The picture above shows the new Apple Store on 5th Avenue in New York which will open on September 20. No doubt, the line will be long for consumers anxious to get the new Apple Watch Series 5 and the new iPhone 11. People love Apple products. It remains to be seen if people will love Apple services as much but I suspect they will.
Apple made a very aggressive move by pricing its new streaming video service at $4.99 per month. Anyone buying a new iPhone, iPad, Mac, or Apple TV will get the new streaming service free for one year. People will not cancel Netflix to get the new service but, after a year of Apple building up its video portfolio, perhaps some will. Others may be willing to keep Netflix and keep the new Apple TV+ streaming service. Apple has made a bold and strategic move to lock more people into its ecosystem. There are more than one billion Apple iPhones and iPads out there. If only 10% of them end up paying $4.99 per month, the annual revenue will be $6 billion. Likewise, if another 10% go for the new Apple Arcade streaming game service, there will be another $6 billion. The ecosystem is ramping up to become a major element of Apple’s business.
For now, the hardware products remain the heart of the company. If you watch Tuesday’s Keynote (highly recommended), you will find it was done with great marketing aplomb. Apple has it down pat. Tell them what you are going to tell them, tell them, and then tell them what you told them. The mantra works every time. What has changed in very recent years is Tim Cook has shared the stage with a diverse team of senior and upcoming executives from Apple’s team of 132,000 full time employees. The bench is impressive, and so are the products they presented. Analysts tend to downplay the technology. They call it “tweaks” to what was there before. I view what they announce as breakthrough technology. It might go in the same case, but inside is incredible technology. The iPhone 11 Pro is called Pro for a reason. It is so powerful film makers will be using it.
The other significant thing I took from the announcements is the pricing of prior generation iPhones and Watches. They dropped the price of Watch Series 3 to $199. The lower price will bring in millions of new Apple Watch users. The users will get hooked and then want the longer batter life and new features of Series 5, and they will upgrade. Likewise for the lower priced iPhone models. More people coming into the ecosystem to sign up for services, upgrade to other new hardware, etc. The hardware platforms and services strengthen the ecosystem and keep users locked in and loyal. That is why AAPL is valued at roughly a trillion dollars, nearly 4% of the total for the S&P 500 stocks.