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Apple to Offer Subscription Service and Subscription-Based Mac

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In the last year, two of the enduring rumors that swirled around Apple have come true: the Beatles appearing in the iTunes Store and the iPhone coming to Verizon Wireless. The fact that those rumors survived so long is a testament to how much sense they made — of course there should be a Verizon iPhone and of course The Beatles should be in iTunes. But they didn’t happen until Apple could iron out all the licensing issues and technical quirks.

By this time next year, another enduring rumor will be realized: iTunes subscriptions. Since the launch of the iTunes Store, there has been speculation that Apple would offer a subscription option alongside the à la carte sales. Some small movement in that direction happened with movie and TV show rentals from the iTunes Store, but that was just a warmup for the real goal, an all-encompassing subscription service tentatively called the Apple Plan.

Put simply, the Apple Plan bundles together everything you do on your Mac or iOS device for a monthly fee. And when I say “everything,” I mean everything. The Apple Plan includes a metered 4G mobile broadband data plan, over which you can stream music, movies, TV shows, audiobooks, and even ebooks — basically anything that’s available in the iTunes Store or the iBookstore. But that’s not all — you can also download and use any apps from the App Store or the Mac App Store that you want (assuming the developer has agreed that their app can be rented instead of purchased outright).

The Apple Plan won’t be cheap, because it has the potential to replace your Internet service (say, $50 per month), one or more cell data plans (another $15 to $60 per month), Netflix ($10 per month), Pandora or Rdio ($3 to $10 per month), Audible ($15 to $23 per month), and Booksfree ($14 to $50 per month). Our sources say that pricing hasn’t yet been decided, but will probably run $200 to $250 per month. It’s also likely that Apple will allow Apple Plan users to pick and choose what they want to subscribe to; that too remains undecided, but would enable customers to swap Apple’s metered 4G data plan for existing broadband cable or DSL access.

The Apple Plan is audacious enough on its own, but Apple is taking it even further, having learned from the success of the iPhone and iPad. From a user perspective, having to pay for upgrades constantly is a pain, and dealing with the issues related to backup and moving to new computers is even more so. And from a business perspective, Apple is willing to trade a bit of hardware margin in exchange for ongoing subscription revenues.

So look for a new MacBook Air-like machine to debut in the next year, perhaps in time for the holiday buying season. It won’t be particularly unusual in terms of its hardware specs, other than the addition of a 4G wireless chipset, but what will set it apart is a $99 price designed to woo people still relying on old PCs running Windows XP. Like inexpensive mobile phones, the hardware may be cheap, but it will require a two-year Apple Plan, which is where Apple will make up the difference on selling price. In a move sure to generate exabytes of online controversy, it won’t be possible to install software on this Mac other than via the Mac App Store; for Apple to justify the low selling cost, the company has to be certain that it gets a cut of all software revenue.

Also certain to cause controversy is Apple’s revenue-sharing approach with the Apple Plan. Since Apple controls the entire platform and the iTunes account through which the Apple Plan is mediated, monthly revenues after bandwidth fees and some base amount to cover hardware costs will be based entirely on usage time, with Apple’s traditional 70/30 split. A background process will keep track of which subscribed items are in active use.

For instance, let’s assume that the Apple Plan costs $250 per month after bandwidth fees, and Apple keeps $100 of that to pay for the hardware. (Obviously, if you’re buying the Apple Plan for use with existing machines, you wouldn’t be paying for the hardware.) Of the remaining $150, Apple would keep 30 percent and divvy 70 percent up between all the apps and media consumed during that month, based on the amount of time you spent using each app, reading each book, listening to each song, and watching each movie. Also worked into the equation is the “list” price of each item, so if you spend an hour reading a $9.99 book, that book would earn a larger chunk of your monthly payment than would an hour-long TV show priced at $1.99. In essence, you’re paying for where your attention is, with media playing in the background as the only exception.

You can see why deciding on final pricing is so tough, since Apple is trying to make the Apple Plan as affordable as possible while still ensuring that the movie studios, recording artists, book publishers, and app developers all earn enough money to agree to the scheme. Nonetheless, the company’s hope is to be able to offer the entire contents of the iTunes Store and iBookstore at launch, along with a large percentage of the App Store and Mac App Store. From the customer perspective, though, if the Apple Plan can replace enough other services, the simplicity of a single service and bill and the ability to explore music, video, books, and apps without per-item charges is a compelling combination.

Finally, expect to see a firestorm of controversy surrounding the question of whether it’s acceptable to allow a single company so much dominance over our culture. The now-rejected Google Books settlement has nothing on the hackles that the Apple Plan will raise among cultural critics and commentators (see “Judge Rejects Google Books Settlement,” 24 March 2011). But if Apple’s track record over the last decade is any indication, the Apple Plan is also going to be a massive hit and will ensure the company’s lasting dominance.

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