Remember, you heard it here first.
“Apple managed to suck all of the power from the mobile carriers — and boy, did they have a lot before Apple came along — and hand it to itself,” Karen Webster wrote a few weeks ago in the follow-up to Apple’s fall product line rollout in response to its iPhone leasing program.
During that San Francisco event, CEO Tim Cook made at least one announcement that many found a bit surprising: Apple was going into the iPhone financing business.
While some customers — fanboys and girls in particular — always want the newest iPhone and buy (and bust out retail) from Apple whenever it becomes available, that has not been the norm for most consumers. Until recently, the majority of consumers upgraded every 18 months-two years when it was time to re-up their mobile contracts with Verizon, AT&T and T-Mobile et al — though recently that model has fallen out of favor with the providers in favor of phones financed monthly (through a user’s phone bills).
Apple’s move offers a similar financing plan to the providers — by selling phones that come unlocked and thus are easily able to bounce between networks — and, as Webster observed, it is bad news for the networks, as they are now a peripheral player in a consumer relationship they once controlled.
“This program [has the] ability to turn the mobile operators into their absolute worst nightmare – dumb pipes – and the customer relationship goes over to Apple,” Webster noted.
But, of course, there is a big “if” there. Would customers really want to be part of the all Apple all the time plan as the new iPhone as a service model seems to believe?
While time will broadly tell, the first data is in — and so far it is looking good for the new model.
Sticky So Far
The Apple smartphone lease is pretty simple. For a smallish monthly sum, users can own the latest iPhone 6s. After a year, that customer can turn in those phones and upgrade to the newest model. In fact, the plan is designed in a such a way that holding onto the phone for longer than that means the consumer pays more than the device’s list price.
Subtle it is not.
Effective, on the other hand, it seems it may well be.
According to a research note released by RBC Capital Analyst Amit Daryanani, 20 percent of 6,400 customers surveyed said that they had plans to sign up for the program.
“[The deal is] gaining more popularity,” writes Daryanani. “Assuming 20 percent of the USA install base of ~200M units utilizes the upgrade program, this would result in ~$0.15 in EPS.”
Daryanani also noted that Apple has found an even more effective way to peel off Android users.
“Not surprisingly, about 71 percent of respondents who intend to buy an iPhone are existing Apple users,” Daryanani said. “However, an impressive 14 percent of respondents who intend to purchase an iPhone are new to the Apple ecosystem and the majority are coming from Google’s Android.”
Other than boosting sales (and users from their rivals at Google), Apple’s new system also effectively halves the phone upgrade to 12 months, gets more users into AppleCare+ contracts (fees are built into phone financing program) and keeps consumers loyally locked in (and handing in their hold phones for refurbishment and resale).
It also seems to be moving consumers to purchase nicer phones.
The RBC Capital Markets Survey also found that among those purchasing iPhones, an increased preference for higher-end, bigger memory models is emerging.
Among the survey group, over half (51 percent) noted they intended to purchase a 64-gigabyte iPhone model; 16 percent chose 128 gigabytes. Both of those numbers show an uptick from the same figures last year when 48 percent and 12 percent last year intended to buy the 64G and 128G iPhones, respectively. Meanwhile, interest in the 16-gigabyte model — the least expensive — has fallen off sharply, dropping from 40 percent to roughly 33 percent.
The Competition Awakens
At this juncture — and likely throughout the 2015 Q4 holiday shopping rush — it will be a good time to be a consumer who wants an iPhone.
Or a Samsung phone, since Apple’s main (but declining) rival in the high-end smartphone market announced a similar financing plan for Samsungers in pretty short order after Apple’s announcement.
The carriers, on the other hand, have entered into a price war that anyone who has seen a television screen in prime time during the last three weeks can tell you all about. Verizon is financing phones (which is technically different from the leasing Apple is doing) for $20 a month (depending on model), while Sprint and T-Mobile have entered into a race for the bottom for the cost of their Apple leases.
At the time this was written, T-Mobile was offering an iPhone 6S for $5 a month, and Sprint had gotten it down to $1. While it seems unlikely that either would actually offer to start paying customers to carry an iPhone, or offer a personal assistant to come to one’s house and make all their calls for them — at this point, nothing may be off the table.
The overall writing on the wall is pretty clear: Apple is calling the shots in the mobile phone ecosystem, and everyone else follows (or gets buried).
The question, Karen Webster noted, is how afraid card networks and issuers should be right now, given a sneak peek into Apple’s latest iPhone play.
“One thing is clear. Apple sets the rules for how life in its closed ecosystem will be lived,” Webster wrote. “And it can do that because the consumer has professed its love for Apple’s products. And as long as that remains the case, those who wish to live in Apple’s world will have to play by their rules, even if they wish they were different.”
Apple Pay has not ignited like the iPhone did eight years ago — and a little under a year in use, it is unclear what its future holds. Right now, it doesn’t have enough merchants to build consumer habit — and it doesn’t have enough consumers to drive merchants to mass adoption.
But then again, it does have the EMV liability shift that went into effect yesterday going for it, as several of the executives PYMNTS spoke to for its e-book, EMV: Day 1, pointed out. Apple could have a lot to gain if EMV (and NFC as a rider) successfully pushes forward in the U.S.
But to that end, it is early to tell. What does seem to be emerging, however, is that there may soon be quite a few more consumers who not only have the newest model of iPhone, but who can also consistently be counted on to always have the newest model of iPhone — and all of the cool features and functions that come with it.