This Friday, I signed up for the iPhone Upgrade Program, because of course I did. A new iPhone every year? How could I refuse?
It goes beyond that, though, and I’m starting to believe this could be the start of a fundamental shift in how people buy technology going forward. Before we dive too deep into that, though, a brief Q&A:
So what is the iPhone Upgrade Program?
Well, to start with, it’s not a lease, like many people seem to think – it’s 0% financing, through Apple. Take the price of an unlocked iPhone, add the cost of AppleCare+, divide by 24, and that’s what the monthly payment is. Like any financing plan, you can pay it off at any time. When the next iPhone comes out, you have the option of selling your current iPhone back to Apple and getting the latest model, while your monthly payment remains static.
Isn’t this what AT&T and Verizon and other US carriers already offer?
Yup! It varies a bit, depending on if you get insurance through them, whether or not you want AppleCare, and how long the terms of the contract are, but yeah, it’s not dissimilar to AT&T Next and Verizon Edge and other such things.
So why go through Apple?
Because fuck the carriers.
Seriously? That’s it?
Kind-of. The problem with any of the US carrier plans is that you’re tied to that carrier, at least until you pay the device off. Phones you get through the iPhone Upgrade Program are unlocked. You could jump from AT&T to T-Mobile to Verizon to Sprint, all on the same device.
So why is this a big deal? Haven’t other companies sold their phones directly? Why do you think it’s the possible start of a paradigm shift?
Because it’s Apple doing it, and – like it or not – when Apple does things, it tends to impact the industry in a big way.
Apple saw the writing on the wall; subsidized phones are dying, and with it, any way to realistically claim that their phones “start at $199”. So, millions of customers are now looking at the unlocked, unsubsidized price, and let’s face it: no one wants to pay $650 for a phone, much less the $750 you need for a phone with decent storage or the $850 for a phone with decent storage and a big screen. Those aren’t the type of numbers that move 13 million phones over a single weekend. But you know what sounds way better than $650 all at once? $31 a month.
Why does that sound better? Well, I can’t speak for everyone, but personally, I’m better at budgeting around monthly payments than I am at saving up for a large one-time payment – even in cases when the large one-time payment is cheaper. One-time costs are scary; monthly payments are smaller and friendly. That’s why I suspect that this isn’t just a shift in how people buy iPhones, but potentially a shift in how people buy all sorts of things.
You know what sounds expensive? A $349 smartwatch. You know what sounds better? Paying $16 a month for that same smartwatch, which is the price of the cheapest Apple Watch plus AppleCare, divided by 24. You know what sounds even better than that? “Upgrade every year and enjoy the latest iPhone and the latest Apple Watch for just $45/month!”
Apple is positioned as perhaps the only company that could do this – they sell almost all of the pieces of the hardware puzzle, so they could easily ‘bundle’ together pieces of Apple hardware for a ‘discounted’ monthly rate. I imagine there are millions of people who would pay $80-100 a month to ensure they have the latest iPhone, Apple Watch, and iPad, or $100-120 for the latest iPhone and MacBook Pro.
This is why I call the iPhone Upgrade Program – and my hypothetical Apple Upgrade Program – “hardware as a service”. So many of the software services we use every day are updated and improved without our knowledge; some we pay for with money, others with our data. All of them largely exist to do things we could do on our own, but we pay for the convenience. I could run my own cloud storage system, but Dropbox is far more convenient. I could use Google Drive for free, but I might prefer paying for Office 365.
“Software as a service” has always been about trading money for convenience, and “hardware as a service” is no different. I could budget better, save up a large payment, buy a new unlocked every year phone, and sell my old phone – but I don’t, because now there’s an easier way. It may not be the most cost efficient method, but it’s by-far the easiest.
The fact this is starting on an S-cycle year really helps drive this point home, as you’re quite-literally paying for a faster, better version of the otherwise-same package. Think of it as “subscribing” to the iPhone; you pay the same price for the service, and it gets better on a yearly basis. Office 365 gets video support; the iPhone gets a 12 megapixel camera. Dropbox gets a team feature; the iPhone gets another gig of RAM.
The only fundamental difference at this point is that one is software and one is hardware, which is one reason why I believe Apple is so intent on making the hardware upgrade process as seamless as possible – which is why I think AppleCare+ is built-in as part of the deal – it’s the final piece of the “hardware as a service” puzzle. Something go wrong? Rather than pay another $650, you just head over to the Apple Store, pay a one-time fee, and you’re back in business, good as new.
It’s insidious in its own way; the most overt form of hardware lock-in imaginable. Once you’ve bought into the iPhone Upgrade Program – or a hypothetical Apple Upgrade Program in the future – why would you want out? If you like the devices, and you’ve already budgeted for the monthly costs, you have little reason to consider competing products unless you have a terrible experience.
Lock-in aside, though, it may also truly be a win/win for customers – I believe it is, otherwise I wouldn’t have considered the iPhone Upgrade Program at all. It gives people the option to buy a truly unlocked device, free from carrier interference, in a way that many people can likely budget for much more easily.
It’s consumer-friendly enough that I not only hope my Apple Upgrade Program becomes reality, but that other companies follow suit. Why not pay Google $40 a month for a Nexus phone and a high-end Chromebook every year? Or Samsung $60 a month for a yearly upgrade to your Galaxy Note and Gear S smartwatch? Or Microsoft $80 a month for a flagship Windows Phone and a Surface tablet? The best part is, if this catches on, it should be fully scalable. If all you need is a basic phone, you budget $5 or $10 a month and get the equivalent of a Moto G every year. If you need a new high-end laptop and and flagship phone, then you budget $100 or 200 a month. If you change phones and tablets more frequently than laptops, then you just budget for those, while continuing to save up for a new laptop when you actually need it. This may be the only way smartwatches ever truly catch-on; rather than being an expensive accessory, they become a relatively in-expensive “add-on” to your hardware plan.
It’s easy to see this not just becoming a way we buy our hardware, but the preferred way to buy hardware. I can’t speak for everyone, but I know I’d prefer to set aside a lump monthly payment to always have the latest phone and watch – if it’s a known, constant cost, I can budget for it, and never have to think about saving up money for a new device in those categories again. Most of the software we use every day is getting faster and better without us thinking about it; it’s about time the hardware we use follow suit.