Apple Music – The power of default

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Pre-installation and default remain very powerful.

• The latest figures from Apple on its music service are better than I thought they would be given the substantial weaknesses that still exist when comparing the service to market leader Spotify.
• Apple Music now has 15m users of which 8.5m (56.6%) are on the 3 month free-trial.
• This leaves 6.5m users that are now paying for the service giving Apple annualised revenues of $780m.
• However, how many users have forgotten to cancel the service and will do so after the first month when they receive the bill is unclear.
• Either way, this is pretty good performance and implies that around 60% of users who trial the service go on to pay for it.
• This is completely at odds with the feedback that the service has received where Spotify offers a better experience with a much richer feature set at the same price.
• This is one of the clearest demonstrations yet of how important it can be to control the platform upon which a service is to be sold.
• Apple Music was installed by default on iOS devices that upgraded to version 8.4
• The Apple Music icon was prominently featured and the trial can be started with a single button push.
• Furthermore, as Apple already has a credit card relationship with every iOS user, if the user does nothing he becomes a paying user at the end of the trial.
• This combined with the strength of Apple’s brand is a major reason why an inferior service has been able to get reasonable traction.
• The question is whether it can keep it.
• I continue to think that the risk for Spotify is not in losing users but in a slowdown in new users signing up because they have gone with the easy default option.
• So far, I do not think that Apple Music has had an impact on Spotify’s performance because I see the market being big enough for more than one player.
• However, Spotify needs to step up its marketing and help users realise how its service is better than Apple Music for the same price.
• The first step would be to re-run the year end 2014 campaign where users were offered three months of the paid service for $0.99.
• It is easy for existing users to understand how Spotify offers a better service but for new users it is not obvious at all.
• In these sorts of situations users will tend to go with a brand they know and it is not difficult to argue that the Apple’s brand is far stronger than Spotify’s.
• On Android it will be a completely different story and here, I think that Apple will really struggle to gain traction.
• In fact I think that Apple is only releasing an Android version of its service to ensure that its family plan will be usable by all members of the family.
• It is not unusual for a household to have devices on multiple platforms and the family plan on Apple Music is the one area where it is cheaper than Spotify.
• The net result is that I remain unconcerned regarding the impact of Apple Music on Spotify but the key quarter to watch will be Q4 15E which is when users will have been paying for the service for a full quarter.