What Apple Learned When Spotify Lured Away 8 Million Of Its Customers

How is Apple Music beneficial to Apple (2016)? originally appeared on Quora: the knowledge sharing network where compelling questions are answered by people with unique insights.

Answer by Brian Roemmele, Alchemist & Metaphysician, on Quora:

“By this time next year, Apple’s services business — which includes Apple Music, the App Store, and iCloud — will be the size of a Fortune 100 company”–Tim Cook, Apple CEO [1]

On July 26th, 2016 Apple reported Apple services revenue was $5.976 billion, down slightly from $5.991 billion the quarter before, but up 19% from the same period in 2015 [1]. In April, 2016 Billboard estimates [2] Apple Music and iTunes combined for roughly $800 million last quarter, or roughly thirteen percent of services revenue. A back-of-the-envelope number that assumes Apple has a seventy percent share of global download sales, one-quarter of Apple Music subscriptions are family plans, and Apple counts each family plan user as a subscriber. Billboard estimates Apple has just over fifteen million subscribers and this number is estimated to double over the next twelve months [3].

The song “ownership” model is being eclipsed by the subscription model. It is in Apple’s best interest to lead, follow, or get out of the way. As consumer tastes begin to lean towards a subscription model, Apple would ultimately lose on its core businesses—music consumption, and the control of this business—as competing services convinced customers to utilize their services. Over time, Apple would have lost the associations with music, and long-term that would have weakened the Apple iTunes platform.

It is also clear that Apple watched a significant number of Apple users begin to stop downloading music and start using services like Spotify. From 2011–2015, Spotify took about eight million Apple customers over to its platform. Data suggests that these customers significantly reduced iTunes downloads. Apple could see the huge growth of Spotify coming, and had little choice but to create a competing product.

Apple is, of course, earning less revenue with subscription music services; however, they are earning some income, whereas otherwise this revenue would have been entirely lost to Spotify. It is also not just about the revenue but about control of the silos Apple has built around music, movies, books, apps, etc. These silos are a significant aspect of Apple’s business, and as Tim Cook mentioned, will be a Fortune 100-sized revenue stream in the next twelve months.

Apple’s entry into music subscription services was an astute move and may have saved its iTunes business. If Apple did not make this move when they did, we would have been asking the question “Why did Apple miss the music subscription trend and just stick to music downloads?"

iTunes sales is appropriately the red bar.

[1] Apple CEO Tim Cook: This could be the size of a 'Fortune 100 company' by 2017

[2] Apple Music May Be Outpacing Download Revenues

[3] Apple Music turns up heat on Spotify with 15m subscribers - Music Business Worldwide

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