Did Apple Music Miss the Tipping Point?
In early August of 2015 Apple began a worldwide advertising campaign that followed the release of their new music streaming service, Apple Music. Public spaces in cities from San Fransisco to Tokyo to Mexico City to Toronto were adorned with billboards and posters for Apple Music. Apple, noticing the effects of virtual advertising, also changed the banners of their home webpage to mimic the Apple Music ads. It was clear that Apple knew it was entering a competitive market. Apple Music had to compete with Spotify and Google Music Play, which were launched years before in 2008 and 2013 respectively. A few months after this big push, people have been examining whether Apple was successful in their efforts to gain a stable fraction of the population using their music service.
Apple Music Billboards found in a Tokyo Train Stations and on a NYC road (images source: http://9to5mac.com/2015/08/04/apple-music-billboard-ads-compton/)
Lets put this in terms of the concepts from Networks. As we learned in class, there are multiple equilibriums for an item with network effects. These equilibrium were 0, z’, and z”. Both 0 and z” are stable equilibria and z’ is an unstable equilibrium. Being unstable means that if the fraction of the population that purchase the good is slightly more or less than the equilibrium z’, the demand will be pushed away from z’ to a significant extent. If the fraction is below, the demand decreases until it gets to 0 and if the fraction is above, the demand increases until it settles around the stable equilibrium z”. Because of z’ distinct properties it is also called the tipping point and is an important equilibrium for companies to recognize if they are releasing a new product. When releasing a new product, it is crucial to its success to get a fraction of the population using the product above the tipping point so that the product continues to get successful instead of fails. In a market where a product of a similar type has already been released one strategy is to have a large and effective marketing campaign so that the population believes the product will be successful enough that at least a fraction of the population (greater than the tipping point) invest in the product. Once your product is over the tipping point, the product will continue to increase in popularity because of the upward pressure. Apple seems to have known this strategy and therefore put a lot of effort into advertising Apple Music.
However, the question that remains is whether Apple was able to pass this tipping point. By the end of October, Apple Music only had 6.5 million paying subscribers while Spotify has more than 20 million paying subscribers (purportedly 10 million of which were added in the last year). Some of these 6.5 million were from the original 11 million, who signed up for the free trials that Apple offered in August but have slowly been cancelling once they realize that they are now paying for the service. Additionally, in the beginning of 2015 Americans owned 94 million iPhones that contain the Apple Musics app on their operating system. Even among this huge user base, Apple does not seem to be having much success with Apple Music. This seems to suggest that their marketing still was not sufficient enough to break into the market, compete with Spotify, and get a fraction of the population using their music streaming above the tipping point. We’ll have to continue to watch the demand trends of Apple Music over the next couple of months to be completely sure.
Sources:
- http://www.mediapost.com/publications/article/261082/apple-music-shows-future-of-streaming-is-ad-suppor.html
- http://www.slate.com/blogs/moneybox/2015/10/20/apple_music_has_6_5_million_subscribers_does_that_make_it_a_failure.html