Frances Allen takes a look at Apple’s new Upgrade Program, whereby iPhone users can pay a monthly subscription to guarantee a new device each year.
Apple’s iPhone 6 Fall event previewed the iPhone Upgrade Program, a cost-cutting subscription service for iPhone users. Analysts and investors alike don’t seem to be convinced of any significant advantage for customers or carriers opting to participate in this program. Carriers have long offered the type of upgrade incentives promoted in the initial roll-out of this program, while Apple upfront cost-advantages are merely based on resale trends that gadget geeks have long used to bring upgrade costs down. Lessening upgrade costs is easily done through resell of a recent generation model as long as the hardware is in decent condition, and the model isn’t too old. What is essentially a leasing program could be beneficial for customers who are not going to resell, but just want a less stressful upgrade process with carrier perks.
For $32 a month, subscribers receive an unlocked iPhone with AppleCare, Apple’s insurance policy. The Upgrade Program makes iPhone purchase approximately $384 a year, versus upwards of $650 for a SIM-free iPhone at launch. There is no multi-year service contract tagged onto the program, which seems uncomplicated and consumer-focused enough. Benedict Evans, renowned Silicon Valley Venture Capitalist and analyst, concurs that Apple has essentially managed to create a cost-effective program that gives customers the incentive to turn in used iPhones for repurposing, but factoring in the potential resale value doesn’t actually lessen annual total cost of ownership. Evans also points out that the Upgrade Program ensures that customers will be guaranteed an iPhone, a relief to hardcore Apple fans with carriers that usually dictate when or what their next upgrade is. While many may consider this a triviality, this is one solid reason why Apple fans will likely choose the Upgrade Program.
iPhones are becoming more popular in developing countries, despite lack of financial reporting to definitively peg this phenomena.
What happens to the old phone? It is given back to Apple and repurposed for sale as a second device for those who aren’t willing or cannot pay for newer models. One possible motivation for cashing in on the second hand market could be blooming international profits for the company. Evans points out an interesting fact: iPhones are becoming more popular in developing countries, despite lack of financial reporting to definitively peg this phenomena.
China is currently Apple’s second largest market and according to Q2 2015 data, iPhone and App sales are astronomically up with 40 new stores planned for construction by 2016 in China alone. In addition to growing international appeal, a successful subscriber program such as the Upgrade program could vouchsafe even more investor interest in the company. Subscribers, as found in the case of Amazon.com studies, show investors a company has a steady flow of capital from loyal consumers that tend to spend more than average in comparison to non-subscribers.
While this looks good for international markets, analysts worry about potential churn amongst carriers doing the majority of their business in Europe and North America. Devices have long been a major selling point for carriers who might now have to re-focus their efforts to focus on other services. iPhones have historically provided healthy device profits, although, more competition amongst phone leasing programs may actually be good for business. However, one thing is clear: carriers will have to adapt to what some analysts see as a form of disintermediation on the part of Apple, who, confusingly enough, has no interest in becoming a carrier. With the near dissolution of subsidised contracts, customers will likely seek the most transparent contract through the program, being content to know their device type is guaranteed. Despite this, some carriers are excited about this new business model. T-Mobile released a statement declaring: “Unlocked phones give consumers the freedom to try out any carrier. That is a fantastic thing for T-Mobile too.”
Should buyers place absolute trust in developers to provide continually exceptional phones for years to come?
However, it could be questioned whether so much trust should be placed in purchasing a device that essentially does not exist yet. What will happen if Apple fails to deliver the same quality as previous iPhones? Should buyers place absolute trust in developers to provide continually exceptional phones for years to come? With this year’s new addition of features such as 3D touch, and 12 megapixel camera, much fawning commenced across the tech world, and Apple developers have seemed to allow this type of Christmas to occur at the end of every upgrade cycle for years.
All things considered, Apple will continue to develop in international markets, probably taking the needs of previously stunted but growing economies into consideration along the way. What of the first world? Perhaps Apple will style this as a new sustainable and lean initiative. Apple might see its main demographic as a busy, but tech-savvy group, but economically they still understand the need to channel second-hand profits back into the business of world conquest.