As expected Apple today announced the launch of the music industry’s worst kept secret iTunes Radio, a Pandora-like personalized radio service. iTunes Radio is integrated into the new iOS7, is free with ads to all, free without ads to Tunes Match subscribers. There’s enough different and new in iTunes Radio to make it stand out from the pack and to ensure it has a typically high quality Apple touch. But the prevailing narrative will be that Apple has taken the conservative me-too strategic option rather than bringing new transformative innovation to the marketplace. In many respects that analysis rings true but the complete picture is far more nuanced.
Apple is not in the business of creating markets or being a first mover. Apple is the archetypal early-follower. That applies even more to digital music than to hardware for Apple. The iTunes Music Store was far from the first download store, but it was, and arguably still is, the best. Apple is in the business of selling hardware and its music strategy is dictated by its ability to help it sell hardware. Rather than balance itself precariously on the bleeding edge of digital music innovation Apple waits for music technology to become ready for prime time.
Two Reasons Why Apple Has to Go Slow With the Cloud
All of that has rung true for a decade+ at Apple. But now there are new factors in the mix which play determining roles in Apple’s music strategy:
- Apple has become a mainstream company: Apple’s nineties and noughties heritage was that of the early adopter tech aficionado. Now Apple is a mainstream consumer product company. Since the start of 2011 Apple has sold 468 million iPods and iPads. In doing so it has brought swathes of mass market consumers into the iTunes ecosystem, resulting in 575 million credit card linked iTunes accounts. But all this means that Apple now has to move more carefully, innovating at a pace that is appropriate for a majority of its customer base not just the highly engaged top end. Spotify’s 6 million paying subscribers is a fantastic achievement but pales compared to Apple’s iTunes user count. The simple fact is that Apple does not think that $9.99 subscriptions are yet ready for primetime for mainstream consumers.
- The shift to the cloud will impact device pricing strategy: currently Apple’s device pricing strategy is dictated by storage capacity. The bigger the hard drive the higher the price. But once/if everything shifts to the cloud bigger memory capacities matter much less. This is why Apple has to go slow with the cloud. If it goes too quickly it could accelerate the transition at a rate it cannot manage and end up wreaking havoc in its core device business all for the sake of keeping digital music fans happy. A personalized radio service is a neat complement to downloads. It won’t win any awards for innovation but it will give mainstream Apple customers enough extra value without disrupting device sales, or indeed music sales. iTunes Radio buys Apple crucial time as it plans its cloud-era device and pricing strategy.
What Apple Could (and Should) Do
The shift to the cloud is of course inevitable and for all that iTunes Radio may buy Apple some time, the challenges must be faced. The answer to Apple’s problems may lie in the problem itself. If consumers increasingly shy away from higher memory devices – and therefore more expensive devices – content may prove to be the way in which Apple maintains premium price points across its device portfolio.
Content is the core reason people use iPads and iPods and one of the core reasons people use iPhones. A smart move would be to take that importance and bake it into the value proposition. Instead of charging a premium based on memory size alone, Apple could additional sell content-device bundles (and longer term phase out memory size pricing entirely). For example pricing tiers for iPads could look something like this:
- Price point 1: 16GB, no content
- Price point 2: 32GB $/€/£10 a month of iTunes content
- Price point 3: 32GB $/€/£10 a month of iTunes content and on demand music streaming
The reputation of content-device bundles got somewhat tarnished by the Comes With Music experience, but the model remains fundamentally sound. Apple could just be the company to make it work. If it does, iTunes Radio will have proved to be a crucial first step on that journey.
In the meantime iTunes Radio is another important, incremental step in Apple’s cautious cloud music strategy. Cautious because Apple is intent on innovating at a pace that matches the appetite of its mainstream customers. Cautious because a hasty move could turn iTunes Music sales upside down with direct cannibalisation. And most importantly of all, cautious because Apple knows that if it gets it wrong it could disrupt device pricing strategy, with major repercussions right across Apple’s business.
In short there are many reasons for Apple to go slow with its cloud music strategy. That might not make for the most exciting of music product roadmaps, but it does mean that Apple is building for long term sustainability and viability. That in itself is of crucial importance for the music industry and should help ensure Apple remains a music industry partner of true scale for years to come.
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