Turning the table on smartphone ownership

Smartphone launches have taken on a predictable annual rhythm. Almost every brand worth its name releases at least one upgrade every year no matter how minimal that so-called upgrade is in terms of hardware or software additions.

And many users have conditioned themselves to be in one of the 2 buckets:

  • change the phone once every 1/2 years
  • change only when there is a compelling need, either because the existing phone has a problem/is slower, or a newer model has a feature(s) that is compellingly more useful

I belong to the 2nd bucket. My last phone was a OnePlus 5T, bought in 2018 and I upgraded to a OnePlus 9 in April 2021 mainly because the older phone did not have the VoLTE (Voice over LTE) feature and in my area, this was affecting the call quality. And given how good the OnePlus 9 is, I’m least tempted to upgrade to the just-released OnePlus 10 Pro or even the OnePlus 11 or OnePlus 12 unless they include groundbreaking new features that are useful to me.

But I gather that there may be quite a few people who would be keen to acquire a new phone as soon as it is launched. That may explain the ongoing interest from phone manufacturers to come up with hardware leasing plans that also include the option to swap phones when newer models are introduced!

Apple is only the most recent smartphone brand that is rumored to be attempting this idea. Bloomberg wrote about Apple’s plan to introduce a hardware subscription plan that would also include many software additions too, to make it compelling as an offering.

Google already has Pixel Pass, launched in 2021, that is more specifically called a ‘Pixel 6 subscription service’ and includes the Pixel 6 at $45 per month or Pixel 6 Pro at $55 per month +

  • YouTube Premium/YouTube Music Premium
  • Google One with 200 GB cloud storage for full-resolution photos and videos, Google Store discounts, automatic phone backup
  • Google Play Pass, which gives access to hundreds of games and apps completely free of ads and in-app purchases
  • Preferred Care coverage to cover device repairs

The bundling reminds me of Amazon’s famous Prime offering that includes the offline (free delivery) + the online (Amazon Music, Amazon Prime).

Samsung too has the Samsung Access program that lets you get a not-so-new smartphone (Galaxy S21 or Galaxy Note20) + 1TB cloud storage, Microsoft Office 365.

Even Peloton is trying a hardware subscription where it lets users lease the equipment along with content for a monthly fee of about $60-100.

Now, if the monthly fee is small, we tend to assume it as a ‘subscription’ and have previously put things like newspapers, cable TV, streaming video, and music into that bucket. We, in India, look at a 3-digit figure usually for such services as a monthly fee. The annual fee may be in the 4-digit bucket (like Amazon Prime or Disney Hotstar).

There is no physical delivery here (except the newspaper being delivered, of course) and the value of the item being acquired online too is reasonably small.

If the monthly fee is in the larger 4-digits or 5-digits, we tend to put it under the ‘EMI’ bucket and acquire more expensive things – like cars, homes, etc.

There is usually a physical delivery associated with an EMI and the value of the product is usually very high in relation to salaries.

We do not change the items under ‘subscription’ or ‘EMI’ that often. Even cars are generally owned for about 5-7 years, on average.

But a smartphone, with the swap rate expected every year or at least once every 2 years, is a bit unique in terms of use case.

For us to not buy a smartphone by paying the full amount upfront (or through EMI), the monthly hardware subscription ‘fee’ needs to seem reasonable enough when compared to the relatively higher EMIs, and the value we gain from the device + the services need to seem compelling too.

Imagine a monthly Rs. 5,000 for perpetuity as a hardware subscription fee that gives you:

  • a new smartphone, with the ability to swap the device when a new one arrives
  • cloud storage of nothing less than 1TB
  • one or more OTT services, music streaming
  • telecom network charges

We would then naturally start calculating in the most obvious way: Rs. 5,000 X 12 is Rs. 60,000. That’s the cost of a more-then-decent, flagship Android phone. And within that amount, we get some OTT and telecom network charges too? And the option to get a new device every year? Tempting! But is all that worth it for a monthly 10K outflow forever? Would a 2.5K per month make it more tempting? 🙂

If you see this entire plan through the eyes of the manufacturer of the phone (and the services that tie up with the company), they would view you as a cash cow who pays them every single month. And their business planning gets super-charged because they would start seeing a one-time buyer who pays the company once (with no visibility into future purchases) as a forever user who constantly pays the company! The company would now also have you firmly in their ecosystem and does not need to tempt you away from other smartphone brands every 12-24 months – you are already sold on them!

The company that puts together the most compellingly useful software + services bundle will have a significant advantage in the hardware subscription ecosystem. And they need not necessarily look inward for this, though that would help own the user in a deep manner, the way only Google and Apple can pull this off.

But the clincher in a hardware subscription plan will always be the ability and freedom to swap to a newer model when it releases. That is also going to be very difficult to execute, even though that will make the most compelling sense from the users’ point of view more than the software and services bundle.

As this happens, the way smartphones are marketed would need to evolve dramatically too.

It’s a bit like selling a book to buyers by talking about the book’s theme and the author’s background to selling a podcast series by the same author. In the latter, we are being sold a longer-term story… that the author’s ongoing thoughts on select subjects and her/his style of narration would be interesting to us, as against selling just one book at a time.

Smartphone brands too would need to relegate per-phone communication to non-subscribers, while also enticing them with the longer-term story of the combined value of the deal – the ability to swap, the entire ecosystem benefit, and the works. And there are only 3 large ecosystems to talk about – Apple, Google, and Microsoft. Microsoft has chosen to ride with the Samsung bandwagon in the absence of a device of its own.

So that puts other standalone smartphone manufacturers like OnePlus, Oppo, Xiaomi, and the likes at a disadvantage for the way they can plan their hardware subscription bundles beyond the hardware to add value. But even beyond the hardware and the software + services bundle, a lot more could be made interesting using marketing imagination.

Consider how difficult it is to exit some subscription plans. The New York Times is notorious for this. A smooth exit to a plan could also be framed as a great value proposition. On a related note, see: Ethics in the subscription business

And there’s always the partnership route that the standalone manufacturers could use – tie-up with either Google or Microsoft (since Apple is a closed ecosystem and a walled garden anyway) to extend those ecosystem benefits.

Smartphone manufacturers also get a considerably better view into the obsolescence of their older models! When they are sure of getting back a one-year-old phone they could plan second-hand sales considerably in advance and also consider a hardware subscription model for used phones!

One thing’s for sure – hardware subscription, when it launches and catches up, will completely change the way we think of, acquire and use smartphones. And it will also completely change the way smartphone brands advertise, market, and communicate.

The bottomline is this: from users owning a smartphone, the hardware subscription model would make it the other way round – smartphone brands owning the user!

Cover picture courtesy: GQ

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