Apple spent a lot of time at WWDC heaping praise on developers — the middle point of the keynote featured a video celebrating all of the apps and experiences enabled by the iPhone and the App Store in the seven years of its existence. Neil deGrasse Tyson called the combination of apps and handheld devices "a watershed moment in civilization." When Tim Cook announced that watchOS 2 would allow developers to make native apps for the Apple Watch, he told the crowd they would "change people’s lives." Heady stuff, to be sure, but deserved — there’s no doubting the impact of mobile and apps on our lives.
Cook also said that Apple has now paid developers over $30 billion dollars since the App Store opened in 2008, which sounds like a lot until you realize that Apple posted profits of $13 billion and $18 billion in its last two quarters against revenues of $58 and $74 billion.
There’s just way more money in selling iPhones than selling apps
Apple makes more profits in six months than the total revenue paid to developers since the App Store opened. There’s just way more money in selling iPhones than selling apps, and every new app is really just a new feature that helps sell more iPhones.
That happens in big and small ways, but the relative scale of Apple’s ambition was sharply highlighted yesterday by Apple Music and Apple News, two new apps that reduce entire swaths of the media industry to mere features of the iPhone because Apple doesn’t have to worry about their business models.
Take Apple News and Flipboard, for instance. Apple News feels like a combination of Flipboard and Facebook’s News Feed, a news reading app that shows you stories it thinks you might like from topics and publications you’re interested in. It looks really nice, but it’s easy to dismiss it as just another Flipboard clone. There are a lot of them, and they’ve all failed. Flipboard’s entire business is an enhanced newsreading experience — just like Apple News, it pulls in stories from a selection of media partners and presents them to you in clean, modern layouts. It’s great! People love Flipboard.
But wait: Flipboard is failing, and the company has been trying to sell itself for weeks.
It’s just really, really hard to make money in news. Few companies are doing it, and even popular apps like Flipboard are struggling to turn users and eyeballs and attention into revenue. And because there’s no other obvious way to make money, Flipboard might just blink out of existence one day.
But Apple doesn’t have that problem at all — Apple News doesn’t need to make any money, ever. It just needs to make the experience of using an iPhone slightly better, so that people keep buying iPhones. Media partners who put content in Apple News keep 100 percent of the money they make selling their own ads; Apple only takes a 30 percent cut if it sells ads for you. Apple can integrate News ever more tightly into the iPhone, and it’ll be great for consumers, because no one at Apple ever has to balance the overall user experience against the desire to increase revenue or make money or do anything other than sell more iPhones.
You can’t turn around on the internet without reading hand-wringing about Facebook and the potential extortion of media companies that depend on the social network for traffic, but publishers signed up by the dozens for Apple News. (Vox Media included.) It doesn’t seem nearly as threatening, because Apple has virtually no incentive to make money against news the way Facebook does. Apple has $178 billion in the bank; Apple News could lose a million dollars a year for the next five years and it’s not clear anyone would even notice. Hell, Apple News could lose a million dollars a year for a hundred thousand years and Apple would still have over $50 billion to burn.
In one fell swoop, Apple’s taken the entire media machine and turned it into just another feature of the iPhone.
It’s the same with music, really. One of the big criticisms of the WWDC keynote I’ve been reading is that it was really two presentations: a first, tightly focused presentation of Apple’s new OS updates, and then a second rambling mess about Apple Music featuring Drake. Nothing about the presentation made it totally clear why Apple thinks its new music service will help kickstart the music industry into the streaming era, but then again, maybe it didn’t need to. Music might never be a huge business for Apple — the entire US music business did $11.83 billion in revenue last year, less than Apple makes in profit every three months.
Apple doesn’t have any of these problems, because it just wants people to buy iPhones
Compare that to Spotify, which is building its entire business around music streaming. Spotify is in a jam right now: the more money it makes, the more money it loses, because of how its deals with the labels are structured. Spotify needs a free service because that’s how it gets people in the door and convinces them to pay, but the labels hate the free service because it doesn’t pay them enough. Spotify needs to add subscribers at a high rate to cover the revenue gap; the best way to add more subscribers is to aggressively sign people up for the free tier, increasing the revenue gap. The flames climb ever higher into the night.
Apple doesn’t have any of these problems, because it just wants people to buy iPhones. You can pay the $9.99 a month for Apple Music and unlock almost all the songs in the iTunes library, or not. It’ll barely dent Apple’s balance sheet either way; the company is doing a music service because it likes music and sees the writing on the wall as digital downloads collapse in favor of streaming services. Spotify has to invent an entirely new business model, but Apple just has to make listening to music marginally easier.
The entire music industry, turned into just another feature of the iPhone.
Now, Apple News could be terrible — it’s built on the wreckage of Newsstand, which did not exactly save the print industry. And parts of Apple Music sure feel like Ping, which has a special place in Apple’s Hall of Pretty Bad Ideas. But none of these products are existentially important to Apple; they’re just features, ways to make the iPhone more compelling and interesting. That’s sort of incredible; it’s hard to think of another company that can just subsume an entire industry in the service of making its products more attractive.
The real question is: what industry will turn into Apple’s next big feature?