An iPhone subscription would once have sounded like a bad joke. But these days it is a growing reality.
Apple has long been facing a problem. The largest cash cow is the iPhone, which historically generates the majority of the company's revenue. But where people once bought a new iPhone every couple of years on average, that upgrade cycle has been gradually extended. It is now within 3-4 years for the average buyer …
It's not an Apple-specific thing. The smartphone market as a whole has been either flat or in decline for some time because the technology is quite mature. Consumers are looking at incremental changes from year to year, and many do not see a compelling reason to upgrade from their existing model.
If we look at iPhones specifically, the iPhone 6 gave a big boost to sales. There had been a lot of demand for larger iPhones, and the iPhone 6 was loosening it.
The iPhone X could have had a similar impact and offer a whole new design language, but consumers were discouraged by the high price, so all that did was keep sales on a consistent keel. Keeping Apple's iPhone revenue flat at a time when the market as a whole was going down.
The iPhone 11 has clearly sold well. Apple tops its guidance for the July-September quarter, and iPhone revenue climbed back above 50% again after falling to 48% in July for the first time since 2012. But the company doesn't want to rely on those occasional blips – models that persuade a certain proportion of customers to upgrade after three years rather than four. What it wants is reliable, recurring revenue from iPhone sales. And it really wants customers to return to upgrade every couple of years.
iPhone upgrade program
The company played a big role in this when it launched the iPhone upgrade program back in 2015. This allows customers to buy a new iPhone and pay for it, interest-free, over two years. To further sweeten the pot, it also offers the opportunity to return the phone after one year and get a shiny new one in return.
To get the new phone every year, you must renew the agreement every year and return your existing phone every time. You effectively buy an iPhone subscription.
It may or may not be a better deal than just paying cash and selling the old one every year, but what the iPhone upgrade program does is make it a very simple, risk-free experience.
As a member of the iPhone Upgrade Program, you can get a new iPhone after paying out equals at least 12 payments.
When you join the iPhone Upgrade Program, AppleCare + is included in the monthly payments. .
You buy directly from Apple. Which means no more funding your iPhone through your carrier or committing to a multi-year service contract. We connect your new iPhone to your carrier for you. So you do not need to make any changes to your pricing plan. And if you ever decide to switch carriers after activating your iPhone with AT&T, Sprint, T-Mobile or Verizon, you can too.
Apple Card provided an additional incentive to upgrade more often, offering 3% cashback on all purchases from Apple. And the fine-tuned thing so that the iPhone Upgrade Program qualified for the 3% repayment, even though the purchase was technically funded by a loan from a third party bank.
Apple's last acquisition of an iPhone subscription
Yesterday, Apple made the final move: buy an iPhone with your Apple card and you pay no interest for the sum for two years.
Apple CEO Tim Cook announced today that the Apple Card will soon add a new feature for iPhone financing. As of later this year, Apple Card users will be able to finance iPhone purchases at 0% interest.
“I am very pleased to announce today that we are adding another great feature to the Apple Card later this year. Customers will be able to buy their new iPhone and pay for it over the course of 24 months with zero interest. And they will continue to enjoy all the benefits of Apple Card, including 3% cash back on the total cost of their iPhone with absolutely no fees and the ability to just manage their payments right in the Apple Wallet app on iPhone. ”
Effectively, this is an alternative to the iPhone upgrade program and offers the same benefit, but with greater flexibility: you can choose to make payments on your own schedule.
For example, if you do not want an extra monthly expense but you have a bonus due to the end of the year covering the purchase, you can pay it all out at once. As long as the full cost of the phone is paid within two years, you pay no interest. In addition, you get an effective discount of 3% on the purchase.
Best Buy and other retail chains have long known the influence of these types of free financing agreements as a way of making purchases. Apple may not call any of them an iPhone subscription, but that's what they are.
The iPhone Upgrade Program is an iPhone subscription in all but named names. The Apple Card agreement is non-recurring, but it is no coincidence that the period is two years. As long as Apple maintains the offer, many will immediately use the same deal to buy their next iPhone two years in a row. The only real difference is that they must actively choose to renew their subscription every two years.
Apple has gone to great lengths to resolve the renewal upgrade cycle issue, and it has found another way to make an irregular purchase a recurring monthly revenue stream. (We don't know what the schemes are with Goldman Sachs, but since they get no interest payment, I imagine Apple gets the drip-fed revenue when consumers pay.)
Did any of these deals appeal to you? Are you on the iPhone Upgrade Program? Have you used 3% Apple Card refund to buy an iPhone? And will two years of interest-free credit on the Apple Card encourage you to upgrade your phone more often? Let us know in the comments.
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