Please ensure Javascript is enabled for purposes of website accessibility

Can Apple Replicate Apple Music's Success With Its Other Services?

By Chris Neiger - Apr 12, 2019 at 2:13PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Apple now has more U.S. music subscribers than Spotify, which is a good indicator of the company's ability to enter new service markets and succeed.

Sources recently told the Wall Street Journal that Apple's (AAPL 1.62%) streaming music service, Apple Music, now has more paying customers in the U.S. than its rival Spotify (SPOT 3.93%). Apple Music now has 28 million paying subscribers in the U.S, compared to Spotify's 26 million, and is growing at a faster rate than its competitor both domestically and internationally (though Spotify still has more total subscribers).

Apple Music's success in the U.S. is great news for the company on its own, but it's also a good indicator of how Apple might be able to succeed with all of the services is just debuted just last month. Here's why.

Woman smiling with headphones on.

Image source: Getty Images.

Can Apple replicate this success with its other services?

Just a few weeks ago Apple unveiled four new services that the company is, essentially, betting its future on. Apple's services only accounted for 14% of the company's total revenue last year, but revenue from the segment grew 19% year over year in the most recent quarter -- compared to iPhone sales, which fell 15%.

As iPhone sales have declined, the company has pivoted to subscription-based services, including Apple News+, Apple TV+, its new Apple Card credit card, and its Apple Arcade video game service.

This push has understandably been met with some skepticism, but the company's recent success with Apple Music shows that the iPhone maker can enter a saturated services market and convince tens of millions of its hardware users to pay for recurring monthly subscription.

Spotify entered the U.S. music streaming market in 2011, giving the company a nearly four-year head start compared to Apple. Apple also faced competition from Pandora and even Amazon Music at the time. And yet it's been able to convince 28 million people to pay for its service in just a few short years (Apple doesn't offer a free, ad-supported version, unlike Spotify).

Image of Apple's new video game service, Apple Arcade.

Image source: Apple.

Of course, there's no guarantee that the company's success with Apple Music means it'll see the same results with Apple News+, Apple TV+, or its other services. But Apple has proved that it can enter a new services market and take down one the biggest competitors in the U.S. That in and of itself should calm investors, who wonder if Apple's services bet is a wise one.

Another key ingredient to the company's potential services success comes from Apple's ability to grow sales in the segment already. In 2016 Apple's services revenue was $24.3 billion (about 11% of total sales), but that figure jumped to $37.2 billion in 2018 (14% of sales). With Apple News+ just a few weeks old and Apple TV+ not available until this fall, it's likely that Apple will be able to increase those services sales even faster than before.

When you consider that Apple Music is already succeeding and that Apple was already increasing its services sales before it introduced its new services, there's a good chance that the company will be able to apply the same services strategies to its new businesses and replicate Apple Music's success.

Not everything will work

The company is making a tough shift away from hardware sales, forcing its top and bottom lines to rely more on services revenue. So there will likely be some growing pains as the company figures out which services its users want and how much they're willing to pay for them. But investors should see the success with Apple Music as the beginning of the company's likely long-term potential to significantly benefit from its services push.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$138.93 (1.62%) $2.21
Spotify Stock Quote
Spotify
SPOT
$97.52 (3.93%) $3.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.