Subscription Case #8
By Niels Vestergaard
Even though many investors expected an unpleasant future for hardware 10 years ago, the world’s most profitable company, Apple, has continued to beat one sales record after another. The company can now boast of an annual revenue of more than $3000 billion dollars. As most of us know, just above half of this revenue comes exclusively from selling iPhones, which Apple is pushing further in Asia, where the standard of living and, thereby, purchasing power is increasing. But where does the rest of Apple’s revenue come from?
Apple understands the value of recurring revenue…
It comes from subscriptions! Actually, Apple Services revenue covers almost as much as all wearables and all Mac sales combined!
And even though the 20% is only a fifth of Apple’s business, the result is a staggering $78 billion dollars. That is the same as all of Nike’s and McDonalds’ revenue combined.
… And they own the infrastructure!
Ten years ago, Amazon grew more than ever because they were able to conquer more Share-of-Wallet from customers through their Amazon Prime subscription. Americans were shopping at Amazon, no matter what they needed. It was not only cheaper than any other platform, they also received fast, free delivery from their Prime subscription, meaning it didn’t even make sense for customers to go elsewhere. Every month, Amazon took over large parts of their customers’ consumption and they owned the infrastructure to do it almost flawlessly.
And even though Apple has a fantastic margin on their products, it was a problem selling products just once every 3, 4 or 5 years, if they wanted to continue being the world’s strongest company. Apple quickly realized that they had to get their loyal customers to spend money with them, every month. So they rebranded iTunes to become Apple Music. Since came the iCloud subscription which was supported by Apple News+. Apple TV+ and Apple Fitness+. Today, around 850 million people use iCloud and 170 million of them are paying for a monthly subscription.
And Apple has been able to do this so successfully and so quickly due to one thing – the exact same thing that made Amazon a billion-dollar business. Infrastructure.
The very same hardware that the market was expecting to devaluate has become the direct sales channel for Apple Services subscriptions. Perhaps you have been cursing the never-ending reminders of missing iCloud backups and concluded that $1 dollar a month would be worth ridding yourself of this irritation. This confirms that companies with a loyal customer base and an already existing infrastructure hold an untapped potential for introducing a subscription.
Green Fee or Software-as-a-Service – cheap subscriptions are effective!
Most of us are not so privileged that we can just brainstorm how to get more revenue from a customer base of 850 million people. And the vast majority of the revenue from Apple Services come from an incredible amount of people paying a very small fee, every month. But we can learn something from both Amazon and Apple. At Amazon, they’ve created a strong incentive that captures Share-of-Wallet – it’s simply just stupid not being a member. Apple, on the other hand, has capitalized on a very privileged position – customers believe in the product so much that they will uncritically buy into value-add services. This must be the ultimate goal for any brand.
Here in the Nordics, there is still a huge untapped subscription potential. Matas has succeeded in converting loyal customers to paying subscribers, but other large retail chains are not following suit. And it might be because the subscription model is difficult to implement. And it is difficult to operate. But you gain so much value from recurring revenue. Do you want to be like Amazon and Apple? You better find som recurring, monthly revenue!
Just let me know – I might know someone who can help!
