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Why Apple Music Is Climbing on the Amazon Echo Bandwagon

Motley Fool Staff, The Motley Fool

In the world of streaming music, Apple (NASDAQ: AAPL) is a major player, but in the arena of smart speakers, it's an also-ran. So the news that the gang in Cupertino had made an agreement with the folks in Seattle to bring the Apple Music service to Amazon's (NASDAQ: AMZN) super-popular Echo devices shouldn't be too big of a shock.

But as MarketFoolery host Chris Hill and senior analyst Jason Moser discuss in this podcast segment, it's only a small win for Amazon, and only a minor concession from Apple that its HomePods aren't selling like hotcakes (or iPhones). Yet that might not matter as Apple puts more emphasis on the services side of its business and presses forward internationally.

A full transcript follows the video.

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This video was recorded on Dec. 3, 2018.

Chris Hill: Let's spend a minute or two on a story that broke late last week. This is not one of those stories that really moves stocks in any significant way, but it does move the landscape of an industry. In this case, we're talking about the entertainment industry, and more specifically streaming music. That is the announcement that Apple Music is now going to be available on Amazon Echo devices. I'm curious what you think about this. Anytime there's a partnership, any kind of a deal, one of the ways to think about it is, who are the winners and losers? Are they both winners? That sort of thing. I haven't really decided where I come down on this, except I think this is a win for anyone who believes that smart speakers are growing as an industry and will continue to grow. I don't look at this necessarily as a big win for Amazon or a big loss for Apple, although I do think it is a slight win for Amazon and... maybe not a loss for Apple, but certainly an admission that HomePod, which is their smart speaker, those things aren't flying off the shelves.

Jason Moser: Yeah. I think that's it. You have to take the wins and losses in context. It's not something where Apple's going to be going out of business. But this is a clear sign of a couple of things. I think it makes a lot of sense. I really do applaud Apple for seeing the forest for the trees here and recognizing that if you don't own an Apple device, there's really no incentive to use Apple Music. Now, you may say, "Well, half the country owns an Apple device." And you would be right. Basically half the country here has an iPhone. But Android is the operating system around the world. That's the operating system that dominates the landscape globally. From that perspective, thinking outside of our domestic box here, Apple Music has a lot of hurdles to clear. That's why Spotify has done so well for so long.

To me, we've seen Apple looking to make this move toward becoming more of a services company. They're not going to be reporting units sold when it comes to hardware going forward. On the flip side, they are going to give us more transparency into the costs involved with building out that Services business. I think that'll be really helpful.

For me, this is a sure sign that HomePod is not flying off the shelves. I don't know anyone personally who has one. I had a hard time ever making the leap that the masses would be going out to buy one. It's priced at a level where you can't even really have it in the same conversation with an Amazon Echo or Google Home. There are going to be plenty of Apple fanatics who want to have a HomePod because they want a premium speaker, but frankly, if you want a premium speaker, Bose has a pretty good brand out there.

Hill: Sonos, as well.

Moser: Yeah. So, to me, an implicit admission that HomePod isn't really working out so well. Not a big surprise. I don't think this is anything that moves the needle for either company. This is something that people who have Apple Music, it's one more way for them to get it. Speaking as someone who has a few Echo devices in the home along with an iPhone in my pocket, I don't use Apple Music, I can't imagine I ever will, so generally speaking, this is less about acquisition and more about engagement and retention of those who do have Apple Music here domestically.

Hill: As you said, they're not going out of business. They're still attempting to sell the HomePods. It does, however, seem like this is one more step toward the investments that Apple is making in Apple Music. You look at what they did with Beats, there are numerous reports in trade publications that Apple is in talks with iHeartMedia, which is the largest broadcast radio company in America, about possibly either making an investment or flat-out acquiring iHeartMedia. So, they do appear to be looking to build out that ecosystem even more.

Moser: If you want to be a services company -- and by services, I mean distributing media content -- then you want as big of an audience as you can possibly have. That means that you have to cross platforms. If you're going to just maintain that that walled garden, then you're going to do fine here domestically -- again, you've got half the country's attention. I don't know that you're really ever going to get much more than that. And globally, clearly, you're not going to ever come close to that. So, if you want to be a services company, and you want that to become a bigger part of the business, then you've got to reach out to as many partners as you can. And Amazon's a great partner. Apple's a great partner, too. I love to see two companies like this come together. I'm a big fan of Tim Cook and Jeff Bezos. To see these two companies doing stuff like this... I hope we see them doing more together, because I think ultimately, consumers can only win.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon. Jason Moser owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and short January 2019 $15 calls on SONO. The Motley Fool has a disclosure policy.