According to people with knowledge of the matter, Apple Inc is working on a subscription service for the iPhone and other hardware products, a move that could make device ownership similar to paying a monthly app fee.
The service would be Apple’s most significant 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% at $174.07. Though the stock is still down 2% for the year, Apple has posted eight straight days of increases — its longest streak since November.
Adopting hardware subscriptions, akin to an auto-leasing program, would be a significant strategy shift for a company that has generally sold devices at total 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.
The iPhone is Apple’s most significant source of sales, generating nearly $192 billion last year — more than half the company’s revenue.
A spokeswoman for Cupertino, California-based Apple declined to comment on the company’s plans.
The company has discussed allowing users of the program to swap out their devices for new models when fresh hardware comes out. Once a year, it historically releases new versions of its major devices, including the iPhone, iPad, and Apple Watch.
Apple has been working on the subscription program for several months, but the project was recently put on the back burner to launch a “buy now, pay later” service more quickly. Nonetheless, the people said the subscription service is still expected to launch at the end of 2022 but could be delayed into 2023 or get canceled.
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 probably also be an option at the checkout on Apple’s online store and 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 $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, letting users spread the iPhone’s cost over 24 months and upgrade to a new model every 12 months. It also lets Apple Card users divide the price 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 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.
He said that the iPhone is a bargain compared with Starbucks coffee or a New York Times subscription.
“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.”