As premium, luxury gadgets, Apple’s iPhone really has no equal in price or design caché, yet sells very well when the barrier to entry (initial price) is reduced or lowered. Apple needs to become a bank and finance sales of its own products.
Subsidy vs. Payment Plan
Cell phone carriers in both the U.S. and Japan defray the upfront cost of an iPhone by burying it in a monthly contract.
With the barrier to entry as low as mid-range, and bottom-feeding cheap smartphones, why wouldn’t an average person buy an iPhone?
In many cases, the upfront cost and monthly plan is roughly the same as lesser smartphones, which is why average people can afford to own an iPhone even if they can’t afford to buy an iPhone outright.
As you may have heard in the news, AT&T’s CEO would like to end what he calls the subsidized smartphone model. You know, just like T-Mobile which lets you buy a new iPhone and use their network by the month, without a long term contract.
All of that is just hogwash. What’s really happening is an attempt by AT&T to encourage Apple to take over the financing of iPhones.
Even T-Mobile didn’t do away with the so-called subsidy. If you want to buy an iPhone and use it on T-Mobile’s network, by the month, they’ll finance it for you. By the month. AT&T won’t change that. They simply want Apple to be the bank.
Apple As Banker
Apple has more than enough money in the bank to become the techno gadget bank of the century and lower the barrier to entry to owning an iPhone (or, any Apple product)– in every country in the world.
It’s simple math.
Sign on the dotted line, or make a small down payment, and Apple’s financial division foots the the upfront cost. They would pay Apple full retail for the iPhone (so Apple gets profit up front), and you pay Apple’s bank every month for the term of the contract. With interest. So, Apple makes even more money on the backend.
That means there would be no real, legitimate, or financial reason not to get a new iPhone or iPad (or, a Mac– why not?) every 24 months. Apple as bank could make plans for 12-month payments, 24-month payments, or even 36-month payments.
It may appear that AT&T and other carriers would like to get out of the subsidy business but having Apple become the bank would be a two-edged sword. Ostensibly, an Apple customer could buy an iPhone that could be used on multiple carriers in a region (no world phone yet), increasing monthly churn, because carrier customers wouldn’t be tied down to a contract with a phone company.
Great idea, right?
I just don’t see it happening any time soon. Despite having more money than anyone in the world, Apple remains a hardware and software design company, not a banker.