Unless you live under a technological rock you’ve probably heard that Apple (NASDAQ: AAPL ) announced its next mobile operating system iOS 8. The company has improved the software by adding requested features like third party keyboard support an upgraded iCloud Drive, and increased connections between the iPhone, iPad, and Mac. Unfortunately, iOS 8 could actually hurt iTunes revenue growth, which has been one of the company’s fastest growing divisions. This is just one of the issues facing iOS 8, and Apple investors need to worry about two other problems as well.
Totally missing the point
The first issue facing iOS 8 is something that Apple calls an improvement on text messaging. In iOS 8, users will have the ability to add voice to messages. In addition, users can hold the phone to their ear and hear recorded messages just like a phone call.
This is a feature missing in both Android Kit Kat by Google (NASDAQ: GOOG ) and Windows Phone 8 by Microsoft (NASDAQ: MSFT ) . Both operating systems have similar text messaging options, but recording a user’s voice isn’t one of them. The question investors need to ask is, has Apple missed the point completely when it comes to text?
One of the key benefits of text messages is the ability to discreetly communicate. Users send texts hundreds of thousands of times in situations where they couldn’t have a voice conversation. In addition, many times texts are faster and a more efficient way of communicating than a voice call.
If a user is in a business meeting, is it appropriate for them to record their voice into a text? If you are watching a movie in a theater, is this the time to record their voice? An even better question is, why would a user record their voice into a text instead of just making a call? The point is, Apple has been accused of being out of touch with what users want, using voice in a text message seems to be a good example of an out of touch “improvement.”
Revenue driving away
The second issue facing Apple, is the company’s change to iCloud could hurt the company’s potential revenue from the service in the future. Currently, iCloud is a service that only houses iPhone and iPad backups as well as documents from iWork. The service is relatively limited in scope because if users aren’t fully bought into iWork, their storage is essentially a backup and little else.
The good news for users is, iCloud is going to become iCloud Drive, and will be able to store any type of document. This should be great news for Apple as it can go head to head with Google Drive, and Microsoft’s OneDrive. However, the online storage battle is heating up and this seems like a battle where no one wins.
iCloud Drive is expected to offer 5GB of free storage, with 20GB pricing at $0.99, and 200GB at $3.99 per month. By comparison, Google Drive offers three times the free storage at 15GB, and 100GB is just $1.99 per month. Microsoft’s OneDrive is now offering 15GB for free, and 100GB is also $1.99 per month.
The point is, Google and Microsoft still offer three times the free storage, and their 100GB pricing seems like a far better value than Apple’s 20 GB deal.
Everyone shares, but Apple loses
The third issue facing Apple with iOS 8 is something that is great news for users and yet could hurt one of Apple’s fastest growing businesses. ITunes Family Sharing has the potential to seriously harm Apple’s revenue stream from this important and growing business. ITunes has grown at a double digit rate for the last few quarters, and generates over $4 billion (about 10% of revenue) for the company.
By comparison, Google’s “Other” business generated just over $1.5 billion in revenue for the company, and while it is growing faster than iTunes, Google Play doesn’t allow sharing purchases. In the same manner, Windows App Store is a small piece of Microsoft’s revenue pie.
With Windows OEM, Office 365, Xbox, and Bing are all huge revenue drivers, the Windows App Store is a fledgling operation and by all accounts offers a far smaller selection of apps than iTunes or Google Play.
The great news for iTunes users is, they will soon be able to share apps, music, and more through Family Sharing. With up to six people allowed to share content, the issue seems obvious. These six people would have been required to make separate purchases before. Now, it may be the case with iOS 8 that one purchase will allow the app, music, or video to be shared by all.
It seems obvious that Apple is trying to improve its operating system, but voice inside of texts is a questionable “improvement.” In addition, with each improvement comes new challenges as well. Given that changes in iCloud Drive and Family Sharing seem to directly threaten Apple’s revenue growth, investors have plenty to worry about.
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3 Issues Facing Apple Inc’s iOS 8 – Motley Fool