Td;lr - Apple Services was designed as margin manipulator. Sorry I couldn't get the post any shorter.
Agree on the quality of Apple Services. All of these problems and questions requires first looking into Apple Services Revenue.
Both App Store Revenue and Google Placement are nearly 100% margin. Popular belief is that Apple only makes 20% margin on App Store because that is what they took as cuts. In reality App Store Apple only book their 30% / 15% cut as revenue, and nothing else from Gross Margin Stand point other than payment processing. Google Search Engine placement deals are also ~100% margin. Both of these Revenue has been growing, and they are literally, pure profits.
And a reminder, Apple report Gross Margin of its Services Revenue as 60-70% over the past few years. ( I remember they only start giving out this numbers in 2016 / 2017 )
Apple foresee that problem fairly early on. You cant tell the world we have services revenue of 9x% Gross Profit. They need something, something to help dilute down those margin. And First enter Apple Music ( 2015, although the acquisition of Beats happened in 2014 ).
Music Streaming Services are basically a thin margin Business. 75% of your monthly subscription are payment to Labels, regardless of how many minutes your customer listens to and how many customers you have. For Apple, they pay a little higher than ~75% which is what Spotify pays, and gets a good PR with paying more to help out artist. They then end up with a Gross 20% Margin Services, or even less as they could also afford to give out more free trails and student discounts. I would not be surprised if it was running at at lost in the early days.
Then there is iCloud. Remember when iCloud used to cost more than Google? That make sense because Google and Microsoft have their own DC for storage and gets better unit cost. While Apple, tends to ( and AFAIK continue to ) use GCP, Azure and AWS for their iCloud Storage. In 2015 they announced their new pricing and stay competitive with Google. And has been pushing its users to iCloud Backup. iCloud also has a clear Unit Cost and are low margin business, this also helps Apple to dilute its Services Revenue Margin.
And you get the idea, it is the same with Apple News+ ( Cost per Article Read ). Basically Apple could afford to offer services to its customers running at very low margin or at cost.
So What about Apple TV+ and Apple Arcade? They have zero on going cost, Apple pays TV / Movie up front, along with Games inside the Arcade. This is a large up front investment, which ( on the surface ) goes well with Apple Cash pile sitting there doing nothing. With Apple TV+, Apple could afford to give you a year worth of free services. It doesn't cost them anything as they are already paid down. ( I believe there will be a small percentage of Arcade paying to studios as on going maintenance, so you dont see Apple giving out Apple Arcade for free like Apple TV+, only three months trial )
If Apple could get enough customers to pay for Apple TV+, as long as it reach above their initial / ongoing investment, they would have profits, aka Netflix. But that is not what Apple is doing here. It was part of the Apple One plan.
Apple could not simply bundle iCloud and Apple Music together and give you discount on the bundling. There are no margin left to lower price. But if you throw in Apple TV+ and Apple Arcade, all of a sudden the bundle offer more value ( on the surface ). As they could afford to lower price. In the Apple One Individual bundle, Apple is essentially offering Apple TV+ and Apple Arcade at half the price.
In 2018 / 2019, Apple also put $10 per iPhone / iPad / Apple TV / Apple Watch sold towards Services as their OS and Maps and Siri usage cost. All of a sudden Apple can now start putting lots of things into Services segment as cost.
Which leads to IAP. You need both All Margin Business to grow as well as Thin Margin. That is why you start seeing Apple's aggressive push into IAP in the past 2 years.
And hopefully you see, it doesn't seems Apple started any of these because they think they could contribute. ( A word Steve Jobs like to use when he enters into a new market ). They are doing it because strategically it makes financial sense. They didn't do it because they think they could do it better, or doing it because it is part of their integral product services ( iTunes ), They are doing it for profits. Which before you hit the downvote button, is nothing wrong with going for profits.
And notes, Apple Music aren't exactly a wild success as most have predicted and writing. When you have 1 Billion Customers that is of the highest paying / purchasing power segment, and only manage to achieve half of Spotify customers.
There is a Huge difference between having a Product / Services with a Go to Market Strategy and Go to Market Strategy with a Product and Services. And Steve Jobs sums it best,
“When you have a monopoly market share, the people who can make the company more successful are sales and marketing people, and they end up running the companies, the product people get driven out of the decision making forums.
Companies forget what it takes to make great products. The product sensibility, the product genius that brought them to this monopolistic position is rotted out... The people running these companies have no conception of a good product versus a bad product. They've got no conception of the craftsmanship that's required to take a good idea and turn it into a good product. They really have no feeling in their heart about wanting to really help the customers”
I would bet money if Steve Jobs were alive, Apple Music wouldn't have started out with the Stupid "Next Song" Design. Which after a few years they finally steer away from it. Apple / We are lucky to have Steve picked up many B&W audio engineers before Beats got to Apple and makes every speaker / headphone with heavy Bass. Apple TV+ would have made a bet and leap of faith together with Disney to make one of the best Streaming services that we would all rejoice. Unfortunately, he is gone.