Eddy Cue revealed an interesting data point during WWDC 2016. One that signals the strategic importance of Apple Music to the Cupertino based company.
The Apple executive said that the music streaming service had reached 15 million paid subscribers. A milestone that reflects the success of Apple Music in its first year of life.
Everyone has been comparing this service with Spotify, downplaying the efforts of Apple. So I decided to have a closer look at the numbers of both music services to see what is really going on with Apple Music.
What I’ve found out about these services is quite interesting, not only per se but also about the role it plays in the future of Apple’s strategy. Let’s take a closer look at the numbers.
Apple Music vs Spotify paid subscribers: an unfair comparison
I tend to think that this graph is the best way to understand the strategic importance of Apple Music. It is a comparison of the monthly evolution of both music services paid subscriber base, ignoring the much wider free user base of Spotify and Apple Music (the latter being much smaller, of course).
Both music services have different background and origins. Spotify started operations in 2008. Since then, it has been slowly adding countries, artists and price models ever since. It has taken 90 months or seven years and a half to reach its 30 million paid subscribers a few weeks back.
Apple Music, on the other hand, has been online for only 12 months in which its paid user base has become half of Spotify’s: 15 million users, as announced by Cue in the WWDC 2016.
In contrast, Spotify needed six years and four months to reach that level. But also, 14 months later it was able to double it.
It is also interesting to have a look at the evolution of both services separately. Spotify is as follows:
And Apple Music:
With over 100 million free users and more than 45 million paid ones, music streaming services have become mainstream. The last year has been key in expanding their reach and popularity, as well as confirming that a sizeable portion of the population in absolute value is willing to pay for music. Again.
We can also have a deeper look at both services daily paid subscriber growth in these charts:
And the one for Apple Music:
There are two things I would like to highlight from these charts:
- Spotify daily subscriber growth accelerated dramatically in January 2015. Despite this, claims from the company that Apple Music accelerated user adoption don’t hold water since it launched several months later. If you take a look at daily user addition, Spotify decelerated since the launch of its rival music service.
- Apple Music experienced huge adoption in the first six months. It surely helped the one month free trial, but once it expired, users stuck with the service. Even now, when daily growth has relatively slowed, Apple Music has similar daily growth than that of Spotify today: one million new paid users per month.
Seeing these numbers, you can’t help but marvel at the spectacular growth that Apple Music has experienced in such a short period of time. Some people will say this is an unfair comparison. That the strategic importance of Apple Music and its fast growth is nothing to be amazed of because:
- Apple has a huge user base, especially in mobile.
- Apple Music is available in all four platforms: Apple TV, Apple Watch, iOS and Mac. All these platforms put together represent more than one billion active devices.
- It is a default app on all four platforms, making it easier for users to subscribe.
- Spotify had to start from scratch, building its business one user at a time, while Apple Music entered a much more welcoming market.
- Apple bought Beats one year ago, building on its foundations.
- Apple is one of the most valuable companies in the world with billions of cash in its pockets, while Spotify is in constant struggle to make a profit.
These statements are true. It is an unfair comparison and an uneven match. But in business, companies don’t build their strategies with fairness in mind. On the contrary, they build products and services to make it an unfair fight with their competitors.
As Benedict Evans argued more than two years ago in a great post:
In case it isn’t obvious by now, these charts are meant to be unfair – that’s the point. Unfair but relevant comparisons are the most interesting and important kinds. An unfair comparison generally means an unfair advantage, and this isn’t the Olympics – unfair is good. Customers don’t care if a company’s advantage is unfair. Investors don’t care. Unfair advantages are often the best kind. They are something that flows structurally from the reason why your business is going to change everything – they flow from a technology change you are building on or a change in market dynamics or consumer behaviour that you’re riding, and that your competitors cannot address. Disruption is unfair. Mobile’s disruption of PCs and the PC internet is entirely unfair – it’s the unfairness of differences like the replacement cycle and subsidy model (amongst many others) that makes it possible.
The strategic importance of Apple Music is built on an unfair advantage of Apple: its iron-grip on the best kind of user base. The one that has greater willingness to pay for products and services.
The strategic importance of Apple Music
Everyone had a laugh at Apple when it launched its streaming music service about a year after the Beats acquisition. Everyone poked fun at the apparent mess of this new service, which prominent tech figures dissed as a disaster.
Despite all the defects that Apple Music had during its first year of life, Apple was able to grow it from a service with zero subscribers to 15 million. And it keeps adding one million more per month.
But for me, this success is not the most relevant thing. There is a bigger story here that underlines the strategic importance of Apple Music. It is the incredible potential of its user base and the role it will pay in future products and services.
It resides within the company and doesn’t depend on acquiring business models like LinkedIn’s and an external user base that you have to integrate on your own.
I find that people underestimate how powerful Apple is due to its tight grip on the best user base out there. A user base that has the money and the willingness to pay for things, an asset that the rest of its tech competitors lack.
Controlling their own platform makes it possible for them to release a new service that immediately catches on with people.
Other examples of the power of default apps are abundant. Graham Spencer from MacStories collected some interesting data points on Apple Maps:
Apple says its mapping service is now used more than three times as often as its next leading competitor on iPhones and iPads, with more than 5 billion map-related requests each week. Research firm comScore says Apple has a modest lead over Google on iPhones in the U.S., though comScore measures how many people use a service in a given month rather than how often.
Meaning that since its introduction in 2012, Apple Maps has become the de facto mapping app on iOS. But more than triple Google Maps? That is nothing less than astonishing. But as Spencer reasonably argues, Apple Maps is a default app in iOS (again, the unfair comparison).
There is a common trend here, vital in the strategic importance of Apple Music too. Regular people don’t need a better alternative if the one that comes as default is just good enough. And, apparently, Apple Music and Apple Maps reach that “good enough” threshold.
The new App Store strategy is moving from covering the holes in iOS system apps to cater those users whose demands are much more specific. And niche. That is why it doesn’t matter that Google Maps is better than Apple Maps in some aspects. In fact, it is great news for every iOS user.
Hollowing-out Apple: why Apple bothers with services
The big risk here is these ecosystem providers will come to contribute so much of the functionality on users’ phones that those users begin to see these companies and not Apple as the most important part of their mobile user experience.
If you haven’t read Jan Dawson’s excellent post on The Threat of a Hollowed-Out Apple, you should do it now. Apple’s “there is an app for that” ad campaign is no longer a good fit for its strategy. In fact, Apple has turned 180 degrees in order to retake parts of the iOS user experience it now considers as vital.
Dawson argues that, despite Apple’s business model is selling devices, there is a huge risk in allowing third parties to dominate key aspects of that experience. Up to the point where Apple’s brand is diminished.
That is why the company has been carefully building a first party alternative. The strategic importance of Apple Music is not alone here, since Apple has already launched several apps and services like:
- iMessage in 2011.
- Apple Maps in 2012.
- Apple Pay in 2014.
- Apple News and Music in 2015.
It doesn’t end with the purchase of a product, Apple services need to continue the relationship with its users through time. With this in mind, it is easy to see how this effort of building first party services is much more than a new financial initiative to please Wall Street investors.
This is a genuine way of suppressing threats to Apple’s business model. That is why more services will come in due time. Per iMore’s April investor conference call transcript:
We feel really great about the early success of Apple’s first subscription business and our music revenue has now hit an inflection point after many quarters of decline – Tim Cook [emphasis added].
And as Dan Moren said in a Six Colors article:
First subscription service. Because, to my mind, why say “first” if you don’t have a “second” and a “third” coming down the pipe?
Rumors have, of course, long suggested that Apple will get into the subscription TV (and possibly movie) business, especially as everybody and their dog has entered the market. Apple hasn’t quite gotten this locked down yet: negotiations with the major content providers have stalled repeatedly, though all involved seem to believe that an Apple service is inevitable.
Of course it is inevitable. Apple can’t stay still while the Facebooks, Googles, Netflixes and Spotifies of the world hoard their user’s attention. It is a risk to Apple’s long term success.
Therein lies the strategic importance of Apple Music. And iOS 10 brings a new and improved interface, only one year after its initial release. Things will get even more interesting this fall.