Monday, September 14, 2015

Subscription iPhones

Benedict Evans:

However, a big shift in the mobile business in the last few years has been to unbundle the ‘subsidy’ from the contract into a separate installment plan, making the price much more transparent to the user. There was a widespread narrative that this would damage the high-end of the market (partly Samsung but mostly Apple), but this doesn’t seem to have happened at all.

However, shifting to an installment plan model does introduce a couple of interesting new dynamics.

First, unbundling the installments from the contract has often meant that the upfront cost of the phone goes away. Instead of paying (in the USA) $200 up front for a new iPhone, you pay zero. All things being equal, the monthly payments are therefore higher than the old subsidy that was embedded in the monthly phone contract, but it’s now two separate fees, the service part is now cheaper and the increased monthly installment/subsidy element is directly linked to ‘get a cool phone for zero up front’, so it may be easier to swallow.


So what happens to the old phones? When you take that upgrade, you have to hand in your old one. They go into the secondary market, which is rather the dark matter of the industry - we know it must be large and we can get some sense of that from survey data, but we don’t have a solid number. One illuminating data point is the fact that for the last several years the number of iPhones that seem to be in China (if you look at data from companies like Baidu) has been rather larger than the number of iPhones that Apple’s financial reporting implies could have been sold there. Second-hand closes some of the gap.


The really golden conversion is someone who was buying a new phone every two years (and probably not selling the old one). Now, instead of $650 over 2 years for the base model, they pay $778 and the previous years’ phones can be sold for another (say) 2x$350.

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