All-in-one Apple hardware and software subscription inevitable, says analyst

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Apple is getting closer to being able to offer a bundle combining its hardware and software services in a single package, Loup Ventures analysts believe, suggesting the company may provide more options for consumers to acquire an iPad, Mac, or Apple Watch via a hardware subscription.




Presently, Apple offers the iPhone Upgrade Program to consumers, enabling participants to pay a monthly subscription fee to possess a current-generation model of the smartphone, and to update it each year as newer models come out. According to analysts Gene Munster and David Stokman of Loup Ventures, this could be expanded to cover other hardware, and possibly even software services like Apple One.

"Apple has a history of perfecting a playbook and then reapplying it to new parts of its business," the analysts start, before proposing the iPhone Upgrade Program could be reused for the Mac, iPad, and Apple Watch lines to create "hardware subscription offerings" for each range.

"Eventually, we envision the company merging its services offerings, alongside hardware subscriptions, to create a 360-degree bundle," the firm suggests. "Think of this as paying a monthly fee to Apple for most of your tech needs."

Consumer shifts

It is reckoned the move would capitalize on macro trends of "an ongoing digital transformation and changing consumer buying preferences," with Apple thought to be one of the only companies that could make it work due to their ecosystem and maintenance logistics.

For Apple, such a subscription would be great from a financial point of view, as it would increase the revenue generated by subscriptions from around 55% to approaching 85%. This could potentially increase Apple's revenue as well as representing a more stable income source than the current seasonal hardware-centric approach.

The digital transformation is apparently being accelerated by the COVID-19 pandemic, which will help push for more workers to stay at home. It is suggested that home working after the pandemic subsides will be roughly three times higher than before, while the shift of education back to schools will still require educators and parents to have the capability to move back to learning-from-home at a short notice.

"With these shifts come a greater emphasis on the reliability and utility of hardware, software, and services we depend on," the investor note reads.

As evidence of this transformation, Loup Ventures points out how Mac revenue grew 29% year-on-year in the September quarter, up from 22% in the June quarter and from the flat growth three quarters previously. The same could be said about iPad, where revenue grew 46% and 31% in the same respective quarters, whereas nine months previously the growth was around 4%.

"Going forward, we believe Mac and iPad growth rates will stabilize around 10% over the next few years," according to Loup Ventures, "representing a step up from flattish growth pre-pandemic."

On consumer purchasing habits, it is thought that this too would improve on two fronts. First, the pace of tech innovation pushes consumers into wanting to own the latest hardware, something that can be answered with subscriptions due to consumers not needing to swallow the full purchase cost in one go.

Secondly, consumers are said to be moving towards a "rent vs buy mentality," citing a survey from 2019 where 31% of Millennials use subscription services compared to 21% of Gen X consumers and 8% of Baby Boomers. The trend affects multiple industries and price levels, the firm suggests, making an all-in-one subscription more plausible.

For consumers, a subscription could offer better value, given this mentality. Using the iPhone 12 as an example, the iPhone Upgrade Program offers the prospect of annual upgrades and incorporates AppleCare for $34 per month, whereas using Apple Card for an installment plan would be $40 per month without Apple Care, making it a more expensive alternative.

Apple logistics

Apple is "uniquely positioned to expand its hardware subscriptions" from the viewpoint of servicing and maintenance. As a hardware subscription would require more "frequent exchanges between buyer and seller," there needs to be a "seamless return mechanism," something Apple already offers through its various trade-in programs.

While Google and Samsung have relatively similar products and services they each offer, Loup Ventures considers Apple to be in a far better position to perform such an all-encompassing subscription.

For Google, the rate of declining value for its hardware versus Apple's products makes it harder for the search company to do so financially, with trade-in values for hardware like the Pixel 4 versus the starting price being at around 28% while the iPhone is nearer 50%. This impacts its ability to refurbish the older hardware for resale, and the consumer's perceived value of the hardware over time.

On Samsung's side, while the trade-in offers are "in line with Apple's," the lack of integration between hardware and software is the problem. "Apple's tightly integrated ecosystem provides a better user experience and helps keep consumers loyal to its products," the note adds.

Loup Ventures concludes that for such hardware subscriptions to be adopted, the product family needs to work seamlessly together, the service infrastructure has to be in place, and hardware also needs to hold its value. "Apple is the only company that can bring all three of those together."

The note is a continuation of Munster's long-held opinion that Apple wants to be known as a services company rather than one focused on hardware. While this has largely involved years of commentary about Apple's services, this has also included the possibility of bundling "hardware and software together as value-added packages."
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Comments

  • Reply 1 of 27
    DAalsethDAalseth Posts: 1,501member
    Good for the bottom line
    Bad for the environment
    Let's see what Apple's real motivation is
    Japhey
  • Reply 2 of 27
    I realize the general public may have a negative view of the “product as a service” model Apple is said to be striving for, however this business model is the best possible chance we have for saving our planet and reducing the amount of new materials that need to be mined and then just thrown away in the form of e-waste. Every manufacture should be required to take their old products back and recycle as much of the material as possible. Creating this closed loop system can be read about in the book “Cradle to Cradle” which explains this system and how for decades these companies have been making billions while we the public are forced to deal with their waste from cheaply made throw away products. I wish apple would talk about this policy more and explain to the public how valuable a tool this can be for fighting climate change. 
    JapheyStrangeDaysdewmeviclauyyc
  • Reply 3 of 27
    GeorgeBMacGeorgeBMac Posts: 9,278member
    ...
    Secondly, consumers are said to be moving towards a "rent vs buy mentality," citing a survey from 2019 where 31% of Millennials use subscription services compared to 21% of Gen X consumers and 8% of Baby Boomers. The trend affects multiple industries and price levels, the firm suggests, making an all-in-one subscription more plausible.

    Aside from Apple combining a services contract with hardware leases (which they could do as a marketing tool to enhance the appeal of their hardware), I find this trend towards renting and buying kind of alarming.

    Leasing instead of buying is a form of borrowing.  It's a form of leverage.  In business, leverage enhances both earnings on assets as well as losses on assets.   In other words:  they do really, really great when times are great -- and they do really, really badly when times are bad.  In fact, when times turn bad, they tend to go belly up -- and the pain spreads because they have no assets to be sold to satisfy their debts -- so their creditors get nailed as well.   That is one of the main factors that caused a near full blown depression in 2008 -- financial firms were over leveraged.

    And, the same happens with individuals:   Take for instance a leased car:   the lease enable the individual to obtain far more car than they would otherwise be able to afford -- it's one of the reasons why you see so many luxury cars and high end pickups on the streets.  But, what happens when the economy sours and the person loses their job?   They can't pay their lease -- so their car is taken from them.  So now they not only have lost their job but they can't even get to a new one because they lost their transportation.   But, its not just them that suffer:  the leasing agent also takes a hit -- so the pain spreads.

    While I am not saying that all renting and leasing is bad, but when it becomes a way of life, when it becomes the assumed norm and too prominent, while the good times are better when the bad times come they are far worse.

    dewmemuthuk_vanalingambageljoey
  • Reply 4 of 27
    crowleycrowley Posts: 7,640member
    I see "could" and "believe" in the article text, but no "inevitable".  Is the headline written by someone else?
  • Reply 5 of 27
    sdw2001sdw2001 Posts: 17,433member
    DAalseth said:
    Good for the bottom line
    Bad for the environment
    Let's see what Apple's real motivation is
    That's an pretty big leap.  You seem to be assuming that products will just be thrown away.  Do you make the same argument about cars and leasing?  These products often take own second lives with new owners.  Or, they are recycled, part of a re-manufacturing process, etc.  There really isn't any evidence that such a program would harm the environment.  It's just pure speculation on your part.  
    StrangeDaysGeorgeBMacviclauyycurahara
  • Reply 6 of 27
    Leasing is what my father called 'The Never, Never'. You never stop paying and you never own what you paid for.

    IANAL etc but if Apple want to paint a big target for the Anti-trust hawks in the state capitals and DC (As well as in the EU etc) then this is it.
    Let others do this but don't risk them coming after you with some really, really hefty fines and breakup orders.

    Even stop advertising. Then customers will be making their own choices.

    GeorgeBMac
  • Reply 7 of 27
    Rayz2016Rayz2016 Posts: 6,704member
    DAalseth said:
    Good for the bottom line
    Bad for the environment
    Let's see what Apple's real motivation is
    Great for the environment.

    Do you think Apple bins the devices it gets back?
    StrangeDaysviclauyyc
  • Reply 8 of 27
    Rayz2016Rayz2016 Posts: 6,704member

    Leasing is what my father called 'The Never, Never'. You never stop paying and you never own what you paid for.

    And I had an uncle who used to say if it goes up in value then buy it; if it goes down in value then rent it.

    Which is why a number of my friends have stopped buying cars. They either rent them when they need them, or just rent them and have someone else take care of the expenses for services and maintenance. 

    IANAL etc but if Apple want to paint a big target for the Anti-trust hawks in the state capitals and DC (As well as in the EU etc) then this is it.
    Let others do this but don't risk them coming after you with some really, really hefty fines and breakup orders.

    Why? When did renting stuff become illegal?
    StrangeDaysviclauyyc
  • Reply 9 of 27
    Rayz2016Rayz2016 Posts: 6,704member

    I realize the general public may have a negative view of the “product as a service” model Apple is said to be striving for, however this business model is the best possible chance we have for saving our planet and reducing the amount of new materials that need to be mined and then just thrown away in the form of e-waste. Every manufacture should be required to take their old products back and recycle as much of the material as possible. Creating this closed loop system can be read about in the book “Cradle to Cradle” which explains this system and how for decades these companies have been making billions while we the public are forced to deal with their waste from cheaply made throw away products. I wish apple would talk about this policy more and explain to the public how valuable a tool this can be for fighting climate change. 
    That's the problem. They can't. 

    Try telling folk that their brand new top-of-the-range iPhone isn't made of shiny-fresh new parts. They'd accuse Apple of selling them second-hand junk.

    It's a hell of a balancing act.
    viclauyyc
  • Reply 10 of 27
    auxioauxio Posts: 2,244member
    Leasing is what my father called 'The Never, Never'. You never stop paying and you never own what you paid for.
    It's an interesting shift in thinking: never wanting/needing to own things.  I didn't own a car for years, choosing to use a mixture of a car sharing service, transit, and taxis (pre Uber/Lyft).  I estimated that I saved about $70k over 10 years of doing that.  People I know have done the same with home ownership: choosing to rent & invest.  Though given the jump in value of real estate in my area over the past 15 years, I don't see how they'd be doing much better.  But with most large consumer purchases like cars and electronics, unless you keep them for a long period of time and don't encounter problems, you tend to do better not buying them.
    StrangeDaysviclauyyc
  • Reply 11 of 27
    StrangeDaysStrangeDays Posts: 11,163member
    DAalseth said:
    Good for the bottom line
    Bad for the environment
    Let's see what Apple's real motivation is
    Wut? When you trade in your iPhone for a new one, Apple doesn't landfill it. They reuse it, which is great for the environment. At end-of-life they are recycled, and there's already plenty of coverage explaining how well Apple's recycling programs operate.
  • Reply 12 of 27
    flydogflydog Posts: 928member
    DAalseth said:
    Good for the bottom line
    Bad for the environment
    Let's see what Apple's real motivation is
    Not seeing any logial connection between the environment and paying for something monthly vs up front.  Please enlighten us. 
  • Reply 13 of 27
    StrangeDaysStrangeDays Posts: 11,163member

    Rayz2016 said:
    Leasing is what my father called 'The Never, Never'. You never stop paying and you never own what you paid for.

    And I had an uncle who used to say if it goes up in value then buy it; if it goes down in value then rent it.

    Which is why a number of my friends have stopped buying cars. They either rent them when they need them, or just rent them and have someone else take care of the expenses for services and maintenance. 
    I have a Manhattan-CEO uncle, he can certainly afford to buy but also prefers leasing -- if you like a new car or don't plan to drive an old car into the ground, pumping repairs into it as you go for years on end, then leasing is fine if you have the disposable income.
    viclauyyc
  • Reply 14 of 27
    flydogflydog Posts: 928member

    Leasing is what my father called 'The Never, Never'. You never stop paying and you never own what you paid for.

    You also don't pay the entire price.

    Whether leasing is beneficial depends on the terms, including tax consequences.  It's not a decision that should be based on some illogical "never never" rule pronounced by forum poster's relative.
    dewmerandominternetperson
  • Reply 15 of 27
    Except there are no “fees” associated with the iPhone Upgrade Program. It’s literally just the iPhone and the Apple Care + divided by 24 months. And it’s zero % interest. 
    And it’s not a lease. 
    You own it at the end of it if that’s what you want to do. 
    It’s a way to pay off your phone in incremental payments that comes with the OPTION to upgrade. No obligations.  
    edited December 2020 GeorgeBMacrandominternetperson
  • Reply 16 of 27
    GeorgeBMacGeorgeBMac Posts: 9,278member
    Leasing is what my father called 'The Never, Never'. You never stop paying and you never own what you paid for.

    ...
    True -- but it appeals those who respond to the used car salesman asking:   "So how much can you afford each month?"

    Essentially, they can't think past their next pay check -- till the paychecks stop -- then they have nothing.   Then they whine.
  • Reply 17 of 27
    GeorgeBMacGeorgeBMac Posts: 9,278member
    flydog said:

    Leasing is what my father called 'The Never, Never'. You never stop paying and you never own what you paid for.

    You also don't pay the entire price.

    Whether leasing is beneficial depends on the terms, including tax consequences.  It's not a decision that should be based on some illogical "never never" rule pronounced by forum poster's relative.

    A lease is just a loan -- where you not only pay for the product but then pay for the money used to pay for it  -- except you end up with nothing in the end (except a pile of cancelled checks).
    dysamoria
  • Reply 18 of 27
    GeorgeBMacGeorgeBMac Posts: 9,278member
    T-Roxx said:
    Except there are no “fees” associated with the iPhone Upgrade Program. It’s literally just the iPhone and the Apple Care + divided by 24 months. And it’s zero % interest. 
    And it’s not a lease. 
    You own it at the end of it if that’s what you want to do. 
    It’s a way to pay off your phone in incremental payments that comes with the OPTION to upgrade. No obligations.  

    True!
    There are some good leasing programs out there.  
  • Reply 19 of 27
    I just hope Apple will not turn into another Adobe. Forcing customers to rent than own. I used photoshop and Lightroom once in awhile, it makes no sense to me to only use it 3 times a year while I have to pay for whole year. If I only rent it when i need it, I will be locked out the access to my own file. It makes no sense. 

    But I know Apple is not that stupid to only offer rental. And an iPhone or Mac is not like a image app that you will use it once in awhile. Pretty much everyone use it everyday for many times.

    dysamoria
  • Reply 20 of 27
    dewmedewme Posts: 3,534member
    Leasing is a good option where there is elastic demand. I've always questioned why big chain stores, especially grocery stores, have 24 checkout aisles and POS stations when there are only 3-4 days a year where all of them are open. That's a lot of idle capacity. I once inquired about this specific situation to a colleague who works for a major retail equipment seller, along the lines of "Why doesn't your company lease POS stations to retailers to handle seasonal demand instead of getting them to buy excess capacity that's rarely used?" His response was about the same as if I'd called his kid stupid and his wife ugly.

    I think a number of products that Apple sells would fit into the leasing model quite nicely, especially for corporate customers who get to leverage tax write offs and seasonal changes in the number of employees or temp workers.

    Also, I kind of view several current Apple products as being de facto lease arrangements anyway when you consider things like the difficulty/lack of serviceability, lithium ion battery lifetimes, availability of service parts, and eventual (planned) obsolescence (though to a lesser degree than some vendors). This is very apparent with AirPods. I'd like to see Apple come up with some bundling and service plan option that includes a set of AirPods/AirPods Pro with Apple Music subscriptions. Perhaps if you commit to a ?? month Apple Music subscription, or prepay for ?? months, Apple would throw in a set of AirPods, and a ??+ month prepay or subscription commitment would get you a set of AirPods Pro or an equivalent set of Beats headphones. Maybe something similar for Apple TV-HD and TV-4K boxes with Apple TV+ prepay or subscription commitment. 

    Finally, there's nothing preventing leasing arrangements from terminating with the opportunity for the lessor to purchase the device at a substantial discount so it doesn't end up in a waste stream immediately. Off lease products could also be directed into other markets, like education, charity, and non-profits.
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