Apple Inc is working on a subscription service for iPhones and other hardware products, a move that could make device ownership the same as paying a monthly app fee, according to people familiar with the matter.
The service will be Apple’s biggest boost to date in automatically recurring sales, allowing users to subscribe to devices for the first time – rather than just digital services. But people, who asked not to be identified because the initiative has not been announced, said the project is still under development.
Shares of Apple surged to a session high after Bloomberg reported in the news on Thursday and closed 2.3% higher at $174.07. Although the stock is still down 2% for the year, Apple has now posted eight straight days of increases — its longest streak since November.
Adopting hardware subscriptions, similar to an automatic leasing program, could be a major shift in strategy for a company that has generally sold hardware at full cost outright, sometimes through installments or with carrier support. It can help Apple generate more revenue and make it easier for consumers to afford to spend thousands of dollars on new devices.
The iPhone is already Apple’s biggest source of sales, generating nearly $192 billion last year — more than half of the company’s revenue.
The idea is to make the purchase of an iPhone or iPad on par with paying for iCloud storage or an Apple Music subscription every month. Apple plans to let customers sign up for devices with the same Apple ID and App Store account they use to purchase apps and sign up for services today.
The program may differ from the premium program in that the monthly cost will not be the price of the device split over 12 or 24 months. Instead, it will be a monthly fee that has yet to be determined and depends on the device the user chooses.
The company has discussed allowing users of the software to exchange their devices for new models when new devices appear. Historically, new versions of its flagship devices, including the iPhone, iPad, and Apple Watch, were released 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 faster “buy now, pay later” service. However, the subscription service is still expected to launch at the end of 2022, but may be delayed until 2023 or eventually be canceled, the people said.
Bloomberg reported last year that the company was working on a “buy now, pay later” service for all Apple Pay transactions.
The company had initial discussions internally about attaching the hardware subscription program to Apple One packages and AppleCare tech support plans. Apple launched bundles in 2020 to allow users to subscribe to several services — including TV +, Arcade, Music, Fitness +, and iCloud storage — for a lower monthly fee.
Subscriptions will likely be managed through an Apple user account on their device, through the App Store and on the company’s website. It’s also likely to be an option when paying at the online Apple Store and at physical retail locations. Apple accounts are usually linked to a user’s credit or debit card.
The iPhone maker won’t be the first company to push subscriptions for devices. Peloton Interactive Inc. Recently tested a subscription service that allows consumers to rent bikes and fitness content for between $60 and $100 per month. Google has also tried a similar approach with Chromebook laptops, targeting corporate customers.
Apple has offered several installment programs in the past to split the cost of hardware, but not a subscription model.
In 2015, the company launched the iPhone Upgrade Program, funded through Citizens One Personal Loans, that allows users to spread the cost of an iPhone over 24 months and upgrade to a new model every 12 months. It also allows Apple Card users to split 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 attractive. The subscription program linked to an Apple account is likely easier to manage than a carrier program or even Apple Card installment plans.
Some on Wall Street have already urged Apple to switch to the subscription model. Sanford C. Bernstein & Co analyst Tony Sakunagi floated the idea of hardware subscriptions in 2016, saying at the time that it could help Apple reach a trillion-dollar market valuation. Apple achieved the feat without adopting the approach – it’s currently worth $2.84 trillion – but Sakunagi circulated the report on Thursday.
Compared to a Starbucks coffee or a New York Times subscription, he said, the iPhone is a big deal.
“Many customers will struggle to think of a single property they use more of than their iPhone,” he said. “Furthermore, the cost of the iPhone is a bargain relative to other services that consumers willingly pay for.”
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