OK, so I just made up a word, but it’s the best word I can think of for one of the biggest new trends with Apple’s business. One that has the potential to dramatically change its relationship with its customers. The trend I’m referring to is the increasing move at Apple to establish recurring monthly revenue relationships with its customers and move away from merely having periodic one-off payments for hardware. I think there are several very positive things that could come out of this for Apple but I think there’s also potential for a specific downside to this shift.
An increasing number of subscription services
As a company which began selling hardware and, to a lesser extent, software rather than services, Apple has dabbled over the years with various subscriptions. eWorld, back in the 1990s, was a short-lived online service sold as a monthly subscription and, with iTools, .Mac, MobileMe and most recently iCloud, Apple has had various other membership-based services, some of which have been sold on a monthly subscription basis as well. But over the last several years, Apple’s number of monthly subscription services and their centrality to its product offerings have increased quite a bit. iCloud storage is one of the most commonly used of these, with monthly plans starting at 99 cents per month and rising to $9.99 per month in the US. But Apple also has iTunes Match, priced at $24.99 per year (or just over $2 per month), Apple Music at $9.99 or $14.99 per month for the individual and family plans respectively and, of course, iOS users can sign up for a plethora of third-party services through their iTunes accounts, from Netflix to MLB.tv to subscriptions to the New York Times.
As of today, an avid user of Apple devices and their associated services could easily be spending $50 per month through their iTunes account on a combination of automatically-renewing services, billed monthly. If Apple launches a TV/video subscription service at some point (as seems likely), that total monthly bill could easily rise to $80-100. Apple is tapping into a broader societal trend away from one-off purchases and towards monthly subscriptions, which has affected everything from software (with SaaS becoming the dominant model for both businesses and consumers) to content (with the move from purchases of physical media to digital content and now to streaming services like Spotify and Hulu).
The iPhone Upgrade Program adds an interesting wrinkle
With the iPhone Upgrade Program, Apple is applying this same subscription and monthly payment model to buying hardware. Under this program, iPhone users can pay anywhere from $32 to $45 per month to lease an iPhone directly from Apple. It’s easy to imagine this kind of program being extended to other Apple hardware over time, too. Apple Watches and iPads are already offered on installment plans in at least some cases by wireless carriers and Macs of various shapes and sizes could eventually join them. As such, hardware may begin to shift from a series of occasional one-off purchases to a regular monthly revenue stream.
An affordable way into the Apple ecosystem
Combining these hardware leasing programs with the subscription services I mentioned could allow customers to buy into the Apple ecosystem for a single monthly fee starting at $50 or so and going up quite dramatically from there, depending on which Apple and third-party products they opt to include. This could potentially make Apple devices more accessible for people for whom several hundred dollar one-off cash outlays are hard to afford. It could also have a powerful psychological effect on consumer perception of the cost of owning Apple devices. It’s not a stretch to think Apple might eventually start to bundle some of these things into a single package for customers that includes music and video subscription services, cloud storage, and the like as well as hardware ownership. All of this, in turn, could help make Apple’s future financial performance more predictable, since customers would be on a regular upgrade cycle, with recurring monthly revenues, and less volatility than the current annual product launches. As such, both consumers and Apple (and its investors) would benefit – a win-win.
The potential downside – paying the Apple bill
If there’s a downside to this, it’s this regular monthly relationship could put Apple in the same boat as a number of other things consumers really don’t enjoy dealing with. A monthly Apple bill would be one of a number of bills the customer would pay in this way, along with their phone, TV, water, and electricity bills. Though the barrier to entry for the Apple ecosystem would be lower, and the psychological effect of paying $50 at a time instead of $650 is powerful, so is the effect of facing a regular monthly bill for that amount (or higher). There’s a risk that, as Apple embraces this “monthlification” of its business, it begins to occupy the same mental space for consumers as a utility.
The associations people have with the other things they pay for on a monthly basis this way are not generally positive – think of the feelings you have about your water, electricity, phone or cable bill, for example. Consumers start to become very aware of quite how much is leaving their bank account each month, and they also become more aware of periodic increases in that amount, especially if they’re hard to understand. If Apple does go down this road, it will have to be conscious of the subtle ways in which its relationship with customers will change. Though a several hundred dollar (or even several thousand dollar purchase) can be hard to stomach, once it’s made, the customer is left with full ownership of a product and the fading memory of how much it cost. But with monthly payments, the customer is constantly reminded of just how much they’re paying for the privilege of using (but in some cases not owning) those same products.
An inevitable shift
I think this gradual shift away from one-off purchases and towards monthly payments is inevitable – as I said, it’s taken over the software and content worlds already and, especially in the US, the move to monthly payments for phones is also well underway. Apple is wise to embrace this shift rather than resist it, but it also needs to be very careful about how this plays out and be especially wary of layering one monthly payment after another onto customers’ accounts. The move to monthly payments could well be a good thing for Apple and its customers. But Apple needs to make sure that’s the case in reality.