Mega Bundles - Apple One, Google One, Amazon Prime, Microsoft 365

Transcript

0:00 Speaker A: Hi, I'm Sander and I'm really excited to explore with you recurring revenue bundles. Speaker A: Now that all of the big four companies have their own consumer facing bundles in the Market With Google One, Microsoft 365, Amazon prime and recently launched Apple One, there's actually nothing new in bundles per se. Speaker A: Bundles have been coming and going in different industries over time. Speaker A: For example in the music industry, when Napster introduced an Apple later with itunes, Music Store introduced a way to unbundle songs from an album and purchase one of them.

0:30 Speaker A: And now we're going back to this world where Spotify and Apple Music are offering you rebundled music on the one subscription. Speaker A: And definitely we're now on the wave in many industries where we're moving from single offerings to bundled offerings of services, whether within or across industries. Speaker A: Together at the same time is their second mega trend that's happening. Speaker A: A move from single purchase relationship to recurring revenue relationship.

0:55 Speaker A: And what that means in many, many industries is that we don't have those, we don't have to chase customers every time, but we have an ongoing relationship which Steve Jobs knowingly, when he was launching itunes, Music Store wasn't a big fan of at the time. Speaker B: And we think subscriptions are the wrong path. Speaker B: One of the reasons we think this is because people have bought their music for as long as we can remember. Speaker B: We bought our music on LPs, we bought our music on cassettes, we bought our music on CDs and we think people want to buy their music on the Internet by buying downloads.

1:31 Speaker A: And to his defense, of course at the time there was no iPhone, there was no smartphone, and there was no sustainable high speed mobile connection throughout the world. Speaker A: But we definitely now live in the world, whether it's movies or music or any other services where it's recurring relationship. Speaker A: For example, Netflix has bundled together all of the movie catalogs and offering in a recurring revenue side. Speaker A: So we now have these two strands colliding recurring revenue relationship or offering bundles across and within industries.

2:00 Speaker A: And we end up with those mega bundles as we already talked about, Amazon prime, including the two day free shipping, video, music, books, gaming, photos, whole foods, Amazon Fresh and many, many other services under one subscriptions. Speaker A: It becomes a no brainer offering. Speaker A: And they've been doing that for more than a decade and they're almost in every single household in the US. Speaker A: Office 365 was renamed to Microsoft 365 this year as well.

2:26 Speaker A: And for the very same reason, because they don't see this relationship, just an office relationship. Speaker A: They want Microsoft to have ongoing recurring revenue relationship with consumers and they're already doing that. Speaker A: They're adapting teams to families, they're adding new services that are family specific, that go beyond just the office application. Speaker A: So every company is seeing an opportunity for that. Speaker A: And of course Apple knowingly is doing the same with the recent launch subscription.

2:52 Speaker C: Services that enrich our customers lives. Speaker C: These are services that so many of us and our families use every single day and we want to make it easy for everyone to discover and enjoy them. Speaker C: So today I'm excited to introduce Apple One. Speaker A: So Apple one has been long time in the making and we've expecting that for a while since they've been building a strong subscription product offering within music, tv, gaming, cloud storage, magazine subscriptions.

3:21 Speaker A: And now they also launched Fitness, a sports subscription service all bundled into Apple One. Speaker A: But why, why are those companies building them? Speaker A: From consumer point of view, what is the value they're offering in the market? Speaker A: One of them was already mentioned in the video, actually two of them which is convenience and simplicity which are really key. Speaker A: But number two is value. Speaker A: Consumers want to get more out of it for less money of course.

3:47 Speaker A: And the last one is the overall ease of experience, ease of use. Speaker A: So let's dive into each one of them. Speaker A: Convenience of course, Apple owning the overall value chain, it takes only 3cl to get into Apple TV plus because it's pre installed, you already have the subscription so you're just straight in Disney plus who is using Apple's. Speaker A: In app purchases it takes nine clicks to get to the first content. Speaker A: And for Netflix who's actually working around it has their own payment gateway it takes 19 clicks.

4:16 Speaker A: By the way, we talked about the value chain in the last video. Speaker A: So if you want to dive into that then feel free to do that in the link above this video. Speaker A: The area where convenience really is unique about Apple is they control every single part of the value chain. Speaker A: If they produce for Apple tv they have their own studio producing content for Apple TV service that they also operate and then goes to a device that also they own and manufacture. Speaker A: So the whole value chain is fully controlled by then that increases the convenience a lot.

4:45 Speaker A: And that same goes for the Apple Fitness plus program that was recently announced. Speaker A: So you will definitely see a lot more scrutiny around that in the coming months as they take more and more control. Speaker A: But. Speaker A: But that makes it a lot more convenient for the consumers. Speaker A: No doubt about that. Speaker C: It's everything for the entire family for one incredible price. Speaker A: That's number two, the incredible price, the value that you get from those services.

5:11 Speaker A: If you subscribe to all of them separately today, then you would have to pay around $55 a month and they're getting it down to just $30. Speaker A: You will spend $25. Speaker A: So even imagine if you had like just two services, for example music and Apple News, or you had icloud and Music then already that made sense for you to start subscribing to the highest tier, plan to get all of those services and suddenly the device becomes so much more valuable for you.

5:40 Speaker A: If you built the bundle outside of Apple's offering today, for example, taking comparable service in music like Spotify, a comparable service for TV like HBO Arcade, competitor, not direct competitor, but comparable service with Xbox, Game Pass, storage from Dropbox, magazines from Readly and fitness subscription from Nike Training Club, then you would end up paying a whole lot more plus the friction that comes with it.

6:05 Speaker A: So the subscription then would cost you $75 a month. Speaker A: If you take all of the Apple services that's $55. Speaker A: And with a new Apple One bundle subscription you get incredible value at $30 a month. Speaker A: So that's a great consumer way to convince them to subscribe to your bundle. Speaker A: And it actually grows to every single tier. Speaker A: That $30 is the most expensive premier bundle and but it goes to every other tier as well. Speaker A: For example, individual bundle you're getting for $15 for $21 of value.

6:34 Speaker A: For the family bundle you get $20 and $28 of value. Speaker A: If you compare that to the market offering, for example Spotify being $9.99 a month or Spotify family being $14.99 a month and then for just additional $5, you will get not just music, you'll get TV, you'll get gaming and you get cloud storage for your whole family. Speaker A: So suddenly this becomes very much a no brainer offering for the customers. Speaker A: Number three we talked about is simplicity.

6:59 Speaker A: That means instead of having those six subscriptions as we talked about, you have your HBO Max and your Spotify, all of them to manage. Speaker A: You just have one subscription to manage that you can cancel anytime. Speaker A: But it also makes it super simple for users to use. Speaker A: Not just from the subscription point of view, but also device point of view because your device already comes pre installed with all of those apps. Speaker A: You have Apple Music, TV, Arcade, iCloud, all of them built in.

7:24 Speaker A: The only thing you need to do is subscribe and suddenly your device becomes very valuable, valuable to you with all of those apps pre installed and you don't need to go to the app store to start figuring out which is the best service. Speaker A: For each of those categories, they're right there. Speaker A: Super simple for people who are not necessarily as tech savvy. Speaker A: Keep in mind in all of this that Apple still controls the distribution. Speaker A: Even if you decided to go to a third party service, Apple still owns the platform on the device and the end user experience.

7:51 Speaker A: So that's why they're seeing a lot of scrutiny as well, because they have their Apple tax that is attached to every single other service. Speaker A: So whether you're subscribing to HBO Macs or you're going with Hulu or cbs, Apple has got their own tax built in. Speaker A: If people are subscribing through in app purchases, this is actually nothing new. Speaker A: Even though Apple is getting a lot of attention for it and bad attention and bad press for it, it's actually been in the industry for a while.

8:16 Speaker A: And this is a gaming example. Speaker A: From the PC stores to the console stores, even going all the way back to the physical stores where the 30% cut was applied. Speaker A: And same goes to even the Google Play store. Speaker A: Even though Apple is getting all of that scrutiny. Speaker A: Actually this has been an industry standard a while. Speaker A: I don't necessarily agree with it, but this is just the way the industry has been operating and a lot of the businesses have been leveraging that. Speaker A: But from company point of view, why are those businesses, from business point of view, building those bundles and offering them in the market?

8:46 Speaker A: Number one is it drives loyalty. Speaker A: And with loyalty comes also predictable revenue because it's recurring from loyal customers and that in the end drives business growth. Speaker A: So let's again look at each one of them one by one. Speaker A: Loyalty. Speaker A: Amazon prime retention rates have been going up from 80% in 2014 all the way to 93% in 2019. Speaker A: Why that's important for Amazon is incredible because adding those additional services makes it so much more sticky.

9:16 Speaker A: As you can clearly see, while they've been launching Amazon Gaming and they've acquired Twitch and added more content to Amazon prime video that actually equates to more members paying their monthly fees, but more members also spending on their platform. Speaker A: If you want to learn more about that, then check out the first video we did in this series about the Flywheel and how Amazon is driving their flywheel on the loyalty side. Speaker A: It also increases lock in.

9:41 Speaker A: Imagine you having your personalized music recommendations built into Apple Music. Speaker A: You've got all of your files uploaded to icloud and you have all of your favorite magazines as part of News plus subscription. Speaker A: If you take any of that away, that almost feels like taking a piece away. Speaker A: So your identity so closely tied to with those devices and those services. Speaker A: So that increases lock in big time and loyalty, which of course investors love. Speaker A: Predictable revenue is one of the highest factors to show how what's the ratio that the stock is trading at and you can directly correlate those two.

10:15 Speaker A: And of course the higher the subscription revenue generally, the higher the multiplier they're operating multiplier they're trading at as well. Speaker A: So of course Netflix, Amazon, New York Times and Apple are leading it. Speaker A: And that goes all the way back to the cable world with AT&T and others leading the way where it's a clear predictable revenue that they've already learned long time ago. Speaker A: And last but not least, it drives growth even for Apple services. Speaker A: They've not been in the market for that long and they haven't shown the split out between the services for a while.

10:44 Speaker A: We've seen an increase about 6 percentage points from 16 to 22% in just the last two years. Speaker A: While that might not sound a lot, it actually for Apple's 60 billion quarterly revenue on average, that's actually a lot of money. Speaker A: Adding from 10 billion to 13.2 billion just in two years. Speaker A: That's an incredible growth for the business. Speaker A: And that's just the start with Apple one being in the market now. Speaker A: So you'll definitely see that explosion coming in the future.

11:11 Speaker A: How to win in that space? Speaker A: How do you win against those big giant companies offering their bundles? Speaker A: Number one way is to build your own Mega bundle. Speaker A: I believe the Google One's offering is the weakest in the market at the moment, just offering you storage and access to their office apps. Speaker A: While you get some rewards when you buy on Google Store and you get special pricing on hotels and you get your expert help. Speaker A: I don't think this is a strong enough offering, but they're really well positioned to offer their Mega bundle in the market.

11:38 Speaker A: Imagine an offering with Google Nest aware subscription with YouTube Premium with YouTube Music subscription and Google Play Pass which is a competitor to Apple Arcade on their phones. Speaker A: On Android phones. Speaker A: I think this can be a robust Mega bundle offering competitor, strong competitor to the others. Speaker A: You could also build bundles through partnerships and Spotify has been doing that for a while. Speaker A: If you're in the U.S. instead of paying $9.99 a month, you can also buy a bundle with Hulu that also cost $9.99 a month.

12:05 Speaker A: Again makes that service more sticky and valuable for them. Speaker A: And they've also built bundle with Showtime. Speaker A: Another example is in a niche category, a bundle partnership that Surfline is offering where the $7.99 a month subscription, you just don't get their platform benefits, but you also get partner benefits. Speaker A: So you get discounts on the services on the Surf Network or Nixon or some of the other brands that are collaborating with. Speaker A: So that's another way to build a robust bundle.

12:31 Speaker A: There are niche service bundles out there as well. Speaker A: For example, Adobe that completely transformed their businesses about a decade ago when they launched their own creative cloud and moved away from selling a product every year or an upgrade every year to now offering a recurring relationship and updates constantly, which is better experience for the consumers and now is driving their company's growth big time. Speaker A: Their niche service bundle is not just in B2B categories, but also in the hardware and software fusion, which is I think the most interesting space where GoPro is actually not growing as a business as Fast.

13:05 Speaker A: They're only 7% a year. Speaker A: Their online subscription service, including the GoPro plus, that includes the unlimited cloud storage and device coverages and discounts on their store has grown 70% in that time. Speaker A: So they definitely see a lot of growth and coming from the subscription service industry. Speaker A: And it's not just in services, but it's also in hardware. Speaker A: So most car companies don't talk about themselves as car companies anymore.

13:30 Speaker A: They talk about themselves as mobility companies because they offer so much more than selling a car. Speaker A: And now they see this as a monthly payment that includes insurance, roadside assistance, tires maintenance and all the other things that go with the car. Speaker A: So almost every single car manufacturer has got their mobility business, a car subscription business, which they envision to be the future for them. Speaker A: What I'm most excited about and where I think the biggest unlock is going to be in the recurring remedy bundles is going to be the hardware and software combination bundles.

14:03 Speaker A: Think about what Xbox recently launched and they were one of the early ones to do that. Speaker A: You can buy the new Xbox series S with $300 as you used to do it beforehand. Speaker A: Then you would still need to probably pay for the game pass. Speaker A: If you want to get access to the hundreds of games that they have available, play online, multiplayer games, etc. Speaker A: Then you would have to pay additional 14.99amonth. Speaker A: But you could also buy X Pro series S for 2499amonth.

14:30 Speaker A: That includes the hardware that you will own after that two years and includes the game pass subscription. Speaker A: So at the end of the day it ends up being cheaper for the customer as well, who would then get the hardware, have the subscription for $600 after two years. Speaker A: And for the series s Those who buy it outright and have the subscription afterwards and that would cost them $660. Speaker A: So 10% discount if you decide to commit to the hardware software bundle.

14:55 Speaker A: And you can see Apple going through a similar route. Speaker A: Their device cost for the new devices have come down significantly so you can get a new iPad for just half the price or sometimes even third the price. Speaker A: They got an SE line for iPhones, they got recently launched an Apple Watch SE line. Speaker A: So you can see how they're really compressing it down, making the devices as accessible to everybody as possible so that they're in every single hand around the world so that they can then sell you all of the services to make those devices so much better.

15:25 Speaker A: But I think what's interesting for them, if you take the Apple upgrade program where you pay monthly fee to always have the newest device and put it together with the Apple One services subscription, then you get a very strong sticky bundle for the business where the users get the device. Speaker A: They're just super simple for them. Speaker A: They don't have to think about upgrading because when the new one comes out they will have it. Speaker A: They will have the best services from Apple and super simple user experience on Apple's side.

15:53 Speaker A: They will have such a deep lock in with someone with their hardware and software being locked in and very sticky offering in the market. Speaker A: So this is where I envision the biggest unlock to be and I definitely see Google, Microsoft and Apple in the future having those hardware software bundles in the market. Speaker A: Thank you very much for watching. Speaker A: I hope you enjoyed this video. Speaker A: If you did, please give it a thumbs up and subscribe to the channel. Speaker A: That helps the channel to grow and you to keep updated with new videos and let me know in the comments.

16:22 Speaker A: What do you think are the most no brainer bundles in the market that are going to stick around after a while and that are truly going to transform businesses in the future. Speaker A: Thanks again for watching and I hope to see you next time.