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Apple's new strategy for fighting off Android, retaining customers

Steven Max Patterson | Oct. 7, 2015
Apple is using its huge cash hoard to keep customers from defecting to Android with iaaS – iPhone as a Service.

How Apple's one-year iPhone upgrade plan could fight off Android

Apple's iPhone 6s announcement last month introduced a big incentive for iPhone owners to upgrade every year. The one-year upgrade plan is really a two-year installment purchase, financed at 0% interest by Apple with the option to upgrade to a new iPhone after 12 months. There's a catch, though – another 24-month installment purchase contract comes with the upgrade.

The customer gets the newest iPhone every year, and in return Apple renews its customer for two years simply by notifying them that their new-and-improved iPhone is ready for pickup at the Apple Store. Drop off the old iPhone and sign for the new one; customers will maintain their image as early adopters with the newest, most stylish iPhone at about the same monthly price. Drop and break it? Swap the broken iPhone for $99. This new model, the "iPhone-as-a-Service" (iaaS) plan, is as fundamental a shift as Infrastructure as a Service (IaaS) was from owning computer systems or Software as a Services (SaaS) was from owning software.

It's a good deal for iPhone loyalists. An entry-level iPhone 6s costs $649 plus $129 for Apple Care, or about $32 per month. Alternatively, the iPhone can be purchased for $27 per month over a 24-month installment plan, plus $5 per month for Apple Care, a total of $32 per month. Or, for $32.45 per month, customers can get the new iPhone with Apple Care and a guaranteed upgrade in 12 months. Promising a brand new iPhone upgrade in a year with $0 down at 0% interest, Apple clearly wants customers to choose iPhone as a Service, and for very good reason.

The iPhone is an amazing example of design, engineering, and supply-chain manufacturing. However, on a generation-to-generation basis, the difference is just not always enough to convince iPhone owners to upgrade. The iPhone 6 and 6s families share physical characteristics, making them indistinguishable except for the newer iPhone's Gold and Rose Gold colors. The iPhone 6s runs apps faster, but not really fast enough to convince iPhone 6 user to upgrade without a financial incentive.

YouTube game reviewer Mad Matt TV posted two videos showing speed comparisons between the iPhone 6 Plus and the iPhone 6s Plus: one that compared the execution time of various apps, and the other that showed the time for the finger-print reader Touch-Id to unlock both devices. There's no question that in most tests the 6s Plus won, but does it matter? Is the difference even noticeable?

The chart below compares the difference in load times of the apps on the iPhone 6s Plus to the 6 Plus (difference is measured by comparing the completion times of the load times in the videos measured in hundredths of seconds). To give the response time context , the red line represents the mean visual reaction time (331 milliseconds, or about one third of a second; 331 millisecond was cited as the mean visual reaction time in a paper titled Comparison between Auditory and Visual Simple Reaction Times in Neuroscience & Medicine). Visual reaction time is the time to perceive a visual stimulus and react, which researchers generally peg at 300 to 500 milliseconds. If you want to explore this idea further, you can test your visual reaction time on this website.

 

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