Apple’s Expected Plan to Adopt a "Hardware Subscription” Strategy Aimed at Increasing Market Share and Consolidating Vertical Integration

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2Q 2022 | IN-6528

Apple is rumored to be working on a "hardware subscription" service for its smart devices, which is expected to be available by the end of 2022. The "Hardware Subscription" Plan, unlike the current iPhone Upgrade Program, will not require credit, financing, or a loan. Decreasing subscription prices in comparison with the current Upgrade Program and boosting automated recurring sales would be a more direct way to get iPhones or any other smart Apple device into customers' hands. Simultaneously, the business would be able to collect information on the most desirable applications and services demanded by users, perhaps attracting even more people to join the Apple ecosystem. Apple might also combine the hardware subscription with a connectivity service subscription, allowing it to function as a Mobile Virtual Network Operator (MVNO) across numerous networks and locations.

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Apple "Hardware Subscription" Might Lead to Improved Automated Recurring Device Sales

NEWS


Apple is believed to be developing a "hardware subscription" service for the iPhone and its other smart devices, even though no information has yet been provided regarding price, products that will be considered for the program, or trade-in and upgrade details. Arguably, the move might represent Apple's most significant effort toward automated recurring sales. According to rumors, Apple is considering adding a hardware subscription program to its AppleOne services bundle and AppleCare technical support plans. If true, the subscription service is on track to be launched at the end of 2022, and it would most likely be controlled by an Apple account, the App Store, and the company's website.

The "Hardware Subscription" Plan to do away with Credit, Financing, or Loans

IMPACT


Apple hopes to make "owning" any of its smart devices as easy as subscribing to service applications or the iCloud for a monthly subscription, consistent with the Hardware-as-a-Service (HaaS) procurement model, even though the project has yet to be publicly announced. Nevertheless, Apple's possible decision to sell products through a subscription-based model will eliminate the barrier of customers paying a premium price for a device in full and create a cost-effective strategy to evaluate consumers' preferences while boosting long-term loyalty to the company's ecosystem.

Apple already provides an iPhone Upgrade Program, which allows consumers to pay for a new iPhone with AppleCare+ over a twenty-four-month period with the opportunity to upgrade after twelve months. However, this current monthly payment system would be different from a "hardware subscription" plan as the iPhone Upgrade Program is a two-year loan sponsored by a third-party bank and needs a different credit application with payment information and billing. Instead, the subscription will be a monthly cost based on the device selected by the user and would not involve any credit, financing, or loans.

Apple devices are becoming more durable, and the technology behind them is changing so quickly that consumers will want to trade smart devices before the loan period is complete and the devices are paid off. However, a longer ownership cycle means longer amortizations. Additionally, because the "hardware subscription" is a method of monetizing a membership that differs from the iPhone Upgrade Program, costs will likely be lower than those for the latter. As a result, a "hardware subscription" plan would be a more direct way to get iPhones into users' hands by encouraging them to stay enrolled on its service over time and purchase other Apple devices and services.

Could Subscription-based Models Boost Market Share and Improve Brand Loyalty?

RECOMMENDATIONS


Apple’s plan to offer a “hardware subscription” service could represent a strategy to expand its market to new customers who are not willing to pay the total price of an Apple device, if the company maintains high hardware prices. Currently, Apple customers will mainly upgrade to a new iPhone when they renew their subscription with a mobile operator, often on a two-year plan, or recycle their current iPhone for cash or trade in/up for a newer model. From the consumers side, the “hardware subscription” plan could be interesting for some premium subscribers. For example, users paying a US$100 subscription per month would be able to upgrade to the newest iPhone every year while also being covered against phone theft or malfunction, device maintenance, repairs, services, etc., depending on the level of bundled offering. From a company point of view, it could also bundle the hardware subscription with a connectivity service subscription, which would effectively make Apple an MVNO, working across multiple networks and regions. In this way, an iPhone “hardware subscriber” will no longer pay roaming fees, and Apple would have complete control over every aspect of an iPhone’s usage. Having said that, it is not clear if mobile operators would support such a move by Apple.

HaaS is not a new concept. Apple would have complete control on hardware, software, and services with the opportunity to produce better and more tightly integrated packages while potentially offering a lower price for the subscriptions in comparison with prices offered with the previous Upgrade Program. As a result, the company would get a more reliable way of increasing demand for subscriptions while capturing substantial knowledge about the most desirable applications and services that consumers are looking for, which will lock in more users and tempt even more people to join the Apple ecosystem.

Currently, more customers choose financing rather than paying the full price of a phone upfront. As a result, price, rather than design, functions, or even brand image, represents the most powerful factor that drives consumers’ purchasing decisions. By switching to a “hardware subscription” model, Apple has a lot more to gain here than it has to lose. The reason is related to the fact that, even if customers do not rapidly change their brand loyalties, after leasing an Apple device for a short period, they may change their preferences and migrate to Apple services like Music or TV.

 

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