cloud, it's a small player behind Amazon, Microsoft, Dropbox, and others. In streaming video, it could be fifth or sixth in the number of subscribers to services from Disney, Netflix, ViacomCBS, Disney's Hulu, and Comcast's NBC/Universal. Apple's incentive is to increase its installed user base so it doesn't fall further behind service competitors, and a bundle is a natural way to increase the perceived value of multiple services. 

Apple Credit Card on an iPhone.

Image source: Apple.

A giveaway with high-margin products?

Another option for Apple would be to give away some of these services in a pairing with its high-margin hardware, or even with the Apple Card. For example, consumers who sign up for the Apple Card or buy a top-of-the-line iPhone could get a year of Apple TV+ for free. A 15-inch Macbook Pro could come with the full suite of services for a year, making it a more compelling deal. 

Apple has given away software before that it thought added value to the ecosystem, like Pages and Keynote. It also offers the first three months free for Apple Music to get users to try the service. It may do something similar here.

Pricing is key in Apple's new services model

For the first decade of the iPhone, it didn't seem like Apple needed to worry about competitors undercutting its prices. The smartphone and its ecosystem were so compelling that users were willing to pay a premium for it. 

But in services, there are lots of strong options in every market Apple is moving into. That makes pricing a critical issue and adds weight to the argument for bundling. It's a simple strategy, and with so many new offerings to promote, I think now is the time for Apple to employ it. 

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Travis Hoium owns shares of Apple and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Microsoft, Netflix, Spotify Technology, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, and long January 2021 $85 calls on Microsoft. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com