Why Apple needs to sell a lifestyle, not another iPhone
Apple critics often scoff that when people buy a MacBook or an iPhone, they aren’t really buying a gadget as much as they are buying into the “Apple lifestyle.”
But that might not be such a bad thing for the company moving forward, according to analysts at Bernstein.
Here’s Apple’s problem, as it stands: It makes the bulk of its money by selling hardware on a renewal cycle, and that makes it vulnerable if people start replacing their iPhones less often.
“iPhone amounts to nearly 70% of total company profits today, and over time, the smartphone market will invariably saturate,” the analysts wrote in a note on Friday. “Apple will no longer be able to gain share, and the iPhone business will become a replacement market.” That problem worsens if those replacement cycles get longer.
The analysts’ solution to this is simple: Make “Apple,” in a broad sense, a subscription.
Apple is already pushing toward this with its “iPhone upgrade program,” in which users pay a certain amount per month to get a new phone every year. But the analysts are thinking bigger. They seeing you paying a monthly fee for access to the Apple lifestyle, which means an iPhone and an iPad and access to Apple Music and iCloud, and so on.
The analysts think this a good idea for a few reasons. First, consumers have become increasingly accustomed to paying monthly bills for things like Netflix, Spotify, internet, and cable (and more). And second, “smartphones (even on the high end) are relatively inexpensive on a cost per use basis when compared to other services for which customers willingly pay.” That means that when you break owning a smartphone down into smaller units, it appears more affordable, because you get a sense of your true use.
Here’s how the analysts explain that second point:
For example, a Starbucks customer may pay $3.65 every morning for a grande latte (a figure which few would find shocking), yet this is more than 3x as expensive a habit as iPhone hardware use. Given the $700 price tag on an iPhone 6S and a replacement cycle of 2+ years, iPhone users pay less than $1per day for the device – seemingly a relative bargain. Even if we account for the additional daily cost of wireless service (perhaps $30-60/month or $1-$2/day), the total cost of owning and using an iPhone (~$3/day) is less expensive than buying name-brand coffee every morning.
Given this, the analysts think Apple could put together a package that consumers would find appealing from a price point.
Here’s what the analysts think an “Apple family plan” might look like (the OTTP plan is a potential “skinny bundle” TV replacement, streaming service priced at $40):