The service would be Apple's biggest push
yet into automatically recurring sales, allowing users to subscribe to hardware
for the first time — rather than just digital services. But the project is
still in development, said the people, who asked not to be identified because
the initiative hasn't been announced.
Apple shares climbed to a session high
after Bloomberg reported on the news Thursday and closed up 2.3 percent at
$174.07. Though the stock is still down 2 percent for the year, Apple has now
posted eight straight days of increases — its longest streak since November.
Adopting hardware subscriptions, akin to an
auto-leasing program, would be a major strategy shift for a company that has
generally sold devices at full cost outright, sometimes through installments or
with carrier subsidies. It could help Apple generate more revenue and make it
easier for consumers to stomach spending thousands of dollars on new devices.
Already, the iPhone is Apple's biggest
source of sales, generating nearly $192 billion last year — more than half the
company's revenue.
The iPhone accounted for more than half of
Apple sales last year. A spokeswoman for Cupertino, California-based Apple
declined to comment on the company's plans.
The idea is to make the process of buying
an iPhone or iPad on par with paying for iCloud storage or an Apple Music
subscription each month. Apple is planning to let customers subscribe to
hardware with the same Apple ID and App Store account they use to buy apps and
subscribe to services today.
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.
The company has discussed allowing users of
the program to swap out their devices for new models when fresh hardware comes
out. It historically releases new versions of its major devices, including the
iPhone, iPad and Apple Watch, once a year.
Apple has been working on the subscription
program for several months, but the project was recently put on the back burner
in an effort to launch a “buy now, pay later” service more quickly.
Nonetheless, the subscription service is still expected to launch at the end of
2022, but could be delayed into 2023 or end up getting canceled, the people
said.
Bloomberg reported last year that the
company has been working on a “buy now, pay later” service for all Apple Pay
transactions.
The company has had preliminary discussions
internally about attaching the hardware subscription program to its Apple One
bundles and AppleCare technical support plans. Apple launched the bundles in
2020 to let users subscribe to several services — including TV+, Arcade, Music,
Fitness+ and iCloud storage — for a lower monthly fee.
The subscriptions would likely be managed
through a user's Apple account on their devices, through the App Store and on
the company's website. It would likely also be an option at checkout on Apple's
online store and at its physical retail locations. Apple accounts are typically
tied to a user's credit or debit card.
The iPhone maker wouldn't be the first
company to push hardware subscriptions. Peloton Interactive Inc. recently
started testing a subscription service that lets consumers lease bikes and
fitness content for between $60 and $100 per month. Google also has tried a
similar approach with its Chromebook laptops, targeting corporate customers.
And Apple has offered several installment
programs in the past to split up the cost of devices, though not with a
subscription model.
In 2015, the company launched the iPhone
Upgrade Program, financed through Citizens One Personal Loans, that let users
spread the cost of an iPhone over 24 months and upgrade to a new model every 12
months. It also lets Apple Card users divide the cost of an iPhone or Apple
Watch over 24 months or an iPad or Mac over 12 months. Wireless carriers offer
several monthly installment programs as well.
The new approach could make existing
services less appealing. A subscription program tied to an Apple account would
likely be simpler to manage than a carrier program or even the installment
plans for the Apple Card.
Some on Wall Street have previously urged
Apple to switch to a subscription model. Sanford C. Bernstein & Co. analyst
Toni Sacconaghi pitched the idea of hardware subscriptions in 2016, saying at
the time that it could help Apple get to a $1 trillion market valuation. Apple hit that milestone
without embracing the approach — it's currently worth $2.84 trillion — but
Sacconaghi recirculated the report on Thursday.
Compared with Starbucks coffee or a New
York Times subscription, the iPhone is a bargain, he said.
“Many customers would struggle to think of
a single possession they use more than their iPhones,” he said. “Moreover, the
cost of the iPhone is a relative bargain versus other services for which
consumers willingly pay.” © Bloomberg LP