Subscribe to the iPhone, Cook's Apple 3.0

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Apple, which is not worried about selling, may launch a monthly iPhone at the end of this year.

According to Bloomberg, a market insider revealed that Apple is preparing to provide a hardware subscription service business, which may be launched as soon as the end of this year.

According to the report, the service may bundle Apple star hardware products such as iPhones and iPads with apple care+ that has been launched before, or Apple streaming services such as Apple TV, iCloud, Apple Music, etc., and the subscription fee depends on the specific device model.

This means that users who use subscription payment can get the latest iPhone by paying a certain monthly service fee, similar to the way to rent a car, so it has also been ridiculed by many netizens as a monthly iPhone.

In the consumer market, it is not unusual for consumers to rent an iPhone for one more month. After all, the iPhone has also launched 24 interest-free installment financial services before, and like the monthly iPhone, it is also to reduce the threshold for the use of expensive iPhones.

But for the consumer technology industry, the introduction of hardware subscription system symbolizes a change in Apple's business model. Why is Apple introducing hardware subscriptions? What are the benefits of hardware subscriptions for Apple? Is it really cheaper for consumers to rent an iPhone per month?

Complete Cook's Apple 3.0?

After jobs died, for The Apple performance growth methodology under Cook's leadership, it has mainly experienced three stages with obvious characteristics: the early 1.0 stage, which comes from the innovative hardware development of smart wearable products such as watches and headphones led and carried out by Cook.

The mid-term phase 2.0 is based on Apple's complete smart hardware ecosystem. In 2019, Cook held a hardware-free conference to draw a blueprint for Apple's future from a hardware technology company to a service subscription enterprise.

After this, although apple service income has grown at a gratifying rate over the years, hardware as the basic soil of Apple's service income cannot be lost, so consolidating the ecological advantages of hardware soil has become the main goal of the later stage 3.0.

To this end, dominated by iPhone star products, Cook mainly took two measures. One is the supply chain side, the ultimate optimization of inventory management, so that Apple inventory from the early 7 days to 3-2 days.

The other is the expansion of the product price band, starting from the iPhone X series to break through the 5,000 mark, the main digital series price increase to the 10,000 yuan market; while updating the small screen iPhone SE series products, the Apple price will be lowered to less than 5,000 yuan, covering the 3,000 yuan model market.

A series of hardware strategies have been operated, and according to the latest market data, the iPhone market share has expanded significantly.

But whether the iPhone sold will face slow sales is a sword of Damocles hanging over Cook's head.

Unlike the slow sales of traditional hardware manufacturers, it can often be judged by inventory. For Apple, which emphasizes 0 inventory management, because of the extremely high turnover rate and the immediate adjustment of market expectations, there is almost no inventory problem of unsalable products.

Therefore, in Apple's new hardware products, there is often a contradictory market phenomenon.

On the one hand, subject to the impact of global supply chain logistics, iPhone products in the consumer market are out of stock; but on the other hand, demand is less than expected, and Apple is constantly reducing orders on the supply side. The contradiction between the two aspects makes whether Apple's new hardware products are really not worried about selling as an unverifiable pseudo-proposition.

Taking the latest products of the iPhone 13 series released in September last year as an example, after weakening the strong premium of the brand that Cook has been executing, it has received good feedback from the market under the hot comments of "no price increase" and "thirteen spices". However, just one month after its launch, the sales forecast of 90 million units originally scheduled for 2021 fell to 80 million units.

The market reasons behind the reduction of 10 million units are not so unified, and some market analysts believe that it is due to the impact of the supply chain under the epidemic and the reduction in production caused by insufficient production capacity. However, some market analysts believe that the iPhone 13 is actually a product that has not performed as expected.

In an interview with the Economic Observation Network, Sun Yanbiao, chairman of Rising Sun Big Data, did not agree with the reduction in production. He believes that as soon as the iPhone13 was released, the iPhone 8 broke that year, that is, it fell into the market conclusion of insufficient innovation, which led to the shortening of the market hot sales cycle.

This means that after the iPhone 8, there will be a reduction in production due to the innovation cycle problem of hardware products, which is inevitable for the iPhone.

Not only the main digital series of iPhone 13, according to Japan's "Sankei Shimbun" reported on the 28th, affected by the market environment, the new iPhone SE, which has just been released for only 3 weeks, is also facing production cuts, or will reduce production by 2 million to 3 million. At the same time, Apple also lowered the order volume of AirPods headphones in 2022, which is expected to reduce more than 10 million pairs of headphones throughout the year.

The market demand for a series of hardware products is less than expected, and it is clear that the 3.0 stage where Cook wants to stabilize the hardware soil has not completed the goal. After supply chain management and price band expansion, hardware subscriptions may be the last soil to complete the Apple 3.0 stage under Cook's governance.

How can subscriptions change Apple?

For the hardware subscription system, Cook has been looking forward to it.

On Apple's 2019 conference call, cook did not deny it when asked by AB Bernstein technical analyst Toni Sacconaghi about "whether Apple will launch a hardware subscription program to generate recurring revenue."

Cook said he was already working on a similar program, and they realized that there were many users who wanted to be able to have such a recurring payment scheme and get a new product by some standard. So they're working to make it easier and easier every day.

If you sort out Apple's layout for subscription payments, you may be able to better understand Cook's "easier to achieve every day." Combing found that for the hardware subscription system, Apple adopts a strategy of small steps and fast running.

First, in 2015, Apple began to let people pay for iPhones in installments, and launched a warranty and upgrade program to test the payment habit of regular payments on a small scale.

Second, the launch of a variety of programs to stimulate user upgrades, in fact, is similar to the concept of continuous upgrades in hardware subscriptions. For example, the launch of the iPhone upgrade plan in 2016 and the promotion of the old-for-new program in recent years, the core is to emphasize the continuous hardware upgrade at a certain cost.

In 2019, Apple's chief financial officer Luca Maestri pointed out that the size of the trade-in program has increased by 5 times compared with the same period last year. Since then, Apple has fully transformed into a service company, and the implementation of application subscription services has made more consumers dependent on the Apple ecosystem.

According to Apple's latest annual report, as of December 2021, Apple's paid subscribers to various services have reached 785 million, an increase of 165 million in the past 12 months, and subscription services have become Apple's new main source of revenue.

Therefore, the market's speculation about Apple's hardware subscription model is mainly to combine hardware with the subscription services that Apple has launched before. For example, subscription services such as iCloud storage space and Apple TV+ are combined to launch a fixed monthly amount to achieve a transaction model from hardware sales to a subscription model.

The benefits that can be brought to Apple by launching a hardware subscription service are also obvious.

On the one hand, it solves the long-standing product cycle problem of technology hardware companies. Because of the cyclical problem of scientific and technological innovation, for the innovation of hardware products, it is often manifested as a cyclical trend of product sales on the market side.

For example, the epoch-making iPhone4s, iPhone 6 and other products have reached a peak in Apple's hardware product sales, while the subsequent release of iPhone 8, iPhone 13 and other products with insufficient innovation will also reach the bottom of a cycle.

The relatively stable and predictable hardware subscription system can avoid the product cycle of hardware by continuously upgrading the user dependence of hardware. At present, the industry is collectively caught in the mobile phone hardware product update without great innovation, so that Apple hardware products from the business model to get rid of the innovation dilemma, improve the recurring income, naturally worth the expectation.

On the other hand, the launch of the monthly rental iPhone may also further expand the market share of the iPhone in the second echelon of emerging development countries such as India. According to current data, the expensive iPhone only has a 4% market share in emerging markets such as India.

In addition to boosting sales, the launch of hardware subscription services, if fully successful and expanded, will further promote Apple's transformation from a hardware technology company to a hardware service company. That's a good thing for Apple, but it's not true for consumers.

Is the monthly iPhone more expensive or cheaper?

As a complementary and innovative way of selling, hardware subscriptions may be beneficial to Apple without harm. However, for consumers, the monthly iPhone under the subscription system may not be so smooth to use.

Psychologically, Kahneman and Tversky's classic paper published in 1979 pointed out that people naturally have a loss-averse mentality, that is, the pain of losing something is far greater than the pleasure of getting it.

Different from the traditional hardware buyout ownership system, the hardware subscription model is precisely to continuously strengthen the psychological loss aversion experience. The right to use for a certain period of time obtained through a hardware subscription means that once the subscription term expires, the consumer no longer has the right to use.

This means, in part, that if you don't subscribe automatically by default, each expiration is a repetition of the psychology of disgust that you lose and get again. In actual use, whether each default subscription can get a better service experience upgrade mainly depends on whether the brand is really serving attentively.

Not only that, if the upgrading of hardware products slows down, within the long life cycle of a hardware, hardware subscriptions will also fall into the phenomenon that the actual cost is becoming more and more expensive.

Taking smart cars with longer life cycles than mobile phone products as an example, the subscription system requires users to spend more money than a single buyout.

He Xiaopeng, the founder of Xiaopeng Motors, once said in the earnings call: "If you pay by service and month, in fact, from the total point of view, the price will be higher than the one-time buyout price." At the same time, he also said that Xiaopeng Motors is considering increasing the service method of paying in other forms.

Therefore, for Apple, although it is only a change in the payment model, whether it can launch a hardware subscription service that is accepted by more consumers is essentially whether the business model can change from the sale of traditional hardware technology companies as the end point, to the sale is not the end, but just the beginning.

After the market rumors that Apple may launch hardware subscriptions, at the Oscars on the 28th, Apple beat the largest content manufacturer Netflix to get the crown of streaming, and its movie "Hearing Girl" won this year's Best Picture Award.

Cook at the scene may not have believed the scene in front of him, and after hearing the host announce the winning film, he did not immediately get up and applaud, but sat in place and blinked his eyes.

The rise of Netflix is one of the hallmarks of the growing boom in the streaming subscription economy. Apple, which beat Netflix at the Oscars, doesn't know if it can extend this incredibly good fortune of Cook to hardware subscriptions.

After all, before Apple, there were also many hardware sales companies that transformed into hardware service companies, but both Toyota and BMW eventually failed.