Guess who likes the subscription model? Publishers. Cable TV companies. And, now, both Adobe and Microsoft, both of which have moved from the buy it and upgrade it plan, to a monthly subscription service.
Subscriptions are all the rage on Wall Street. Companies like the steady monthly revenue, and companies like to subscribe because it means steady and planned expense tracking. Guess who just joined the subscription model? Apple.
Subscribe To The Lease
Cell phone companies in the U.S. are moving away from the so-called subsidy business, whereby you got a new iPhone for a low price, but paid a healthy monthly fee for the usage and data plans which also included the price of the phone.
I don’t know what they didn’t like about you being stuck with a particular network and stuck with owning them money each month, but they’ve decided to bail out of the financing plan business in favor of cash and monthly payments for a new phone.
Guess what? Apple is in on the game with a new annual upgrade package that gets you a new iPhone each year for a low– but not as low as buying it yourself– monthly fee (using a third party bank to do the actual financing for Apple). That means Apple is in the iPhone leasing business. And that means Apple has a new annual subscription plan, an iPhone-as-a-service plan, if you will, that should disrupt the entire tech industry if Apple moves the plan to other devices.
Here’s the way it works.
Go to Apple, select the iPhone 6s or 6s Plus model you want (the plan only works on the latest and greatest) and you’re obligated to pay a monthly fee for two years. Because the iPhone is unlocked, you can take it to whatever cell phone carrier you prefer to get a call and data plan, now separate from the price of the iPhone.
Now, get this. At the end of one year, just like leasing a car, you can return the iPhone to Apple and get a new one and start the monthly financing plan all over again. Apple’s finance leasing plan comes with AppleCare, too, so you get some added insurance protection.
Apple calls it the iPhone Upgrade Program, but it’s really more of an ongoing, self-renewing leasing plan (Apple owns the iPhone), which could just as easily be described as the iPhone Subscription Model. You subscribe to own a new iPhone every year.
How does the leasing subscription plan compare to simply buying the iPhone outright? Let’s use the 64GB iPhone 6s model as an example. It retails for $749. Apple’s iPhone Upgrade Program price is about $37 a month but gets you a new iPhone every year vs. $63 a month to amortize the price of a new iPhone 6s over 12 months. Gazelle is offering $300 on used iPhone 6 models in good condition, so that amount would be deduced from the $749 for a new iPhone 6s, leaving the annual cost at $449, or $37 a month.
$37 a month to Apple for a new iPhone every year, or about $37 a month (retail price amortized over 12 months) for a new iPhone every year, but you’ll have to sell your old one each year vs. handing it back to Apple and getting a new one.
What’s not to like about Apple’s iPhone Upgrade Program? Not everyone wants a new iPhone each year, but many who never considered it before will subscribe now because the monthly fee is about the same as buying the phone and upgrading every year or two anyway. How is that disruptive? It changes how you buy an iPhone, and it further segregates the cell phone carrier from the customer (I think it’s a dumb move on their part; customers are valuable).
Now, if only Apple would offer a similar program for the Mac, iPad, and Watch.