Going into the new year, a lot of writers are already predicting what will be the next big headline in technology and business. And one prominent position is how Apple cannot continue to grow year-over-year like it has done in the past. I don’t agree with many of these doomsayers, and more importantly, the one idea I'd like to hone in on is how can Apple bring exponential growth to their company? We already know that they can build some of the best technology on the planet. And it is quite obvious that they can deliver said technology at massive scales. But what will Apple do to generate the next record-setting quarter? My theory revolves around the idea of subscriptions.
In the fall of 2015, one of the lesser reported pieces of news from Apple's iPhone 6s announcement was the inclusion of an iPhone Upgrade Program for their new iPhones in the US. With prices ranging from $32 to $45 per month, customers can opt to lease their iPhones and more importantly, trade in their previous model after 12 months for a newer model. And in doing so, they present an opportunity to lock in customers while treating their carrier partners like a utility. This new pricing structure can be beneficial for consumers, but it is very lucrative for Apple.
For consumers, you now have a lower barrier to entry that is essentially overseen by your credit rating. Rather than fork over a large sum of money or commit to a carrier, consumers have the option to essentially lease their new iPhone. And as seen in the car industry, after a certain amount of time (12 months in this case), customers can opt to trade in their previous model for the latest model of iPhone. Furthermore, this option allows you to move between whichever cellular carrier you choose and effectively putting more purchasing power in the hands of consumers. And lastly, you get the benefits of AppleCare+ included in this subscription, thereby adding more piece of mind to this commitment.
For Apple, there are numerous benefits from a pricing structure seen in subscriptions. The subscription model allows for more units to be sold because of the lower cost of entry. This alternative option that prints an initial receipt which is a tiny fraction of what the hardware actually retails for will convert non-buyers to buyers. Also, there is a greater potential for customer retention with trade-ins as customers opt to handover their previous device for the newest, and thus increasing the chance of further locking-in of customers to the Apple ecosystem. On top of all these benefits, there is an opportunity for a large influx of refurbished units coming out of Apple. These units can be used for AppleCare+ replacements or, more effectively, sold at varying rates to key markets to invigorate some growth. I'm looking at you, India!
what if for one low, monthly price you could bundle a selection of Apple products
The more you think about this model of hardware sales, the more it makes you wonder, why not offer this on all the Apple products? What if your next MacBook or iPad could be leased in the same manner as the iPhone 6s? And Apple being the excellent marketers they are, what if for one low, monthly price you could bundle a selection of Apple products as opposed to ballooning your credit card debt? Imagine a family walks in to an Apple Store. The parents are looking to upgrade their cellphones and invest in a computer that can better integrate with their new phones. Their daughter is finally old enough to handle technology responsibly, and rather than a computer, she seems interested in a tablet. Now, this family would typically swipe the plastic in their wallets or exchange a duffle bag of cash. But if the latter feels unrealistic, that's because it is. Walk into any Apple Store and you'll see most patrons paying by credit or debit and very aware of the full retail price of their purchase. With a subscription model, Apple gives this family another option. By strategically positioning their plan and its benefits (especially the inclusion of AppleCare), Apple creates an opportunity for greater economic profit.
Now, imagine that same family again, weighing all the options. Given their increasing fondness for new technology and increased risk of physical or water damage burning a hole in their bank account, this family opted to walk out with two iPhones, an iPad Mini, and a MacBook at $169.99/month. While some of you may scoff at the idea, keep in mind that this plan isn't designed for you. It's designed for the general consumer as an alternative option to finance the technology in their life. And in this scenario, I can see Apple easily laying the groundwork to effectively sell this idea in their retail stores.
Back in 2012, Adobe switched to their Creative Cloud structure and moved the entirety of their business to a subscription model. There was outrage from creatives and critics alike, but it turned out to be one of the best ideas Adobe has ever championed. They have become more profitable than ever while moving to a platform that isn't beholden to arbitrary release cycles. And for users, you now get the latest version of some of the world's most powerful creative software at a fraction of what it used to cost. This is a clear example of how a subscription pricing structure can succeed in the real market.
In the case of Apple we are dealing with hardware and not software. And unlike Adobe, it’s hard to say that Apple will solely adopt this pricing structure, let alone make it happen overnight. But whether it is this year or next, I am certain that Apple will provide a multitude of financing options akin to a subscription model for their hardware to expand their already gargantuan cash pile. When this happens, people will freak out (as usual), question the authority of Apple (as usual), all the while Apple is laughing to the bank (as usual).