Apple still come up with breakthrough innovations? In
September Apple introduced an iPhone with 3-D touch, Apple TV
that has been turned into a gaming device and a larger iPad
with a stylus that will take the tech giant into new niches.
These products looked awesome, but they were just improvements.
There was nothing groundbreaking about them. Apples
breakthrough innovation was financial its new iPhone
Upgrade Program, which is ingenious on many levels.
Lets briefly summarize that program. If you were to
buy an iPhone 6s with 16 gigabytes of memory outright online or
at an Apple store, it would cost you $649. The Apple Upgrade
Program will provide you free financing on this phone for two
years for $32.41 a month. However, the sum of these payments
will add up to $778, because it includes AppleCare+, which is
mandatory. AppleCare+ is a fancy name for an extended warranty
service that really adds three things: It extends your
technical support beyond 90 days to two years; it increases the
phone warranty from one year to two; and Apple will replace
your phone (for a small fee) if you drown it in the toilet or
drive over it the usual stuff we do to our beloved
iPhones from time to time.
But here is the kicker. In 12 months, when Apple comes out
with another iPhone (and believe me, they will), you will be
able to hand your now old (one year, that is) phone
back to Apple and get a brand-new one. That will automatically
extend your upgrade contract by 24 months, giving you the
option to get another iPhone in 12 months, and the cycle will
continue. This is a plan that would make even the financial
engineers at Goldman Sachs proud.
Heres why: The program turns Apple into an iPaaS
(iPhone as a Service) company. For $32.41 a month your
constitutional right to pursue happiness through ownership of
each new iPhone will finally be fulfilled. Consumers are
encouraged to upgrade their phone every year instead of every
two to three years, singlehandedly pushing up iPhone sales in
the U.S. much higher.
These higher sales will also come with much higher margins.
In the current
near-zero interest rate environment, financing will cost
Apple, lets say, around 4 percent, or $26 a year (on a
$650 phone). Incidentally, Apple raised the price of AppleCare+
by $30, from $99 to $129 a year. This should more than cover
the cost of financing for the first year, and if you keep
upgrading your phone, youll keep buying AppleCare+.