There was a gloomy report circulating on the state of Apple's (NASDAQ:AAPL) new streaming service last week, so the tech giant decided to set the record straight.
Earlier this month, the consumer-electronics leader revealed that there were 11 million users of Apple Music, and 2 million of those are on family plans. That may sound like an encouraging number for a service that only launched at the end of June, but keep in mind that nobody's paying for the service -- yet. Folks signing up get three free months to kick the tires as part of the generous complimentary trial.
There have been concerns that Apple Music isn't differentiated enough to take on premium on-demand leader Spotify, and a problematic report surfaced last Tuesday to reignite those fears. Music-industry researcher MusicWatch surveyed 5,000 trial users, finding that 48% of them are no longer using the service. That was a small and potentially inconsequential sample size, but it was still an alarming number of folks bailing on Apple Music.
Probably sensing the viral ramifications -- once consumers think a platform is toast, it becomes a self-fulfilling prophecy in this app-eat-app world -- Apple went on to clarify that just 21% of those on trial are no longer actively on the service. That's certainly a better scenario, but it's not exactly a rosy one. Folks have several more weeks to enjoy the free trial, yet more than a fifth of them have already decided that it's not worth their time. One can only imagine how many more will bolt when the tollbooths go up.
This should have been a slam dunk. Earlier this year Apple, announced that it has sold more than a billion cumulative iOS devices. Naturally, not all of those iPads, iPhones, and iPod Touch media players are active these days, but hundreds of millions of them are. Apple's latest software update makes it easier to woo the tire kickers. Regardless of the platform's churn rate, it should've been able to persuade more than 11 million users to try out a premium streaming service for free over the next few months.
You never get a second chance to make a first impression in this fickle world of apps, and with Spotify and Pandora (NYSE:P) combining for more than 150 million users, it's easy to wonder if Apple can stand out with less than 10% of that market. Sure, the Apple Music subscriber tally can grow over time, but it's not going to generate the kind of free publicity for its free trial the way it has during this summer's launch.
This doesn't mean it's a flop. It's too soon to tag Apple Music a failure. It would also be silly to assume that Apple would settle for failure if the platform begins to lose steam. Do you think the company with the country's richest balance sheet would balk at paying a premium for Spotify or Pandora?
Apple knows that it needs to be a difference maker in streaming. The digital purchase market is shrinking. Ratings tracker Nielsen reported that digital album and single sales slipped 9% and 12%, respectively, in 2014. If streaming is the way folks are consuming music, then Apple can't afford to fail. It won't let Pandora and Spotify run away with this opportunity. Apple Music may or may not be off to an ideal start, but the orchestra's just starting to tune up.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns and recommends Apple and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.