How could Apple disrupt the mobile device industry again? Here it is and it was somewhat buried in Apple’s Special Event presentation which launched the latest iPhone models. Apple has an official iPhone Upgrade Program and that alone makes cell phone companies in the U.S. little more than purveyors of wireless pipes.
Who Needs Stinkin’ Subsidies?
For years the cell phone companies controlled which phones were used on their networks and charged a premium for entry and exit (not to mention ridiculous fees for using too many prime time minutes, or even ringtones). Carriers would lock in their customers to a specific phone and contract rate based on minutes of usage, and later bandwidth used.
The cell phone companies would embed the cost of a phone– feature or smartphone– into the monthly price of a long term contract. Though it was called that, it wasn’t really a subsidy as much as a monthly rental of the phone tied into the contract.
Those days are just about history as carrier after carrier wants out of the so-called subsidy business in favor of simple data plans combined with phone purchase plans. Even Apple is getting into the act and this is where another disruption is about to hit wireless carriers.
Apple calls it the iPhone Upgrade Program and it enables you to get a new iPhone every year, and get the protection and security of AppleCare– for a monthly fee, spread out over 24 months. But after 12 months you can start over again. Turn in the old iPhone and select a new iPhone. It’s as if Apple is financing your iPhone addiction (through a back). Here’s another kick in the shins to the wireless community. These iPhones are unlocked, so you can choose whichever wireless carrier you want, grab a plan, and get connected.
In the end, or, actually, just after you get started, you’ll pay Apple’s financing friend a monthly fee to use the phone, and the wireless carrier a monthly fee to use their network. The plan only works with the new iPhone 6s and 6s Plus, but here’s an example of how attractive the plan will be to prospective buyers.
A base model iPhone 6s with 16GB of storage will cost $32.41 per month (why couldn’t Apple just round it off, up or down?). Over 24 months you would pay $777.84 for the phone, but you can get a new one at the end of year one, and it comes with AppleCare which covers damages and breakage. Just buying the iPhone 6s from Apple outright is only $649, but you own the phone, and would have to sell it every year and buy a new one to upgrade every year.
Here’s why this whole plan is disruptive. The wireless carrier loses another connection to the customer and becomes just a connection to the wireless internet that comes with a monthly price. Apple owns the customer. What that means for Apple and the customer should be obvious. The customer gets a new iPhone every year and the monthly payments are modest. Apple sells a new iPhone to the same customer every year, so sales become more predictable, and the customer stays with Apple instead of visiting a wireless carrier store which might switch them to a new Samsung smartphone.
Two year contracts are so 1999. iPhone 6s customers would be free to choose, within some restrictions, whatever wireless carrier they want which means you could, in theory, jump around until you found the best plan for your needs and best coverage for your location. This helps Apple in other countries, too, both developed and emerging, because when faced with a choice of buying a cheaper, plastic-coated smartphone running Android, vs. a premium branded iPhone for nearly the same price, a growing number of customers will switch or choose Apple, wireless carrier be damned.
The key to what Apple just did is to cement the relationship with the customer, and take it away from the wireless carriers. That’s a big, disruptive deal. Wireless carriers are becoming more like commodity vendors every day.