Apple, Bundling, and Media
In last Tuesday’s Marketing BS links email, I mentioned that Apple will introduce new bundles for their digital services. An article in Bloomberg shared preliminary details about the bundles, which will (probably) be announced in early October:
There will be different tiers... A basic package will include Apple Music and Apple TV+, while a more expensive variation will have those two services and the Apple Arcade gaming service. The next tier will add Apple News+, followed by a pricier bundle with extra iCloud storage for files and photos. … [T]he goal is to offer groups of services at lower prices than would be charged if consumers subscribed to each offering individually.
Bundles have a bad reputation. As one of the most infamous examples, television cable bundles force customers to pay for hundreds of channels they never watch. Many people also criticize the overt commercialism of bundles — they encourage unnecessary consumption (or, in the case of food, unhealthy overeating). McDonald’s Combo Meals bundle together burgers along with fries and a drink. For “just a few cents more,” customers can receive more food than they originally intended to order (a problem that is exacerbated by “supersize” promotions).
But when bundles are properly structured, they can actually create a win-win-win opportunity for bundlers, producers, AND consumers — especially for low marginal cost products. Digital services, like Apple’s various offerings, fall directly into that bucket.
Shishir Mehrotra (CEO/founder of Coda, a shared document company) is a leading thinker on bundle-related strategies. Mehrotra developed his bundling expertise during six years at Google, where he implemented plans to monetize YouTube. In his pivotal white paper — “The Four Myths of Bundling” — Mehrotra refutes common misconceptions about bundling:
Myth 1: Bundling is bad for consumers
Myth 2: Revenue from bundles should be allocated by usage
Myth 3: Bundles feel like a rip-off because they represent lack of choice
Myth 4: The best bundles have very similar products so they make sense to consumers
I believe the entire paper is worth reading, but for this essay I want to explore his idea that products have three categories of prospective customers: “NonFans,” “Casual Fans,” and SuperFans”:
NonFans are flat out not interested in your product. These are people who don’t read when you are selling books or don’t listen to music when you are promoting audio streaming platforms.
Casual Fans (or just Fans) might value your product, but they are limited by (1) a lack of drive to go find your product, and/or (2) a lack of willingness to pay full price for your product.
SuperFans will seek out your product (making them “early adopters,” to use the term coined by Everett Rogers). Additionally, SuperFans are price insensitive — they are usually willing to pay full price for something they want.
Understanding customer heterogeneity should be a fundamental part of your bundle strategy. When building a bundle, you want to simultaneously achieve two goals:
Maximize Fan overlap
Minimize SuperFan overlap
Imagine you are bundling two products, like bungee jumping and skydiving. A SuperFan of both of those activities would be willing to pay full price for bungee jumping AND full price for skydiving. If you were to bundle those two activities together — for a discounted price — then you would be giving up revenue that you would have otherwise earned.
On the other side of the customer divide, NonFans are irrelevant to bundling strategies. If a person hates all thrill-seeking activities, then it doesn’t matter what you charge for bungee jumping and/or skydiving — inside or outside of a bundle. Quite simply, the NonFan will not pay any amount of money to jump off or out of anything (and they probably wouldn’t ever jump, even if those activities were free).
But here’s the sweet spot: if a customer is a SuperFan of bungee jumping and a Fan of skydiving, then a bundle CAN entice that customer to buy a skydiving trip as part of a thrill-seeking bundle. In other words, despite the fact that the customer would have passed on skydiving when it was offered at full price, they could be persuaded to purchase a bundle that included skydiving at a discounted price. Plus, even a customer who is a Casual (not Super) Fan of both bungee jumping and skydiving might find that a bundle of the two activities brings their combined price down to a level that the person is willing to pay.
Let’s apply these ideas to Apple. Here are the monthly US prices for Apple’s digital services:
Apple Music, $10
Apple TV+, $5
Apple Arcade, $5
Apple News+, $10
I am SuperFan of Music (willing to pay the full $10), a Fan of TV+ (would buy at $3), a Fan of Arcade (would buy at $3), and a NonFan of News+ (I would not pay any amount of money). Under the current pricing scheme, Music is the only service that I would buy at the standard price, but I WOULD be willing to spend $16 for a bundle that included Music, TV+, and Arcade. (News+ would be irrelevant to my decision).
When designing a bundle, you need to consider the dynamics of Fans and SuperFans. The products in a bundle should be similar enough that they share Fans — but not too similar that they have overlapping SuperFans. If most people who are interested in Apple products are SuperFans willing to pay full price for Music ($10), TV+ (5$), and Arcade ($5), then bundling the three services together for $16 will COST Apple the $4 price difference. For a successful bundling strategy, Apple needs to make up that $4 through customers other than SuperFans — and because they can ignore NonFans, the success of their plan hinges on Casual Fans.
Apples and jobs
Why does Apple believe that their still-to-be-announced bundle will (1) maximize the number of Fans who are interested in some combination of Music, TV+, Arcade, and News+, and also (2) minimize the number of SuperFans who would otherwise pay full price for multiple products? One answer: they haven’t thought about their bundles in this way. Perhaps someone on Apple’s product team simply decided to bundle their digital services together because that seems to be what other companies do (it would not be the first time a corporate decision was made for that reason).
But let’s give Apple the benefit of the doubt and assume they have analyzed their prospective customers in terms of fandom.
Here is one effective way to optimize Fan overlap: consider “jobs to be done.”
Harvard professor Clayton Christensen popularized the idea of the “job to be done” in The Innovator's Solution (the follow up to his iconic book, The Innovator's Dilemma). Instead of emphasizing what a product DOES, the job-to-be-done concept focuses on the underlying problem the product SOLVES. According to this theory, you don’t subscribe to Netflix for on-demand movies and television; instead, you pay Netflix to solve the “entertain me” job to be done. To this end, Netflix CEO Reed Hastings believes that other TV platforms are not his biggest rivals: “We compete with (and lose to) Fortnite more than HBO.” Netflix and Epic Games (which developed Fortnite) both compete for the “entertain me” job to be done.
Under this structure, you should design bundles that fulfill two ideas:
A package of products that all help achieve the same job to be done, such as “entertain me.” This should appeal to overlapping sets of Fans.
Multiple modalities for solving the problem, such as movies, games, and podcasts. This will attract different groups of SuperFans.
With that idea in mind, you can understand the logic behind Apple’s bundles: Music, TV+, and Arcade all solve the “entertain me” job through different formats. In obvious ways, Apple TV+ directly competes with Netflix in terms of video entertainment streaming, but Apple’s new bundle will also compete with Netflix in the broader “entertain me” job to be done.
So how do we explain the inclusion of Apple News+ in the bundle? Using the job-to-be-done concept, Apple is not thinking about News+ as a source for “information.” Instead, Apple News+ is one more modality targeting the job of “entertain me.” Apple’s decision to include News+ makes sense. A SuperFan looking to solve the problem of “inform me” is unlikely to subscribe to Apple News+ (which only offers a limited collection of news stories). Instead, news-loving SuperFans will seek out the New York Times, Wall Street Journal, etc.
Thinking about bundles this way helps us better understand the broader media landscape.
Marc Andreessen (founder of Netscape and VC firm a16z) famously quipped “there are only two ways to make money in business: The first is to bundle. The second is to unbundle.” (Side note: The story behind the quote is amazing).
Media companies have, for a long time, excelled at developing bundles. Cable television companies bundle together channels (appealing to Fans of TV), including niche channels that specialize in diverse content and genres (attracting different groups of SuperFans for each type). Most people consider The New York Times to be “just” a news publication. But the Times bundles their news subscriptions together with recipes and games — both of which you can also buy à la carte without paying for the news.
Disney bundles their digital content in a few ways. The Disney+ subscription includes access to movies and television from Star Wars, Pixar, Marvel, National Geographic, and Disney brands. Additionally, Disney offers a bundle that combines the on-demand collection of Disney+ along with the live (and on-demand) content from Hulu and ESPN+. I’ll leave you to consider whether Disney’s options match the thesis that effective bundles should offer a package of products that (1) align with one job to be done, and (2) use multiple modalities for solving the problem.
Even straightforward newspapers — without any recipes, games, or multimedia bells and whistles — can be viewed as a bundle. Newspapers combine a mix of local news, national news, sports, human interest stories, comics, and opinions.
When Marc Andreessen noted that unbundling is a way to make money, he was certainly referring to the innovators and disruptors — not the establishment companies being unbundled. For the newspaper industry, the process of unbundling has been extremely painful. Just think about what’s happening to various sections of the newspaper. In the late 1990s, the value of the classifieds section was taken away by Craigslist (and later Autotrader, Zillow, and dozens of others). More recently, even the core sections of the newspaper are facing stiff competition from specialized rivals. Sports fans are shifting to new platforms like The Ringer and The Athletic. The New York Times’ comprehensive analysis of national news has taken away the opportunity for smaller outlets to express their perspectives. Blogs and social media are supplanting local news coverage. Even the funny pages have lost their place as people’s favourite source for laughs — the internet offers unlimited comedy.
Unbundling is a powerful force; no one should be surprised that newspapers’ business model is failing. (Notice that I didn’t even need to mention the impact of Facebook or Google, two companies that are regularly — but incorrectly — blamed as the primary driver for the decline of local media).
The latest “unbundling attacks” on newspapers are targeting the opinion section and star columnists.
As one example, conservative commentator Andrew Sullivan left New York Magazine in mid-July; he quickly launched a paywalled newsletter on the Substack platform. In a post on The Diff, Byrne Hobart mused about what happens when staff writers go out on their own:
Sure, Andrew Sullivan can quit New York Magazine and instantly have a six- or seven-figure subscription income... But if every writer at NYMag quits, and they all charge $5/month, the cost of recreating the magazine is multiples of what it costs to subscribe. To get a year of Andrew Sullivan, you pay $50/year. To get a year of everyone-left-now-that-he’s-quit, you pay… $20/year for your first year, and $60 thereafter.
Marketing BS is also published on Substack. Since the platform’s 2017 launch, they have allowed dozens of writers to turn newsletters into personal subscription businesses. Critics have highlighted a problem with the trend of people monetizing their own content. Although some consumers are willing to pay $50-$200/year for one or two subscriptions, very few people would even consider paying for more than two subscriptions, let alone a dozen. And the data supports that perspective.
Take a look at the distribution of paid subscribers to traditional news outlets. (The chart presents information for households with high income, but the numbers look similar for households with college degrees or households “highly interested in the news”).
More than half of the consumers who pay for news — and have high disposable income — only subscribe to a single news organization. Fewer than 2% of those consumers subscribe to more than five. Cost is a reasonable explanation for people’s hesitation to sign up for multiple news outlets; if you drop $100 here and $100 there, pretty soon you are talking about real money. Time is another concern. I suspect that few subscribers to The Economist find the time to read each issue cover to cover. If they can’t keep up with the content they’ve already paid for, why would they pay for another subscription? (To help save you time, I’ve started sharing the most important articles from each week in Marketing BS’s Tuesday links email).
Following the hostile unbundling of the newspaper industry, many of the upstarts are actually “re-bundling” content. For example, TripAdvisor features tips and services for travel, Zillow offers information for every part of the real estate process, and The Athletic spans sports commentary from various cities and leagues.
We should anticipate a countervailing force attempting to re-bundle what has been unbundled. An article in Columbia Journalism Review makes an excellent argument that local papers should bundle with The Washington Post. The Local Media Consortium (with support from the Google News Initiative) is preparing to launch The Matchup — a platform that features “the best sports content from local media outlets all over the U.S., covering professional and college sports with depth and hometown insight.”
But the bundling/re-bundling of opinion writers is different. In contrast to what’s happened with travel, real estate, and sports content, the changes to the opinion-related landscape are taking place at breakneck speed. On Substack, writers are already forming bundles. The two most prominent examples are Everything (a bundle of strategy/productivity newsletters) and The Dispatch (a bundle of non-partisan political and general news, “informed by conservative principles”).
What’s the key to making any of these new opinion-related content bundles work? A clear focus on the “job to be done” paradigm. No one subscribes — and pays — to receive content for content’s sake. Every single day, the world creates more free content than any human could ever consume. Competing on the “entertain me” job to be done will pit these opinion writers against titans like Netflix and Apple. As such, any publication that wants to move beyond personality-driven growth needs to look hard at what “job” they are doing and what problem they are solving.
In closing, I would like to connect the ideas from today’s essay to a meta-commentary about my goals with Marketing BS.
Here are some of my thoughts:
In terms of an “entertain me” job to be done, my writing will never surpass a classic episode of Game of Thrones (though I might actually offer a “more enjoyable per unit of time” than the final season …).
In terms of an “inform me” job to be done, I can’t compete with the business coverage in The Wall Street Journal or The Economist.
As a job to be done, I can offer “help for marketers (or teams) to become more effective at accelerating their businesses and/or careers.” And at the risk of boldness, I think I can provide that service better than any other publication currently available.
When I launched Marketing BS in spring 2019, I expected to follow Ben Thompson’s model for Stratechery: publish one main essay every Monday, along with additional essays on every other weekday.
But I’ve come around to Apple’s strategy of “different ways to solve the job to be done.” A bundle of more Marketing BS essays would not be the ideal bundle to attract the heterogeneous SuperFans among you. Instead, I am excited to share multiple product TYPES that all solve the same NEED. I’ve already launched one of those products — the Tuesday email with a roundup of links to important news from the previous week. For a third “modality,” I’ve started recording podcast interviews with successful CMOs (coming soon!)
Thanks so much for being a Fan of the “Third Way” marketing concept. I hope that many of you are also SuperFans of (at least) one of the new modalities for the Marketing BS community.
The links email will hit your inbox tomorrow morning. Lots more surprises in the next couple of weeks.
Keep it simple,
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Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.