The Bundle is Back
From Spotify to Apple News, bundles are back; are they better than ever?
One of the business world's great apocryphal sayings goes something like this: "there are only two ways to make money in business: One is to bundle; the other is unbundle." Netscape founder Marc Andressen attributes it to his buddy Jim Barksdale.
A recent spate of bundling news makes it clear that a new age of bundling is upon us:
Hulu and Spotify announced a $12.99/ mo bundle that includes unlimited access to both services. It's a nice savings, as Hulu (with ads) cost $7.99/ mo and Spotify premium costs $9.99/ mo. It's an expansion of the two companies' partnership: last year, they offered a student bundle for $4.99/ mo.
On the heels of acquiring Texture, "the Netflix of magazines," there are now reports that Apple is working to launch a subscription news in its Apples News app later this year. Apple has recently been pushing to bring in more revenue from its Services (think App Store and Apple Music), so this move fits in line with its broader strategy. Speaking of Apple Music, it was also recently reported that Apple Music now has 40 million subscribers, creeping towards Spotify's 70 million.
Comcast and Netflix announced that customers will soon be able to add a Netflix subscription to new and existing Comcast Xfinity packages.
Medium's Ev Williams wrote about the Medium model, bragging that it's "one of the largest bundles of original content of its type, so it’s a great value for readers." Medium launched its subscription model a year ago, and apparently it's going great (graph without a y-axis be damned).
Jeff Bezos revealed in his annual shareholder letter that Amazon Prime – the bundle of all bundles – has over 100 million subscribers. By tacking on benefits at recently acquired Whole Foods, the scope of the Prime bundle continues to expand.
In addition to Netflix and Spotify proving that subscription bundles can work, the recent fire Facebook and other ad-driven companies have come under has give the bundle even greater tail winds.
Meanwhile, with the official launch of ESPN+, the sports broadcasting giant has dipped its toes in the water of the over-the-top future, albeit cautiously. ESPN won't offer many of its flagship sporting events on ESPN+, indicating a reluctance to fully embrace a digital future. Despite staff upheaval and non-stop talk of "cord cutters," ESPN's cable TV business remains profitable. Further, ESPN owns (and continues to bid on future) rights to sporting events, meaning it has an intellectual property moat that others don't necessarily have. Sporting events need to be seen live, while very few other events do. As such, ESPN doesn't want to make the shift to digital too soon, thereby undercutting its existing cable business before it needs to do so.
Really though, the pendulum swinging from bundled to unbundled and back again is a reflection of the underlying technology: in the early 2000s we all carried around individual songs on our iPods. They took forever to update – and we had to hardwire the iPod into our PC – so it was fine if we just bought a few songs. Then, as cloud storage and streaming became technically (and economically) feasible, consumers shifted to streaming services. Chris Dixon has a great explainer on bundling economics here, but the conclusion is this: in the end, bundling is beneficial for buyers and sellers.
But, bundling can also be used as an anti-competitive mechanism. I recently warned that Google's Chrome ad-blocker may be an attempt to do this:
This forced tying of products together is what often gets monopolies in trouble with the law, in one way or another. AT&T’s attempt to force consumers to buy its own phones and network attachments was eventually deemed unreasonable and unnecessary by the FCC. Similarly, Microsoft’s attempt to bundle Internet Explorer with the OS eventually caught the DOJ’s attention, leading to a landmark antitrust case. And now Google is attempting to leverage its browser to squeeze the ad blocker market.
Of course, Spotify is nowhere near anti-competitive behavior: it's not even profitable, and tech giants like Apple and Amazon are nipping at its heels. In fact, the bigger anti-competitive worry is these tech giants that can bundle together any number of services making it almost impossible for startups to compete.
THAT'S NOT (WAY)FAIR
On Tuesday, the Supreme Court heard oral arguments in South Dakota v. Wayfair. It's a case on whether to overrule a 1992 decision that prohibits individual states from requiring out-of-state retailers that do not have a physical presence in the state to collect tax on sales to state residents. States claim they're losing massive tax revenue. Online retailers are concerned about a patchwork system of state and local taxes, making it hard for them to efficiently conduct business. Since you asked, Amazon already collects sales tax when it sells its inventory through Amazon.com, but when third-party retailers sell through the Amazon Marketplace, the company leaves it up to them to collect the sales tax. Most probably don't.
Even this Amazon example illustrates that large companies may be better able to collect local tax revenue, and it might be more difficult for small companies or merchants to collect the sales tax, robbing the smaller merchants of a single national marketplace. Thankfully, it seems as though our President has a handle on the matter:
☁️ Microsoft dismissed, but a cloudy future. With the hasty passing of the CLOUD Act, the Supreme Court dismissed a long-running dispute between Microsoft and the Department of Justice that had made it all the way to the Supreme Court. The CLOUD Act clarifies that warrants for data held by service providers like Microsoft and Google reach data stored anywhere in the world. But, questions over whether Microsoft will challenge the new warrant issued under the CLOUD Act and how foreign governments will react to the new, hastily enacted legislation leaves the potential high for fresh disputes to surface.
The new legislation authorizes the U.S. to enter into bilateral data-sharing agreements for law enforcement purposes, while allowing service providers to move to quash a warrant if they believe there is a “material risk” that the request would violate the laws of a foreign government.
This sets the CLOUD Act on a collision course with international privacy laws like the EU's forthcoming GDPR. Meanwhile,
Meanwhile, the EU has introduced a similar law, that allow European prosecutors to force companies to turn over data such as emails, text messages and pictures stored online in another country, within 10 days or as little as six hours in urgent cases (Reuters).
👮♂️ FCC adviser arrested. Perhaps taking a cue from her boss, broadband adviser Elizabeth Pierce was arrested on charges of tricking investors to dump $250m into a fiber optic scheme by faking contracts (The Verge).
🔑 Post hoc, ergo proper hoc. Visualizing errors and manipulation in logical thinking.Oh, and also it's "raise the question," not "beg the question."