Apple’s Late To The Connectivity, Fitness And Services Parties – Will It Catch Up?

No iPhone 12 – but pretty much everything else.

The question for Apple is: Will the slew of offerings announced this week be enough to bring new users into its ever-expanding ecosystem, and also keep current consumers, well, consuming?

On Tuesday (Sept. 15), Apple unveiled a slew of watches and services in a bid to give a tailwind to hardware sales and boost its services business.

We saw announcements tied to the Apple Watch Series 6, the Apple Watch SE, bundles tied to Apple One and the Apple Fitness+.

At a high level, the Apple event underscored the convergence of devices and a wide range of services to be consumed over those devices – centering in this case on health, music and connectivity in general (and some operating system updates).

Perhaps no surprise, in the age of the pandemic, is the health pitch. The Apple Watch can help monitor blood oxygen levels and cardio fitness. But beyond that, it is important to note that Apple seems to be positioning the watch as a standalone lure to consumers. Because now, the (two) new watches need not be connected to iPhones to do what they do.

A new feature called Family Setup can give users of new generations of watches access to phone calls and texting features via the watch – without being tethered to the phone. Call it a launching pad into the ecosystem, giving simplified hardware everyday functionality that can conceivably be used for cross-selling and upselling.

To get a sense of how Apple might be positioning the Series 6 and Apple Watch SE watches, a feature called Schooltime allows parents to restrict access to apps across the devices – which would conceivably keep kids from fiddling around while virtual Zoom classes are in session. Virtual money can be loaded onto the watch, which can be spent via Apple Pay.

We note that the Apple Pay feature may be a way to get younger users more adept at using the digital wallet service. It could use the torque. During the fourth quarter of last year, PYMNTS surveyed 1,000 U.S. consumers and found that although 81 percent of adult Americans owned smartphones, just 6 percent used Apple Pay at a physical store five years after the service debuted in 2014.

Apple Pay accounted for only about 1.1 percent of all retail and food services sales, excluding online and auto. The rise in contactless payments has undoubtedly moved the needle a bit, but Apple Pay could hardly be called world-beating. And the rise of contactless payments seems connected to card payments, not necessarily digital wallets.

In at least one other bid to boost payments, the new operating system iOS 14 offers support for App Clips via NFC, which allows iPhone users to take advantage of “mini” apps – and also enables Apple Pay. That means users don’t have to offer card details when they make purchases, as NFC World reported.

There was also the launch of Apple’s fitness service, to be accessed through an app, and which serves up workout videos across iPhones and iPads and can be synced to the watch. It’ a shot across at least part of the bow at firms like Peloton, which also offers fitness content, but the similarity and competition end there.

Peloton, of course, has its own ecosystem, tied to its bikes. And the fitness firms, in the midst of the pandemic, may have already scored some of the lowest-hanging fruit by pivoting to in-home classes.

Bundling Up

Apple One got some play yesterday, where three options offer a range of subscriptions spanning news, fitness and music. But here lies a bit of turbulence. Spotify said on Tuesday (Sept. 15) that the bundles are allegedly more evidence of abuse of dominant market position. A Spotify statement reported by Apple Insider contended that Apple favors its own services.

The tech giant is, of course, embroiled in a lawsuit with Epic Games over App Store competition (and is being investigated in the EU over Apple Pay and App Store practices). Apple is pushing its bundling at a time when competition is increasing across media, music and games – and may get at least some restriction from regulators on how content is displayed and promoted across its digital conduits. It’s also a way to make sure subscribers stick around, even if they don’t consume everything that’s offered (in bundles, “strong” content can help prop up “weaker” offerings).

In an interview with Karen Webster, Brian Bogosian, CEO at sticky.io, an integrated eCommerce subscription management and recurring billing platform, said that Apple’s continued push into subscriptions is only one example of the allure of subscription eCommerce.

For Apple, the watches, the fitness and the bundles play into a must-have strategy that favors recurring revenues over hardware hits. As we noted earlier this year, Apple said in its most recent earnings report that its services top line was up almost 15 percent year over year, and had met (ahead of schedule) its stated target (outlined back in 2016) of doubling this revenue stream by the close of 2020. Paid accounts, up 30 percent year on year, stand at 550 million.

As Bogosian noted to Webster, the bundles could give a boost to the tech behemoth’s hardware business, spurring “automatic upgrades to products at a certain period of time, so they don't have to worry as much about the volatility of market acceptance around new releases of products.”

Apple has demonstrated that it knows it must get its consumers into a “set it and forget it,” Big-Tech-as-a-Service mindset. Now comes the hard part: getting there.

Now, about those iPhones…