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Apple Roundup: Beating Spotify, HomePod Price, AirPods, A.I. Hire, More

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Apple (AAPL - Free Report) hit some important milestones last week, including moving ahead of Spotify (SPOT - Free Report) in U.S. music subscriptions. It also slashed HomePod prices, announced new products and hired key people. These and other important stories are detailed below-

Overtakes Spotify In The U.S.

Apple Music’s paid monthly subscriptions in the U.S. now exceed that of Spotify, mainly because of its consistently higher growth rates month upon month.

Apple grew at 2.6%-3% a month, ahead of Spotify’s 1.5%-2% in the U.S. As a result, its monthly subscribers reached 28 million, ahead of Spotify’s 26 million, according to WSJ and Reuters citing unidentified sources.

Globally, Apple grew 2.4%-2.8% compared to Spotify’s 2%-2.3% for 50 million paid subscribers, well behind Spotify’s 207 million.

Apple’s advantage is of course in its large installed base, which allowed it to make the service available to billions at a single push.

And that isn’t all. Apple also charges Spotify, like other users of its App Store, a hefty 30% of what they make through it. Apple blocks direct communication flow with its users so they can only upgrade through the app store, which allows Apple to take a cut. It also makes sure that Siri is partial to Apple Music. Spotify has sued Apple in Europe for these anti-competitive practices and Apple has accused Spotify of fleecing artists.  

HomePod Prices Slashed

Apple finally came to its senses and realized that a less capable home speaker device with audiophile-caliber high-fidelity audio isn’t what most people are looking for. Since its launch 14 months ago, the device has underperformed the company’s expectations and left industry watchers somewhat surprised at the company’s lack of foresight.

True that it may have allowed Apple to milk diehard Apple fans and make a neat profit over the high costs that come with a new product launch. But the company’s late entry into a market with well-established products like Alphabet’s (GOOGL - Free Report) Google Home Mini and Amazon (AMZN - Free Report) Dot that were more capable at a fraction of the cost showed that this couldn’t be a long term plan. Especially so given its need to build the installed base to further its goal of metamorphosing into a services company.

The $50 discount is still likely to do little for the device’s popularity, but the $299 price tag at least places it in the same genre as Google Home Max. And there are rumors that the company is planning a Mini-style HomePod that will likely be priced at $150-$200, still a significant a premium to the others that go for around $50 when there isn’t some discount or offer on them.

Apple Leads in AirPods

Apple has however done all the right things in AirPods, a device category it pioneered that some expect will be a $10 billion market by 2023. Apple leads the category with a 60% market share by virtue of its first mover advantage and the limited success of Google’s Pixel Buds.

But Google’s lack of success, attributed to its unsatisfactory charging case, may have just opened the door to a third player: Amazon. It is currently being rumored that Amazon is set to launch a device that mimics Apple’s AirPods in every way except that it comes with the more efficient Alexa rather than Siri, lets you buy stuff from Amazon and focuses on better sound quality.

It is also highly likely that the device will be priced competitively, making it attractive for all those Android users out there. Apple is a closed system, but when the Amazon device launches before the 2019 holidays, it will be in a good position to take market share, even if Google has another iteration of its Pixel Buds out by then and even if Apple plays difficult. Besides, Alexa is also on wireless headphones from other companies like Bose.

Importantly for Amazon, its wireless headphones might give it access to the mobile phone space where it failed to make a mark because of its flopped smartphone effort.  

Apple may, however, hold its leading edge image by virtue of its latest wireless earbuds under the Beats brand. While its AirPods are priced lower, targeting a separate market, the newly launched Powerbeats Pro sports “deep integration between Beats and Apple engineering… features industry-leading battery life, advanced functionality, reliable connectivity, exceptional fit via the signature earhook design and beautiful fidelity," according to a Beats PR. Apple has also been increasing its AI focus, hiring away key Google experts in the space.

Hires Away Google A.I. Executive

In March, Ian Goodfellow, a senior research scientist at Google became director of machine learning inside Apple’s Special Projects Group that works on several of Apple’s secret projects.

With bachelor's and master's degrees in computer science from Stanford University, and a Ph.D. in machine learning from the Université de Montréal, Goodfellow left Google for Tesla (TSLA - Free Report) in mid-2013 only to return in 2017.

His biggest contribution is the creation of an A.I. approach called general adversarial networks, or GANs that can be used to create fake audio and video (“deepfake” media content) used in the process of training an AI system to recognize fakes.

The news became public after Goodfellow updated his LinkedIn profile.

Google’s A.I. chief John Giannandrea has been working at Apple since last year as its SVP of machine learning and AI strategy.

These efforts could help the company improve its assistant Siri although its practice of limiting the amount of information it collects on users is a limiting factor.

News+ Makes Headway

The New York Times reported that the Apple’s News+ service brought over 200,000 subscribers in the first 48 hours of its availability.

News+, which offers access to a catalog of over 300 periodicals at $10 per subscription, is built on the foundation of Texture, a similar service that Apple acquired a year ago.

There’s an initial 1-month testing period, so it’s probably a little soon to comment on its success. But Apple does have a huge installed base that will help it grow numbers. Bundling the service with others or making it available on competing platforms like Android are other options.

The Intel Setback in 5G

On April 4, media reports surfaced that Intel (INTC - Free Report) would be unable to provide the 5G modems for Apple’s 2020 iPhones because of repeated delays in its development.

The original plan was to sell XMM 8160 modem samples to Apple early this year, followed by the complete version in early 2020. But Intel itself pushed that timeline to the second half.

Recent media reports suggest further delays as well as Apple’s attempt to tap other sources while also building its own 5G modem.

But Qualcomm (QCOM - Free Report) is unlikely to offer its technology given the court cases Apple has dragged it through, Samsung and Huawei will likely not have sufficient volumes given their own 5G ambitions, while Mediatek is unsuitable for Apple’s premium devices.

Apple’s internal team is reportedly 1,000-1,200 strong, but its effort is running late with respect to the competition. Even if it buys out Intel’s entire 5G effort as one analyst speculated (it is a less profitable business for Intel), Apple won’t have a 5G phone in 2020. That’s just too bad because most of the competition will ship 5G devices this year.

In India

Apple’s cheaper 64 GB iPhone XR is now available at 59,000 rupees in stores, a steep discount to the 76,900 rupees it still costs online. The exorbitantly priced device does, however, include a hefty luxury tax that is paid to customs when the phones are imported into India.

The government’s goal is to move iPhone production (or at least assembly) into the country where there remains a skill shortage. But Apple supplier Foxconn has been working on this and some media reports suggest that it’s within weeks of commencing production. Assembling the devices inside the country will attract lower customs duty, likely bringing the same profits at something closer to the discounted price.

This is just as well, because the company’s China sales aren’t doing so hot and both Samsung, which sells phones at varying price points and value-for-money Chinese brands are doing rather well in India. Apple needs to do something about now if it is to grow beyond the 1% market share in the world’s fastest-growing smartphone market.


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