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© beisea dreamstime.com Business | June 14, 2013

Doing what Apple does Best

Apple’s unveiling Monday of a new streaming music service as well as a major redesign of its vaunted mobile operating system shouldn’t be construed as defending what many see as an increasingly embattled position.
Instead, the moves are really more in line with what the company does best—which is to adopt successful solutions or those that could stand some improvement, and then retool them with the famous Apple stamp to deliver a potentially better user experience, according to IHS.

In the first day of its annual conference for developers on June 10, Apple said the new iTunes Radio would be part of an expanded music app that now features free Internet radio service, while a revamped iOS7 would sport fresh design elements and functionalities via a simpler user interface.

The twin moves, on one level, are intended to safeguard ongoing control by Apple of its already tight ecosystem while also maintaining the company’s hold on an increasingly crowded marketplace. In another sense, however, what Apple is doing is simply business as usual.

“Apple’s innovation is usually not with the introduction of new features, but rather comes from the execution and integration of features as part of a whole new experience for users,” said Jack Kent, principal analyst for mobile at IHS.

“This is a point worth remembering, which is something that Apple has done many times in the past,” said Francis Sideco, director for consumer electronics and communications technologies at IHS. “None of the devices that Apple is celebrated for—the iPhone, iPad or even the iPod—were the first of their kind when they were introduced, but they’ve so thoroughly remade the market since their launch that they’ve become category definers and market leaders of their individual segments.”

In the case of Apple’s new iTunes Radio, the service follows similar offerings from Pandora or Spotify, both of which precede iTunes Radio by several years. Apple’s key advantage, however, is the ability of its new service to integrate the radio experience with a user’s iTunes library to generate stations based on what a user is listening to at that moment, noted Kent.

Broadcasting iTunes Radio

The plan for iTunes Radio also shows the astute thinking underlying Apple’s moves. A free ad-funded service will be accessible for all users, while the service will be available ad-free to customers that subscribe to iTunes Match at $24.99.

Ian Fogg, director for mobile and telecoms at IHS, agrees that the move to provide streaming music on Apple’s part is smart. “The U.S. personalized radio market is essentially an ad-funded business and has been for years. To launch a free service is a precondition for even being in the game,” said Fogg. “In addition, bundling the ad-free streaming access with a new iTunes Match feature that personalizes song choices according to a user’s listening history is clever, boosting value for Apple’s existing paid tier.”

In the United States where the market for mobile music is the largest of its kind in the world, revenue for full-track music access subscription is projected to rise this year to $452.7 million, up a remarkable 46 percent from $309.4 million in 2012, as shown in the attached figure. Strong expansion is likewise forecast next year as revenue climbs another 33 percent to $660.6 million. The figures track subscriptions from a mobile phone for music in the form of either personalized radio or those accessed via an on-demand basis.

Overall, the new iTunes Radio service should help to tie some people further into Apple’s ecosystem, Kent believes, and removing the ads should increase the value of the relatively inexpensive iTunes Match. In this respect, Apple could be said to be catching up to competitors, Kent observed. Nokia already offers a completely ad-free radio service for Windows Phone Lumia devices, while Pandora and others have ad-funded mobile radio.

Mobile OS remade… in Apple’s image

Apple’s newly redesigned user interface can also be interpreted as an acknowledgment by the company that it may have fallen behind in some areas. The new design echoes elements already present in other operating systems like Windows Phone and Google’s Android.

To be sure, there are new features meant to keep current iPhone users engaged and prevent them from straying to the competition. Among them are a new phone-activation lock to erase data if the iPhone is stolen; a feature called AirDrop to quickly share content with people nearby; an audio element named FaceTime for high-quality calls over a data network; and a Night Mode in Maps for responding to ambient light when using the feature in the dark.

The new iOS7 design is important because Apple can now do updates to iPhones on all carriers at once, said Fogg. Unlike Android devices where updates have to be staggered over a period often extending to months because of the disparate models and various software versions in existence, an iPhone update means existing Apple users benefit at the same time.

App developers also will very quickly have a large base of iOS devices running the new features, and will have even more justification to innovate their own apps quickly than on Android devices when there is a new Android release, Fogg noted.

The iPhone: under attack?

The iPhone continues to maintain a position of strength in the smartphone market, observed Sideco. Despite slipping two-tenths of a percentage point from 2011, the iPhone still controlled a notable19.1 percent share of the smartphone market.

The iPhone has also enjoyed stronger shipment growth than for the overall smartphone space on average. From 2010 to 2011, for instance, smartphone shipments climbed 65 and 61 percent, respectively. In comparison, growth in iPhone shipments rose from an already heady 89 percent to an even more extraordinary 93 percent during the same period.

Growth decelerated last year for both the iPhone and the smartphone industry in general, bringing the iPhone’s expansion of 46 percent closer to the industry average of 47 percent, marking the first time that iPhone growth has lagged behind the market and causing a slight decline in iPhone market share. Apple’s iPhone market share in 2013 is expected to shrink some more, but the retreat is more a function of the rapidly expanding low-end smartphone market, which is primarily enabled by the Android ecosystem. Even so, the iPhone market can still be considered remarkable in the face of the hundreds of millions of units that the unit has sold over the years, Sideco noted.

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