At its event on Wednesday, Apple failed to mention that consumers will not be able to buy the new iPhones using subsidized prices that used to come with two-year carrier contracts. This will be the first time consumers shopping for Apple's flagship smartphone are left without that option since the 2007 release of the original iPhone.
Instead, consumers will have to pay for the new device one of three ways: they can pay full price up front, they can buy it through a monthly payment plan from Apple or buy it on a monthly plan from a wireless carrier.
This means that interested shoppers can either pay a whopping sum upfront (the base iPhone 7 starts at $649) or opt for a payment plan that will charge them a more manageable amount on a regular basis (through the Apple iPhone Upgrade Program consumers pay $32 per month for the base iPhone 7). By contrast, the base model for previous iPhones sold with two-year contracts would start at one-time payments of $199.
"We're really excited to tell you that iPhone 7 costs the same as the iPhone 6s that it replaces--just $649," said Apple head of marketing Phil Schiller on Wednesday at the company's press event.
While discussing pricing during the keynote, Schiller did not mention that there is no subsidized payment option for the iPhone 7 or 7 Plus. He did, however, eagerly tout the iPhone Upgrade Program.
"I want to make a shout out first of all to everybody who bought this program last year because you're becoming eligible this year to get your new iPhone," said Schiller, speaking at San Francisco's Bill Graham Civic Auditorium. "For everyone else, when you think about getting an iPhone this year, realizing the opportunity these people have taken advantage of, you may want to do the same thing so you can get a new iPhone every single year."
Why the change? There's a number of reasons. In short, it benefits Apple and consumers while making things slightly more difficult for carriers. Here's how that breaks down.
The wireless industry began doing away with contracts after the arrival of T-Mobile CEO John Legere a few years ago. Those contracts were money makers for the carriers because they would tie-in consumers into two years of regular monthly payments, which was fine if you were happy with your service and had no need or desire to cancel but not so great if the service was pitiful or you simply could not afford the plan any longer.
Legere, whose task was to turn T-Mobile around, decided to kill contracts in 2013 in an effort to lure in consumers who were sick of how carriers worked. Legere allowed customers to pay on a monthly basis and introduced payment plans as a way for consumers to purchase new devices without making long-term commitments to the carrier. Both strategies proved popular and were soon mimicked by Verizon, AT&T and Sprint. Fast forward three years and all of the top U.S. carriers have done away with two-year contracts.
In many ways, Apple is just going with the tide, adjusting to the changes of the wireless industry, but in reality, Apple stands to highly benefit from this shift.
Over the past few months, Apple has seen its share price fall as shareholders grow worried due to flailing iPhone sales. Those sales have been on a downward trend as the smartphone market becomes saturated. But this change to the way Apple charges for iPhones could help the company turn things around.
By lowering the up-front cost for a new iPhone from $199 to $32, Apple is removing much of the friction stopping consumers from upgrading their devices. $649 is a steep price and $199 will make you pause before you make a purchase, but at $32 all you're giving up is one nice meal per month.
By making iPhone sales easier, this shift should help Apple once again break its iPhone launch sales record; there's a Apple is expanding this program to the U.K. and China this year. Additionally, by putting customers on what is essentially a recurring subscription, Apple will generate a steady stream of iPhone revenue spread over the entirety of the fiscal year rather than just September (the typical launch of a new iPhone) and November/December (the holiday shopping season).
Perhaps most important is the "upgrade" portion of the iPhone Upgrade Program. Consumers who buy the iPhone this way will make monthly payments that stretch over a 24-month period, but they are also given the opportunity to trade in their device after six months in exchange for a new iPhone so long as they have paid at least 12-months worth of payments. In short, this shift may end up putting more consumers on track to upgrade their iPhones once a year, not once every two years as was formerly the case. That's a big win for the Cupertino tech giant.
Where does that leave consumers? Well, there's not too much to complain about.
If you're happy with your existing phone and aren't paying outlandish prices for your wireless plan, there's no reason to upgrade. If you need a new device and can afford the hefty up-front payment, you have no reason to enter into a payment plan with Apple or your carrier. If you've always wanted but could never afford the colossal upfront payment for the biggest and most expensive iPhone, you can now pay for it at a more affordable monthly price (the top iPhone 7 Plus device costs $46 per month through the Apple plan). And if you're techie who loves to constantly buy new gadgets, this is a no-brainer.