Fellow authors on this forum have pointed out some of the implications of Apple’s Upgrade Plan. This was, perhaps, one of the most significant announcements Apple made and many seem to be missing why. Apple is fundamentally changing their business model and this is lost on many. The impact of this change will not be seen overnight or even over the next few years. However, a decade from now or longer, I have a feeling he will note this moment in Apple’s history.
It starts with iPhones that is certain. Consumers can purchase an iPhone, from Apple, and pay $32 per month for two years. This plan comes with the option to get a new iPhone every year if they so choose. If they don’t choose to upgrade yearly, their phone will be paid off in two years. At this time, said consumer owns an unlocked world phone that will work on any carrier in the world. The unlocked angle of this is interesting from a carrier standpoint because it gives power back to the customer. The world where you can have a smartphone that works on any carrier, then simply shop the best plan has not existed in a number of markets like the US and China for example. Now it can and the implications over the next few years on how carriers adapt will be interesting. I liken this to cable and satellite companies. Smart consumers know, once your contract is up with your cable or satellite company, you can call and threaten to cancel your account to switch to another provider and, generally, that provider will throw many offers at you including a lower rate in order to keep you from leaving.
Another angle of this plan of interest is how it could potentially make iPhones more affordable for new customers. Wall St. seems to views this as a way for Apple to manage churn and keep existing customers upgrading. However, the data suggests this is not a problem Apple struggles with. While Wall St. sees this as a program for existing Apple customers, I see it as a program for Apple to appeal to new customers as well.
However, the bigger point I’m making here is how this program could extend to other things than just smartphones. Horace Dediu of Asymco wrote a great piece called Apple Assurance. In this post, Horace does the math under the scenario that Apple extends this program to other Apple hardware. From his math, he lays out how for basically $3.53 ($103 dollars a month) a day a person can own all of Apple’s hardware. That is basically the price of a Starbucks coffee. A Mac, Apple Watch, iPhone, Apple TV, for the price of a Starbucks coffee a day. Fascinating way to look at this business model. Especially, if Apple has trade-in and upgrade programs for all these products. Upgrade your Apple Watch every year or every two years. Upgrade your Mac every 4-5 years. What is fascinating is how the residual value of Apple’s products is what allows them to do this. I have decent data on the global secondary market for iPhones, and iPads, which I’ll share in-depth at another time. Unlike many other hardware companies, Apple (or a third party partner) can profit from the trade-ins of iPhones, Macs, iPads, and potentially Watches although it is too early to tell about that one.
A short anecdote just to make this point. During a recent business trip, I stopped at the exit checkpoint from my rental car lot. The young man who had to do the final paperwork asked me how I liked my Apple Watch. I gave him my thoughts on it, and he said, I ask because I’d really like to get one but its so much of my paycheck. I asked him, if he could pay $20 a month to Apple and get the Apple Watch you do it? I’d sign up tomorrow he said.
If we believe this is Apple’s direction then almost anything becomes fair game. For example, if we believed they would come to market with a car wouldn’t have financing been essential? With where Apple TV is heading, why don’t I just pay Apple for my full TV bundle? Again, I have no idea what Apple’s future plans are, but you can see an interesting dynamic that applies to Apple once you can pay money directly to them and subscribe to the entire Apple Package.
Harping on one of my favorite topics… curation.
The subscription model legitimizes curation, because you don’t own the device. Then all quarrels are off. Will Apple make it absolutely clear that the device is THEIR property, until it’s paid off?
This does raise certain scenarios in my head though. What happens if someone jailbreaks a subscribed device, would Apple acknowledge the upgrade? Should you not upgrade, and then ultimately pay off the device, you would then own it. It also would likely be out of warranty. Then the conflict of control over one’s property remains.
Think of it as a lease. You don’t own the BMW you lease either (that’s why the payments are lower), and you operate under annual kms restrictions, which you pay for later if you exceed the distance you are allowed to drive per year. You have an option to buy the vehicle out at the end of the lease, or you can just get a new vehicle and keep leasing. You are also on the hook for anything above normal wear and tear when your lease is done. Roughly speaking it’s the same idea here.
Right. That’s why I said it legitimized it. Leasing is not to be confused with owning though, and that should be clear up front.
And what happens at the end of the lease, when you’ve paid it off? I propose a free jailbreak, directly from Apple, just like we get an unlock when we’ve fulfilled our obligations to the carrier.
Curation has always been legitimate, this is simply a natural evolution in the tech industry. While leasing and owning are two different things, I would guess most people who lease a car feel like it’s their car, and given normal usage there isn’t much practical difference.
When you say ‘end of lease’ and ‘when you’ve paid it off’, you need to clarify, because those are two different things. You don’t own the car at the end of the lease, the lease is simply at its end. You then have the option to pay out the remaining balance if you want to own the car. Or you can keep leasing and never own a car.
My understanding is with Apple’s deal you hand back your current iPhone and get a new iPhone. Apple can then sell the used iPhone. So it is a lot like a lease in that respect. Maybe you can choose to buy out the device at some point? Then it would be unlocked, just as buying an iPhone directly from Apple gets you an unlocked device. Unlocking and jailbreaking are also two different things of course. Jailbreaking you do at your own risk, there’s good reasons not to. Just as you can engage in excessive wear and tear on your leased BMW, you’re taking the risk that you’ll have to pay for it later.
Yes, obviously I mean taking full ownership. It’s not legitimate to censor my owned device by tying it to one software store. I know you disagree with that.
I realize unlocking and jailbreaking are two different things, I was speaking metaphorically. Just as when (if) I buy out my BMW, I can do whatever I want with it (within the law), because then I own it. Just like salting my own soup.
After the product is paid off, I don’t see why you can’t do what you want. Under this program, if you don’t choose the upgrade options, then it simply acts as a finance program. If you choose the upgrade program then it is essentially acting like a lease until you no longer choose to upgrade.
Under the lease program the warranty is likely always in place since you always have the latest device. Once bought out and no longer under any contract to Apple the warranty is whatever it was, one year, two year, etc., from time of device acquisition.
I believe if I buy and iP6s today and make 24 $26 payments, the phone is mine. 24x$26.50 = $636 which is very close to $649, the ‘full’ price. (Perhaps Apple gets another $13 for full payment.)
Yes, that sounds right.
“I propose a free jailbreak, directly from Apple,…”
I propose that All Android phones be adequately protected from malware.
May both wishes be granted.
(I joke.)
World Peace and Liberty!
Who can argue with that?
🙂
“Think of it as a lease.”
Bad analogy, I think. If I lease a car, then stop making payments, they come take the car away because the fine print on the lease says it’s not my car.
If I get a phone on installments and then stop making payments, are they going to repossess my phone? of course not, they’re going to refer my debt to a collection agency. The fine print almost certainly says it’s my phone, but I paid for it with a loan that I am paying off in installments, plus a trade-in credit on my old phone.
Better analogy: phone installment plans are more like buying something on an interest free credit card. Instead of charging interest, the phone seller makes money on the loan through other means — data charges for wireless companies, reselling used phones for Apple. And like any other credit card purchase, you own the thing outright from the moment of purchase.
That’s good to know. So it’s financing, and a very good deal. It does seem that even if you trade up every 12 months it does require a 24 month payment agreement (so you’re agreeing to pay for the entire cost of the device, hence you’re financing it and you own it). I wonder what happens if your iPhone is in really rough shape, banged up, scratched, etc and you want to trade up after 12 months? Surely there’s some minimum level of device condition, or maybe Apple will let you trade up no matter what condition the iPhone is in? Perhaps that’s where the AppleCare comes in.
The fine print says it has to be in good working order to be eligible for trade in. Says nothing about having cosmetic defects. Here’s the fine print (actually pretty short compared to most legalese documents): http://www.apple.com/legal/sales-support/iphoneupgrade_us/
“and then ultimately pay off the device, you would then own it. It also would likely be out of warranty.”
Reality check: Apple’s installment plan includes applecare extended warranty coverage, so if you get a phone on Apple’s installment plan and pay the fee for 24 months without upgrading, at the end you’ve got a 2 year old phone with 1 year of extended warranty remaining.
Considering that the installment plan works out to the same price as paying in full up front, it’s a fantastic deal if you’d normally buy the applecare warranty — basically an $800-ish interest free loan.
The new purchase option may also reveal relative cost/value of phone in another way. Phone/data plans are much more expensive than the hardware. Perhaps because it’s paid monthly (and maybe also because it’s a tangible good) people focus more on the cost of the device. Over two years the net cost of iPhone is ~$500, assuming resale for $150. In that time, I pay $2,600 for to Att ($109×24.)