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Another 1st for Apple with mighty subscription plans looming

If you love the most recent iPhone, every year, Apple may be about to make you a tempting offer…

Apple financial services

In the money

Apple has wanted to get into our wallets, quite literally in the sense of the app at least, for a long time now. The journey in to financials, however, has been far from a smooth one.

It was three years ago, that it all began in earnest, with the Apple credit card. Yet, all these months on, the card remains available, only in the States. The planned global rollout, just never happened.

But, undeterred, Apple, as they do, stormed on, and continued to plan further financial services. It’s an obvious area for them to get in to, and one that should be a reliable source of passive income for them. Even if the sales of iPhones, and MacBooks were to ever slow up, once in the money business, they will always have that steady, reliable, and, I’d imagine, sizeable revenue landing, month-on-month.

Lofty plans

It was last March that we heard more from Apple, and their financial ambitions. They announced the Apple hardware subscription, and subsequently, a savings program too.

But, like the planned expansion of the credit card, none of these plans has seen the light of day. So, why is that Apple seems to be stumbling here, when in every other area, they are a runaway success?

Apart from the hardware subscription program, there was also mention of Apple Pay Monthly, and Pay Later plans too, that would be tied to the wallet app in your phone.

Despite the engineering problems that they’ve faced in bringing any of these financial services to market, the word from Cupertino, is that the plans are still very much to move forward, with all the packages.

And with good reason – it will earn them good money!

The iUP program, and the hardware subscription package, are the two services that are most likely to fly quickest. If either of these programs, take off, and become a success, then it could revolutionise how we go about buying our phones, and other devices. It could also spell bad news for the cell-phone carriers, and their contract upgrades, too. Their party may be coming to an end.

The future

iUP is, from what I can make out, similar, to how many of us buy cars.

You’ll buy your iPhone, directly from Apple, and then, enter a financial agreement with them to pay them back over a twenty-four-month period. As with car buying, you’ll have options. The first is the simplest way – just make your twenty-four payments, and then you own the phone outright, keep it, and just carry on your merry way.

The other method that’ll be available to you, is, that with just one payment remaining, you hand the phone back, and roll on to another two-year plan with Apple. Of course, with this second way, you’ll never actually own the phone outright. In essence, you’d be renting from Apple.

There is, technically, a difference between renting and iUP, but it is a feint one…let me try to explain. Even supposing you decided to change annually, after say just twelve months, you technically own the handset, Apple are merely holding the phone up as a trade-in for whatever the outstanding balance on your account may be.

Now, compare that to the Apple hardware subscription service. It’ll differ in that it will be a true rental agreement, and not an instalment plan, and you’d probably have to take out various of Apple’s services packages as part of the plan.

Rent…or not?

The phone is the obvious area for Apple to try out these kinds of programs on, as it’s the device that, typically, gets changed most frequently. But, if it proves a success, then who’s to say these programs could not also be rolled out over iPads, and even MacBooks, or iMacs?

In a recent article, Bloomberg News points out the crucial differences between a genuine rental agreement, and this hardware subscription;

The program would differ from an instalment program in that the monthly charge wouldn’t be the price of the device split across 12 or 24 months. Rather, it would be a yet-to-be-determined monthly fee that depends on which device the user chooses.

So, with iUP, it is simply the cost of the device you pay over the twenty-four-months, but with the subscription service, you’d be buying a bundle from Apple of hardware, and services. The amount you’d pay, would clearly not be defined, as it would depend on the product, the specs, and how many services you decide to take out – Apple One, and/or Apple Care for instance.

I think, down the road, it’s quite likely that these two services could end up being bundled in to one. There doesn’t really seem enough space for both plans to co-exist. Let’s say, you get a phone on the hardware subscription plan, it wouldn’t take much for Apple to then decide to offer you a deal to buy your phone outright, early, ahead of time. Either way, it’s cash in the bank for them.

Mac on loan

Phones, although expensive, are much less expensive than say a MacBook, or iMac. That’s one reason I believe, ultimately, the hardware subs package will win out.

Historically, phones, often get changed every other year. If your phone is currently subsidised through a carrier’s package, then you’ll almost certainly already be changing every two years, anyway.

But with a Mac, it would be hard for Apple to convince you to swap out such a costly item, so regularly. But, they may have more success, if they could offer you, almost a lease agreement, over a longer four, or five-year period. Again, being bundled with Apple Care +, and other Apple services (more passive income for them).

On good terms

There would clearly be defined terms with any such contract. The most obvious, being duration. The term would have to work for both parties, but like a casino, the odds would be stacked in the companies favour.

If they can manage to bring out a new Mac, early in your period of ‘ownership’, then they could possibly incentivise you to take a new, more expensive contract earlier than planned. So, the actual agreed term can never be shortened, but always extended – makes sense, right?

Wrapping up

In his most recent earnings call, Tim Cook didn’t dismiss the possibility of price increases coming later this year to iPhone, saying;

“I think people are willing to really stretch to get the best they can afford in that category”

Bearing that in. mind, who’s to say that Apple won’t finally have the Apple hardware subscription service ready by then. What about if the iPhone Ultra did come out this year after all? Let’s say, it was $2000 – too much for most of us, but what if it was launched alongside the subscription package? Suddenly, it’s way more appealing, right?

Clearly, either iUP or the subscription plan benefits the company. It draws revenue away from carriers, and directly to them. It also creates that rock-solid recurring income I mentioned earlier, which is gold for any company. Services have been an area of growth for Apple recently, even when the sales of iPhones, Macs, and wearables have stuttered, services has prospered.

The company would clearly incentivise changing up early, and I’m sure would offer, beneficial deals to entice you to trade-up.

For the customer…overall, I think it’s a win. iUp is basically how I’ve had many of my iPhones supplied over the years, but through a cell carrier, rather than Apple – that’s the only difference.

As for the Apple hardware plan, again, I can see it’s tempting, and it’s benefits to us consumers. But, I’d throw in some caution there. We are in uncertain waters, economically, right now. If you take out an agreement over several years for an expensive item you want, but don’t need, what if, then, you were to lose your job? You’d still be tied to those monthly payments, come what may.

Making the barrier to entry, and the ability to buy an expensive new Mac easier, will always be great for Apple, but just tread cautiously. The path is not always paved in gold.

Remember my casino analogy – there will only ever be one winner…

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