Apple mulls subscription models for iPhone ownership

Ian Scales
By Ian Scales

Nov 4, 2019

  • Apple is continuing its progress towards becoming a services company
  • It's adding more service offerings such as Apple TV
  • And it's also looking at new iPhone ownership options 

Apple is clearly following through on its strategy of pivoting from upmarket smartphone vendor to  premium content and services provider so that long term the services model will comprehensively overtake the hardware one. This is the future. 

The old apple business model involved protecting the premium Apple brand by curating the apps and staying ahead on smartphone technology. That, and clever marketing, has seen Apple maintain a hefty premium on its hardware while investing in services, not primarily to trap new revenue streams, but to increase and maintain the attractiveness of the iPhone. 

But now Apple is revving up the services side. 

Services such as Apple Music and the App store have been joined more recently by Apple TV. And other launches and activities show Apple building up an entire lifestyle package for its fans - one which ticks boxes such as concern for the environment and concern with personal health and a desire for innovative entertainment. 

Just to provide a few examples: The newly minted ‘Apple Card’ is a “credit card created by Apple and designed to help customers lead a healthier financial life”. 

 The Apple watch has been enhanced with applications to monitor its actual user’s health via ECG readings stored securely in the Health app on iPhone.

 Apple has also recently   developed an advanced recycling business using robotics to disassemble end of life iPhones at the rate of 200 per hour to recover their materials and sending them back into the manufacturing process.

However not all the iPhones passed into the Apple machine are disassembled.  

Apple claims it continues to expand its programs to ensure devices are used for as long as possible. In addition to certifying and reselling preloved iPhones, Apple has rolled out a new method for optimizing iPhone screen repairs that allows independent shops to offer the service. Apple also launched a battery replacement and recycling program for all of its products, a real about-face on its previous policy which appeared to make battery replacement as difficult and as expensive as possible without being obvious about it. Back then, of course, Apple was in the business of selling new iPhones.

Today, when you’re looking to major on services, it makes sense to try and keep the units you’ve sold in use for as long as possible, especially if  they can be resold to meet demand in an ‘affordable’ user bracket previously untapped. All those retained iPhones means more service usage. 

Where does the business model go next?

It appears that soon we’ll see Apple bundling iPhones into a subscription or leasing service. During the company’s recent earnings call, CEO Tim Cook said Apple was looking at new ways to enable more ‘hardware as a service’ -  the idea being to offer one monthly payment for the iPhone and its attached services in one hit.

This sort of leasing arrangement can come with options to renew or take the product for an extra chunk of cash after a set time and is already very popular in the car industry in the UK (for instance) and in other disparate industries. 

Something similar is already available as an Apple upgrade programme spreading  out the cost of a new iPhone and AppleCare over two years.  

As we pointed out earlier this year you can’t help noticing how similar Apple’s structural problems - and its proposed solutions -  are to those also being faced by CSPs in their quest to avoid the dumb pipe and to become digital service provider (DSP) organisations.  

Both Apple and CSPs have long seen the commoditization trap looming as they hurtle forward, competitive pressure forcing them to sell more core product for less money and wondering out loud all the while on whether they can maintain the profitability their shareholders expect. 

Both their ‘ways out’ involve shifting their activities to services of various kinds to attract recurring revenue and induce customer stickiness - long a key telco objective. In that sense on many service types (apps, video entertainment) they are on a collision course, but they also share the problems of scope and scale with each other and are in competition with the online giants which have both scope and scale in abundance. 

That battle will heat up.

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