Post-Jobs Apple to profit from content and services, not just gadgets

  • Opinion - Chicago (IL) - You were probably underwhelmed a little bit with yesterday's Macworld 2009 keynote, given by Apple's marketing chief Phil Schiller. But truthfully, it wasn't the man's fault at all. Apple warned all of us well in advance that Jobs would not deliver the keynote. If anything, yesterday's keynote was a well-received wakeup call. It's a time for us to begin considering the post-Jobs Apple, and what such a face would look like.

    Apple's exit from Macworld marks an end of an era, but also beginning of something new for Apple. The company will keep making great gadgets, it just won't unveil them come every January. Yesterday's keynote taught us of two new trends at Apple - content and services. Both of these might contribute significantly to the company's bottom line in a post-Jobs era.

    It is easy to blame Apple for the lack of more substantial product upgrades at Macworld this year, and the lack of "one more thing" moments. Sure, new iLife '09 rocks, but many were holding our fingers crossed for a $600 Mac netbook or iPhone nano. Neither of them came to fruition. There were no hardware upgrades beyond the new 17-inch MacBook Pro, which admittedly brought the entire line of Mac portables into full view.

    Apple also failed to update Mac Mini and iMac with better storage, Nvidia graphics and speedier processors. This doesn't mean these upgrades aren't coming soon via special media events that now serve as company's main promotional vehicle (in place of Macworld). For instance, new iPods and unibody Macbooks were introduced in September and October respectively at Apple's headquarters, where Steve Jobs delivered a presentation for a select group of journalists while streaming the event later on its web site.

    No one should be surprised that Schiller didn't even mention OS X Snow Leopard, let alone give a demo of the upcoming operating system. Many thought it would be a no-brainer since Apple targets first half of the year as the release date. Apple could unveil Snow Leopard at its developer conference this coming summer, but an earlier introduction via special media event is also possible.

    Apple might release Snow Leopard with a press release and promote it entirely on its web site and in Apple retail stores. Since Snow Leopard "pauses on innovation" and focuses on speed, it makes sense that it will not be a feature-packed release like Leopard anyway.

    End of an era

    The lack of mentioned products at Macworld marks an end of an era, but also the beginning of something new for Apple.

    Apple is not a niche player anymore. With market cap that surpasses Google, nearly $30 billion in bank, no debt and fast-growing Mac and iPhone businesses in addition to music market dominance with iPod and iTunes, Apple is now a global corporation and a media powerhouse. Companies of Apple's size typically resort to their own media events to push products instead of trade shows. And, Apple is no exception.

    Macworld hype has become too big for Apple to handle. We have seen it in a roller-coaster ride of the stock price both before and after the Macworld keynote. Apple's Macworld exit is a part of the company's move toward a post-Jobs era.

    The transition process has been going on throughout past two years as Jobs has been gradually pushing several executives under the spotlight - namely design guru Jonathan Ive, marketing honcho Phil Schiller and operations chief Timothy Cook who all shared stage with Jobs during Apple's product launches.

    Apple is a media powerhouse, and iTunes will become a music label

    The new Apple is putting stronger emphasis on content and services to create new revenue streams. Apple's authority in Hollywood was never questioned and its influence in the entertainment industry has been growing steadily. For instance, four major labels agreed to give iTunes DRM-free music, which clearly shows that the music industry gave up trying to grow the iTunes competitor.

    Carriers too have had to bend a little as Apple recently allowed iPhone music purchases over 3G cellular networks. Carriers previously didn't allow music purchases over their networks fearing iTunes would cut into their own ringtone and music sales services.

    With iTunes now #1 music retailer in the U.S., some analysts even expect Apple will monetize its position by turning iTunes into a digital-only music label.

    Apple to monetize on online services

    Apple is also exploring other types of content beyond music and movies. The most recent example is celebrity playing/music lessons offered for $4.99 each directly in Garage Band '09 through the built-in content store. This is the first time Apple integrated paid content into an application (if we exclude iTunes).

    It is the beginning of a new trend so expect soon to see animated backgrounds and themes sales directly from within iMovie, Keynote, FinalCut Pro and other creative applications.

    And finally, Apple is exploring revenue streams in the online services arena as well. Last summer the company launched MobileMe suite of online services with $40GB of online storage and content syncing across iPhones and desktop computers for $99 annually. The new iWork '09 unveiled yesterday now comes with a companion free beta service for sharing and viewing documents online at iWork.com.

    When the service comes out of beta, it will likely add online editing capabilities as a paid upgrade. There are also rumors about Apple-branded search engine.


    Conclusion

    While Apple is only dipping its toes into web applications today, MobileMe and iWork.com show that the company has a plan in place to monetize online services. The business model doesn't evolve around free services backed by advertising like with Google and Yahoo. Instead, Apple appears to have borrowed Microsoft's software-and-a-service approach, where paid online services extend capabilities of desktop software, instead of replacing its functionality completely.

    It remains to be seen if premium content like Garage Band playing lessons and paid online service like MobileMe and iWork.com could impact Apple's bottom line in the future. One thing is certain: Apple is not treating content and services like an annoying necessity as many others do.

    Instead, the company is cleverly integrating both into its broader ecosystem, one that marries gadgets, entertainment and services all working together seamlessly, in the Apple tradition.

    The opinions expressed in this commentary are solely those of the author.