For years, Wall Street has speculated that
may one day adopt a subscription model for iPhones and other hardware devices: iPhone as a service.
That moment seems to be now.
On Thursday, Bloomberg reported that Apple (ticker: AAPL) is finally working on a subscription service for the iPhone and other hardware. Apple declined to comment on the report, which is attributed to “people with knowledge of the matter.”
A subscription model could make Apple devices accessible to people who might be reluctant to buy them at full price. According to Bloomberg, the service is slated to launch in late 2022 and could tie into its Apple One software bundles and AppleCare tech support plans.
In the December quarter earnings release, Apple said it now has 785 million subscribers to its various services – Music, TV+, Arcade, News, and more. – up 165 million over the last 12 months. But this is all software, not hardware.
In 2016, Bernstein analyst Toni Sacconaghi wrote a lengthy research note speculating on how Apple might transition to a subscription-based hardware model. There weren’t many precedents – other than car rentals and cable boxes – and there aren’t many current examples, other than a recent Peloton (PTON) equipment rental experience. ‘exercise. But there is logic in the idea. As Sacconaghi wrote six years ago, “Apple is as well positioned as anyone” to launch a hardware subscription model, given its “passionate and loyal customer base.”
At the time, he wrote that Apple should probably follow
(AMZN) to have a successful subscription model. That would mean adding features and capabilities to improve subscription value, like the e-commerce giant has done with its Prime service.
“For example, Apple could assure customers of its subscription plans that they would receive priority for new products,” he wrote. “Apple could also, for example, offer a special price on Apple Music for Apple subscribers, or even offer it free for large family plans. Same for iCloud.
It’s important to remember that this was written six years ago, before Apple’s aggressive push into subscription services, and long before the launch of Apple TV+. But Sacconaghi foresaw the key role a streaming TV service could play: “An OTTP TV offering could be an important pivot in Apple’s subscription package offering, given that consumers are conditioned to buy television content on a monthly subscription basis”.
An interesting question – which Sacconaghi raised in his memo – is how a subscription-based hardware model would affect reported revenue and profit. Many software vendors have moved to a subscription model and disrupted reported results in the process.
In a more traditional perpetual license model, software publishers recognized revenue up front. In subscription models, revenue is recognized over time. For many software vendors, the result is a period in which revenues briefly dip, often confusing investors. It remains to be seen how Apple would account for a subscription-based hardware model.
On Thursday, Apple shares rebounded 2.3% to $174.07.
Write to Eric J. Savitz at [email protected]