Has the end of smartphone subsidies hurt sales of new iPhones?

“Apple CEO Tim Cook’s recent comments about slowing iPhone upgrade rates depressing sales got some backing from a new survey of customers,” Aaron Pressman reports for Fortune.

“People who own an iPhone are waiting three months longer to upgrade to a new phone than they did three years ago, according to surveys done by Consumer Intelligence Research Partners, or CIRP,” Pressman reports. “That’s consistent with what Cook said in April… The Apple AAPL 1.02% upgrade rate had actually accelerated in 2014 and 2015, when the iPhone 6 line was released, but then fell back significantly, CIRP reported. In the middle of 2013, only one-third of all iPhones were more than two years old, but as the rate of upgrades has slowed, the figure rose to 49% by the end of the first quarter of this year.”

“Smartphone owners used to get their phones for a lot less than the phones actually cost but mobile carriers have been phasing out subsidies as quickly as they can the past few years,” Pressman reports. “That sparked a debate. Would the end of the subsidies — and the promise of a new phone every two years — prompt customers to upgrade less frequently? Or would new promotional plans from Apple and the carriers allowing for upgrades after just one year prompt even quicker upgrades?”

Read more in the full article here.

MacDailyNews Take: Or, perhaps, neither. Maybe the iPhone 6s series simply isn’t compelling enough?

It certainly doesn’t help that Apple continued their ill-conceived “S” naming scheme which basically tags the iPhone 6s series right upfront as “No Big Deal This Year. Nothing Much to See Here. Move Along.

Death to the S!

Apple, enough with the stupid iPhone ‘S’ naming already.

iPhone “S” years usher in hugely significant features, such as oleophobic displays, significant GPU improvements, world phone capability, Siri personal assistant, video stabilization, panorama photos, 64-bit processors, TD-LTE support, Touch ID, and 3D Touch, among other improvements and additions. Each year’s iPhone deserves its own number. By not doing so, Apple is shooting itself in the foot; handicapping iPhones with an “S” every other year. Why Tim Cook or Phil Schiller haven’t put an end to this stupid – yes, stupid – “S” naming is inexplicable. Why don’t you just name it “iPhone No Big Deal This Year,” Tim and Phil?

Here’s what you say onstage and in the press release when there’s no “iPhone 7s” and you jump directly from iPhone 7 to iPhone 8: “The improvements are such that the new iPhone deserves its own number.” Period. Done. Mission accomplished. It’s your naming convention, Apple, and you can correct your stupid mistake at any time.MacDailyNews, September 16, 2015

Apple should strive to execute annual iPhone updates, in three display sizes if the SE is successful (which we think it will be), and drop the off-year “S” model concept. Apple is certainly big enough and rich enough to do a new iPhone family each and every year. Apple should have killed the tock year “S” model idea years ago.

What’s happened with iPhone is painfully obvious: Apple was at least a year (more likely two years) late with properly-sized iPhones. When iPhone 6 and iPhone 6 Plus finally, blessedly materialized, buyers quite literally stampeded to get them. Then, when faced with such a “tough compare” this year, Apple was still sticking with their ill-conceived “S” model concept – making the tough compare much, much tougher.

The “iPhone 7” family – three models with the same case design and all with 3D Touch — comprised of the 4-inch iPhone 7 SE, the 4.7-inch iPhone 7, and the 5.5-inch iPhone 7 Plus — should have debuted last September. That would have taken care of the current tough compare with iPhone 6/Plus. Then, this year, the iPhone 8 family, again with a new case design, but now waterproof, with dual cameras, etc. would debut this September. In 2017, perhaps Liquidmetal and AMOLED will be ready go for the iPhone 9. Etcetera. No more “S” years, Apple. Duh.

Had Apple done as we’ve just described, they’d have sold millions more iPhone units this year and millions upon millions more each year going forward.

Apple’s raison d’être is to delight customers. “S” model “tock” year iPhones do not delight customers in the same way as new “tick” year models. Obviously. They’re still the best smartphones on the planet, but they’re just okay. A bit of a meh. We all know that “S” models exist so Apple can wring out nice margins from existing designs and tooling, not expressly to delight customers. When Apple strays from its main goal is when things get wobbly. Just delight customers, Apple, and the world will beat a path to your door.

If we didn’t work for MacDailyNews, we’d have skipped the iPhone 6s Plus and held onto our iPhone 6 Plus units with no qualms – and we’re the most rabid Day One iPhone buyers you’ll ever find.

Why have an annual iPhone upgrade program, if you’re not going to wow us annually with new iPhones? — MacDailyNews, April 12, 2016

20 Comments

  1. I don’t have an issue with removing the subsidy what gets me is the carriers are no longer paying for part of my iPhone but did not lower the rates 1 cent, my contract with the subsidy in the price ended 9 months ago but I am still paying the same price. In fact if I want to get a new contract I can go from 6GB of Data to 5GB for a mere $35 more per month. Yes more for less. Long story short I kept my old plan without a contract an purchased my iPhone 6S out rite and saved $200 over getting a new contract and a slightly subsidized phone.

    1. I feel we are getting charged more for our services. We lost the subsidy and as you pointed out, no reduction of costs, about $18/mo per phone.

      This does impact my deciding factors for buying the next phone. I haven’t made up my mind, but at this point I feel less inclined to do so. At least with the subsidy it was use it or lose it. Now that it’s a guaranteed loss, I have little incentive to commit.

  2. Funny don’t people realize that you were paying for the phone even when the subsidies existed. It was just baked into the price.
    I prefer the new option whereby I only pay for 24 months before owning the phone. With subsidies you kept paying for the phone until you upgraded.
    The new Apple upgrade program will make me update every year since the only advantage to waiting for 2 years is to own the current phone.

    1. Not only that; with subsidy, you were essentially donating between $50 – $100 to US Government (in form of taxes) on every ‘subsidised’ phone you got. Today, with every carrier offering interest-free loans, it is much cheaper to own a phone than before.

      When we had the ‘subsidy’ model (nobody was subsidising anyone here; carriers were just bundling the price of the phone inside their monthly wireless service), you were paying a high monthly bill, and were getting a free (or ultra-cheap) phone. That monthly bill was taxes as ‘wireless service’, for which tax rates in some states are over 20%. So, for the part of the iPhone that was ‘subsidised’ ($450 or more, out of the $650 retail price), you were taxed at 20% (close to $100). Under the new, ‘no-subsidy’ model, you are getting that phone under an interest-free loan, and the phone itself is a separate line-item on your monthly bill. For the phone, you are now only paying retail tax (in some states as low as 3%; mostly around 8%). So, instead of $90, you pay $42 in tax. With subsidy, that money isn’t carrier’s profit; it just needlessly goes to the government as tax, which it shouldn’t.

      Furthermore, most carriers now offer phones on loans with $0 downpayment; all you pay is retail tax (for base iPhone model, no more than $100).

      In other words, it is now even cheaper to get a new iPhone than it was under the subsidy model.

      Bottom line: the whole argument about loss of ‘subsidy model’ hurting sales is bogus.

      1. That only works if they lowered the price when they removed the subsidy. In the case of my Carrier they did not, so same price + Pay full price for the phone. Not a good deal at all.

  3. Every new iPhone has a new hardware feature that allows exciting new functionality. The 6s’ feature is ForceTouch, which is pretty lame and definitely NOT something people upgrade for.

    Other than ForceTouch the 6s is pretty much a straight iteration of the 6. Faster, more colors, better camera, sure. But whatever. No one was complaining about those things in the 6. Nor the 5s actually.

    So yeah, the dice roll left the 6s with a little less than usual for an upgrade. Anyone being honest about the 6s saw it pretty much right away.

    The big BUTT is that Apple has hundreds of teams working on features, and those come complete on their own schedules. So future iPhones will certainly have plenty of wow.

  4. Here is my iPhone story. You can take it for whatever you wish.

    I have a very old iPhone 4s. I was very near buying a new 6s, the large screen version with 64 gigs. However, when I priced it out, with taxes it came to almost $900!!! Granted it’s a great pocket computer, camera as well as a phone, but almost $1000??? I could not justify it when the 4s still worked well and drain the current OS.

    However, times change ant the 4s is showing its age. It runs very slowly ( I can live with that) but many apps and websites are no longer reliable. Apps fail for unknown reasons. Websites reload, then reload again, and many just do not work even for a patient person like me.

    So, I decided I needed to do two things. Wait a year and get the iPhone 7. This give me one more year of use on my old iPhone, one more year to absorb the cost of the old 4s. And skip the larger screen, get the regular screen size.

    I can’t wait to get my iPhone 7 later this year.

    And I will ‘drive it until the wheels fall off’ so to speak.

    1. If you checked, the value of your 4S, without a contract you may have had, depending on how you acquired your iPhone, was either $600 or $700. So while at this point, waiting for iPhone 7 makes sense, since its only a few months away, the price is not going to change much, a 64GB iPhone 7 is probably going to be around $8-900, depending on screen size.

      1. True the price of the 7 will be about the same as for the 6s.
        But, I get an extra year from my 4s which is a savings, though not one visible immediately in the wallet, and I get a more modern iPhone which, theoretically, should be useful for about a year longer than the 6s. It will still cost me a bundle, but I am spreading out the expense over more yeas. Lucky me!

        1. Make sure you’re not on a contract cell phone plan…

          Most companies have a flex or no-contract option for about $22 less per month than the contract plans

          My phone plan is about $38/mo + $22 for the phone

  5. I know this article is about upgrading, but I want to share a story about a recent iPhone experience. My mom and I went out for lunch yesterday and we were discussing the rumors about an improved Siri. Our lunch server overheard the conversation and proclaimed Siri sucked because it never understood him. I explained that Apple will be improving Siri and the software will be updated within a few months. He then showed us his brand new iPhone 6s. He pressed down on the lock screen and a Live Photo (few second movie) of his new born baby appeared. I’ve never seen this feature before (I have a 6 Plus) and verbally said wow. I’m sure this proud Father has shown that Live Photo of his new born several hundred times.

    The point is, even though many of us complain that the 6s wasn’t that big of an update compared with the 6, we should remember that many are coming from other platforms like this new Father, and a subtle, “it just works” feature like Live Photos is brag worthy and greatly appreciated.

  6. Its not just about the base price and how that is displayed to people. When you are on contract, if you kept your phone longer then 2 years you were actually LOSING MONEY. Your plan didn’t get cheaper after the 2 years, you were still paying your subsidy but not getting the new phone for that fee.

    Now – if you keep your phone for more then 2 years you are actually saving money! Since the subsidy is not built into the plan price, you are not losing out from not upgrading.

  7. Seriously, MDN? You’re this thick?

    The subsidy was bullshit.

    AT&T gave $450 off, but you paid $40/mo per line. Off contract, buying the phone outright, or with Next, and now with IPhone Upgrade Program, $15/mo. Over two years, one was paying $600 for a $450 subsidy.

    I’ll take the current model. And, enough with the S whining already. If you’re that smart, go run Apple. Otherwise, give it a rest. It’s just a freaking name.

    1. I have one line, minimum number of minutes, grandfathered unlimited data, and discounted $20 unlimited texting. I pay the same every month regardless of whether it’s subsidized or not. Anyone with grandfathered unlimited data who isn’t just buying an iPhone because everyone else already had one, like you, is paying the same regardless. How is the subsidy bullshit? $15 a month? For 450 minutes, free nights/weekends/mobile-to-mobile calls, unlimited data, and unlimited text? Yeah right.

    2. Also, before the subsidy ended, I had a second like that was $10/month that I used for the off-years of my main like to still get $450 off the newest phone. Every two years I paid a total of $240 (minus my 27% discount AT&T gives me) for that like that saved me over $200. How is that costing more? Complete idiot.

  8. I suspect it has. I make well into six figures and even I considered skipping it because of the subsidy difference. It’s hundreds more for the same phone. But whatever.

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