5 ways Apple needs to up its game if it wants to be a services company

For most of this century, Apple has been known as the world’s preeminent hardware company. In the last 18 years, the company has given the world the iPod, the flat-screen iMac, the MacBook Air, and the iPad–products almost universally agreed to be the leaders in their fields. But Apple’s biggest product, from both a commercial and critical standpoint, has been the iPhone.

Over the last 11 years, the iPhone has become almost synonymous with “smartphone.” Its historic success is why Apple became the first public company in U.S. history to hit a trillion-dollar market cap. Since Apple hit that milestone last summer, its stock has taken a beating, and in November Microsoft became worth more than Apple (though not a trillion-dollar company) for the first time in eight years.

Apple’s stock was further hammered late last week when the company issued a rare guidance revision, lowering the current quarter’s revenue estimates by $9 billion. In an open letter to investors from Tim Cook, Apple primarily blamed the economic environment in China for sluggish sales. But Apple, and every other smartphone maker on the planet, knows there’s a bigger problem on the horizon: Twelve years after the first iPhone arrived, smartphones are a mature product category.

As a result, people don’t feel the need to upgrade their current iPhones–or other smartphones–as often as they used to. Hardcore fans who used to upgrade every year now may wait two or three years to do so. And other less-techie consumers find that smartphones have advanced so much they can get away with the one they bought four years ago. After all, even 2014’s iPhone 6 still emails, surfs the web, and takes photos just fine.

The problem for Apple is that the iPhone is such a large part of its business. If the company is going to continue to grow, what product could step up to take the place of lagging smartphone sales?

The answer from every Wall Street analyst, tech pundit, and even Apple itself seems to be: services. In order to continue its growth for the immediate future–short of breakthrough new hardware like AR glasses or a car–Apple will have to grow its subscription-based products, or create new ones. In essence, Apple needs to become a services company on the scale of Netflix, Spotify, and Dropbox.

Apple has already started to make serious moves in the direction of becoming a more service-focused company by allowing Apple Music to be streamed on Amazon Alexa and Echo devices last year, enabling the music streaming service to grow beyond only people with Apple or Android devices. Then this week Apple announced it will also bring iTunes movies and TV shows to smart TVs made by third parties, starting with Samsung. Having Apple’s video services accessible on non-Apple products is pivotal if the company wants its upcoming video streaming service to be able to compete with Netflix and other video services that are already available everywhere.

But if Apple really wants to become a services company of significance, it needs to up its game. Here’s how:

Apple must rethink its video content strategy

The worst-kept secret in Hollywood is that later this year Apple is going to launch a video streaming service to compete with Netflix and Hulu. However, the company may be getting off to a wrong start before the service even launches. If rumors are to be believed, it is planning to launch a “family friendly” streaming service. That means no original content with sex, too much violence, or heavy-hitting subjects. In other words, Apple is avoiding the type of original content services that Netflix and Amazon Prime Video are lauded for.

While the family-friendly angle isn’t to be dismissed outright, the problem for Apple is that the biggest player in family-friendly content–Disney–will also be launching its new Disney+ streaming service this year. With home budgets already stressed and subscription service fatigue setting in, who will households turn to for their family-friendly needs? Apple? Hell no. They’re going to join Disney+, because that’s the company that offers the most-beloved family-friendly content ever created.

So if Apple can’t grab the family-friendly crowd away from Disney, who is it going to attract with its family-friendly lineup? Certainly not current Netflix, Hulu, HBO Go, and Amazon Prime Video subscribers, who enjoy the more adult-themed content. That would leave Apple’s service feeling like it’s the place to go if you want plain vanilla, middle-of-the-road, prime-time network programming. And we already have basic TV for that.

It should become a leading news platform

For what it’s worth, I believe Apple already has a product with great services potential. No, not Apple Music–I’m talking about Apple News. The app is found on all devices running the most recent versions of iOS and MacOS, and it’s the one source I go to to read most of my news. If Apple, as is rumored, builds this out into a full-blown paid-for news subscription service, I think people who appreciate good content from varied sources would sign up in droves.

Right now, the News app works by aggregating stories from various publications in one very attractive and user-friendly app. The app also allows users to subscribe to individual publications so they can read more articles from, for example, the New York Times. But if Apple could get the buy-in from major publications and websites and launch a news service that gives Apple News subscribers unlimited access from all of those magazines, papers, and sites, it could go a long way to becoming a healthy subscription business for Apple. It would also be another way for publications to earn a profit from their content.

Add in video news content from major networks and cable channels and it would be even more tempting to sign up.

It needs to make iCloud pricing more appealing

I’ll make this one quick, because there’s no shortage of cloud storage providers. I find Apple’s iCloud to be an incredibly easy-to-use cloud solution with prices similar to other cloud service providers. But that’s just the problem: Apple’s iCloud is at best on-par with the competition–no better, no worse.

While iCloud would never be the biggest part of all the services Apple offers, the company could probably double its user base overnight if it slashed its prices well below its competitors. How about 1TB of iCloud storage for $1.99 a month? Dropbox would be shaking in its boots. Apple could open up iCloud storage to Android users–but is that such a stretch? iCloud has long been available on Windows PCs, and Apple already offers Apple Music on Android devices.

It ought to bring iMessage to Android

Speaking of Android . . . it’s time to bring the iMessage service to the world’s largest computing base. I know, I know, putting iMessage on Android would destroy one of the main reasons people stick with their iPhones. However, with iMessage unavailable on Android, iPhone users with Android friends often have to switch to other apps, such as WhatsApp or Facebook Messenger, to chat with their buddies. These cross-platform apps pull iPhone users out of Apple’s ecosystem, making it easier for them to switch to Android. But the converse would be true with iMessage on Android: Get Android users addicted to the simplicity of iMessage, and it makes it easier for them to jump ship to the iPhone when they buy their next smartphone.

But how would bringing iMessage to Android help Apple, the new services company? Simple: It could do what WhatsApp used to and charge Android users an annual $4.99 fee to use the app. Five bucks times a few hundred million Android users on an annual subscription plan brings in a lot of services dough for Apple.

It could turn the iPhone into a service

Believe it or not, the “iPhone as a service” is a real thing already. Apple offers the iPhone Upgrade Program, which allows people to get a new iPhone every year for as low as $37 a month. The problem is the service is underused and outsourced to a third party, Citizens Bank, making it less user friendly than it could be.

Instead of continuing down this route, Apple could scrap the current iPhone Upgrade Program altogether in favor of launching a true iPhone subscription service. Imagine a flat $30 monthly fee for the latest Apple flagship–and you get a new flagship every year? Thirty bucks a month over three years is $1,080. Considering people are hanging on to their smartphones that cost less than that for three years or more, wouldn’t it benefit Apple to make a guaranteed grand plus change off of every iPhone owner every three years?

And suddenly Apple’s flagship would go from being one of the most expensive phones to own to one of the cheapest (spread out over three years, of course). Allowing subscribers to access the latest flagship for only 30 bucks a month would also mean these new iPhone subscribers would have the latest tech built-in, which would more likely make them buy the latest apps that take advantage of the tech, and subscribe to other services that go along with the tech–all provided by Apple.

And if you think consumer hardware as a service is an odd thing, major companies are already doing it, such as Microsoft with its Xbox. Realistically, I think it’s unlikely Apple would turn the iPhone into a service, but if the company is serious about combating falling smartphone sales and becoming a services behemoth, it should give it serious consideration.