Whats missing from Apples highly anticipated subscription bundle? The iPhone. – CNBC

Apple Watch Fitness

Source: Apple Inc.

Apple on Tuesday announced its long-rumored Apple One bundle, a tiered system of subscription packages that give you access to a suite of the company’s digital services like music, video, streaming fitness classes and iCloud storage for one monthly price.

It’s a move Apple watchers, investors and geeks have wanted for ages, and it comes right out of Amazon‘s Prime playbook: lock customers in with an attractive subscription bundle and keep them tied into your ecosystem forever, guaranteeing future sales.

But Apple’s offering falls short of the must-have nature of Amazon Prime, which gives you free one- or two-day shipping on orders, with sweeteners on top like access to streaming video, streaming music and discounts at Whole Foods. With the exception of Apple Music, there aren’t any clear signs that Apple’s services have been compelling enough to attract a meaningful subscriber base. Apple’s newest slate of services are commodities that came late into the world already dominated by digital media rivals like Netflix, Disney-owned Hulu, Spotify and several successful mobile gaming firms.

Even though the Apple One bundles will save customers money as opposed to signing up for each service individually, it still lacks the “wow, I gotta have this” factor that Amazon Prime has. Whereas Amazon starts its subscription with the attractive free-shipping option and adds bonuses on top, Apple is starting with the bonuses first and withholding the one thing that would make Apple One a blockbuster.

So, what’s missing?

The iPhone.

“We found the Apple One services announcement yesterday to be relatively underwhelming: Consumers can’t select which services they prefer, savings from itemized purchases are not compelling relative to itemized purchases on annual plans and we believe it could be difficult to move users from competitive music, video or gaming services, where they are often entrenched,” Needham analysts wrote in a note to investors Wednesday morning. “We continue to believe that Apple should look to more creatively bundle its hardware [and] services into integrated subscription bundles.”

Bingo.

The Apple One bundles lack the “creativity” needed to really juice demand for the product. With so many incumbents already offering rival services to massive subscriber bases, it’s unlikely you’ll see many choose to switch to Apple’s bundle just because it offers a discount. Apple didn’t leverage its strength in hardware to make Apple One more attractive than any of its rivals, even though it already has the weapon it needs in its arsenal to do that too with the iPhone, the most profitable and popular product it makes.

Apple already has an iPhone Upgrade Program, which gives you a new iPhone every year along with AppleCare service starting at about $35 per month. It’s an attractive and popular program that not only drives new iPhone sales, but also helps boost the company’s important Services revenue with AppleCare. Now imagine merging the iPhone Upgrade Program with AppleOne, and you suddenly have a compelling offer that’ll be tough to pass up, just like Amazon Prime.

The caveat to the Apple One announcement is that Apple didn’t announce a new iPhone model for the first time at its September event since 2011. It’s entirely possible Apple weaves an iPhone offering into Apple One when it announces the next iPhone 12 at another event expected in October. On the other hand, if Apple did plan to include the iPhone in Apple One, it probably would’ve saved Tuesday’s announcement for next month.

Apple’s Services growth story is still impressive, and that business alone booked more than $13 billion in revenue in its fiscal third quarter. But if that line item is going to continue its rapid growth story without a game-changing new hardware product category on the immediate horizon, it’ll have to look to the iPhone as the linchpin to keep up the growth.