A big step, raising big questions

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We first heard reports of an upcoming Apple hardware subscription back in March of last year, with two subsequent reports – the most recent one yesterday – stating that it’s been delayed, but the company still plans to launch it.

Details are sparse, but it does appear that it will differ from the existing iPhone Upgrade Program in at least two ways – and likely a third …

The iPhone Upgrade Program (iUP)

The iPhone Upgrade Program (iUP) is a way to buy an iPhone in installments, spreading the cost over two years.

It can be used in one of two ways. First, you can simply keep your phone, and after two years you own it outright. Second, you can trade it in for a new model after 11 months. In that second scenario, if you keep doing this each year, you’re effectively renting the phone without ever owning it.

However, there is a technical difference between the iUP and renting. Even if you upgrade every year, you are always taking out a 24-month installment purchase, and you do technically own the phone. Apple is simply accepting it as a trade-in against the outstanding balance.

How will an Apple hardware subscription differ?

It will likely differ in three ways:

  • It will be a true rental, not an installment purchase scheme.
  • It will likely be bundled with more services, beyond AppleCare+.
  • It will probably later be extended to other Apple hardware: iPad, Mac, Watch.

A true rental

The Bloomberg reports don’t have many details, but the crucial one is this:

The program would differ from an installment program in that the monthly charge wouldn’t be the price of the device split across 12 or 24 months. Rather, it would be a yet-to-be-determined monthly fee that depends on which device the user chooses.

In other words, while the iUP is an installment purchase scheme that can act like a rental agreement, the Apple hardware subscription really is a rental/lease. You simply pay a monthly fee for each month you use the phone.

It’s possible, however, that the line between the two may be blurred. Apple might offer the option of making an additional payment after one or two years of rental in order to transfer ownership to you. This is the model used for most car leases: an initial payment, monthly payments, and then a “balloon payment” if you want to keep the car instead of handing it back. If Apple does go that route, then the hardware subscription will probably replace the iUP.

Bundled with more services

The iUP is bundled with AppleCare+. You also have the option of upgrading to the AppleCare+ with Theft and Loss policy, in which case the additional cost is also spread out over the 24-month period.

With a true rental service, it seems likely that Apple will seek to bundle the phone with one or more additional services.

One obvious possibility here is that the phone is packaged with an Apple One subscription, potentially with the choice of the same three tiers: individual, family, and premier.

iPad, Mac, and Apple Watch later

The iUP is, as the name suggests, only available for the iPhone. But my guess is that while an Apple hardware subscription will start with the iPhone, it will later be extended to other products.

A true rental offers a big advantage over the equivalent of the iUP for other devices. Most of those opting for the iUP upgrade their phones either every year, or every two years, with Apple offering options to suit each. Other Apple devices, however, tend to be kept for longer periods – and more variable ones.

It’s very common to keep a Mac for around five years, for example. Upgrades tend to be driven not by a fixed annual or biennial cycle, but rather by new features. It’s a similar story with the iPad and Apple Watch, where we tend to hang onto our existing model until a new one excites us sufficiently to justify an upgrade.

For this reason, customers are likely to be very reluctant to be locked into a fixed period – and for something as expensive as some Mac models, may prefer a lower monthly fee over a longer period than a higher one for two years.

Raises lots of questions

However, a true rental raises a lot of questions. The Bloomberg report says that the monthly fee depends on the device chosen – but what happens as a product ages?

If I rent the very latest MacBook Pro today, will I still be paying the same monthly rental if I choose to keep using the same machine for several years? If so, then I’d obviously be incentivized to upgrade every time a new model comes out. This would mean Apple would have to calculate the rental costs based on annual(ish) upgrades, which would be an expensive proposition compared to the cost of an installment plan over several years.

What happens if someone’s total rental costs exceed the amount they would have paid by buying it on an installment plan? Is that just tough luck – they chose to rent – or does Apple cut them some kind of break in that situation?

Will there be minimum rental terms? What if I want to rent an Apple Watch Ultra for one month for an expedition, then hand it back afterward?

How flexible will the rentals be in terms of hardware? Suppose I’m a video editor who can mostly manage fine with a Mac mini, but I have a big project coming up that would benefit from a Mac Studio or Mac Pro. Could I switch to a more powerful model for a month or two, then revert to my original?

How flexible will it be in terms of services? Will Apple force me to pay for services I don’t want or need in order to rent the Mac I want?

Figuring out the answers to these sorts of questions could be one of the reasons that the launch of an Apple hardware subscription is more complex than it might appear.

Good for Apple, but is it good for customers?

An Apple hardware subscription is almost certainly a smart move for the Cupertino company. Monthly recurring income is the holy grail, and the reason Apple got into services in the first place. Converting hardware revenue from lump sums on an unpredictable schedule to fixed monthly payments – while also encouraging more frequent upgrades – is clearly a win for the company.

But what about customers?

On the plus side, it will offer more flexibility. You can (potentially) rent the device you want for as long as you want it, then hand it back when you’re done with it, or are ready to swap it out for a different one.

On the downside, it will likely be a more expensive proposition over the long-term, if for no other reason than it incentivizes more frequent upgrades. And in an uncertain economy, if someone loses their job, they could also lose all their devices when they can no longer make next month’s rental payments.

We increasingly live in a world where what used to be fixed lump-sum payments are instead turning into monthly subscriptions. We subscribe to Apple Music or Spotify instead of buying CDs. We belong to one or more streaming video services instead of buying DVDs. Many of our apps have switched from a lifetime purchase to a monthly subscription.

This trend clearly has a mix of pros and cons for consumers, but among the cons are an increase in our monthly outgoings, and the near-certainty of paying more in the long run. Subscription fatigue is already a thing, and renting Apple hardware instead of owning it may well add to this.

We’ll need to wait to see the details before we can assess the value, but what’s your view at present? Do you think a switch from buying to renting Apple hardware will be a good or bad thing? Please take our poll, and share your thoughts in the comments.

Photo: Apple Store, Bangkok/Foster+Partners

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Author: Dhanraj7978

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