Not Excited About The New iPhone 12? Apple Is Prepared

Oct 15, 2020 - 5 minutes read time

New iPhone 12

Originally published on Forbes

Apple brought all its usual glamor to the unveiling of its latest iPhones 12 on Oct 13. There was breathless exclamation over new colors. There were speeches about chip speed. Then there’s the less breakable ceramic cover. And don’t you think a LIDAR (light detection and ranging) is only for those self-driving cars made by Waymo. The Pro line iPhones also have it now. The LIDAR will boost augmented reality (AR).

The real punch was the new 5G wireless speeds. But here lies the problem. For the first time, Apple and iPhone are ahead of the foundational technology.

Never Be the First. Be the First Who Gets It Right.

Steve Jobs warned against the danger of being too early. “Things happen fairly slowly, you know. They do. These waves of technology, you can see them way before they happen, and you just have to choose wisely which ones you’re going to surf. If you choose unwisely, then you can waste a lot of energy, but if you choose wisely, it actually unfolds fairly slowly. It takes years.”

Jobs was referring to when he waited for two years for broadband. When it finally arrived, he jumped into the window of opportunity with the iPod. Countless others moved earlier than Apple, producing their own MP3 players. They all failed miserably. Before the 2000s, music sharing was possible—on Napster. But it took hours to download an album. With connectivity that poor, even the best-designed hardware made for hopelessly sluggish downloading. Jobs was waiting for the inevitable improvement of broadband to materialize.

apple smartphones

Cut to 2020, when Apple is launching an iPhone with a 5G chipset even though networks are far from ready. Around the world, 5G signals are not necessarily faster than 4G. 

But CEO Tim Cook has few choices. The past shifts to both 3G and 4G were hugely important in spurring people to upgrade their smartphones. By the law of large numbers, Apple now finds it hard to sustain the same growth rate it saw in 2014, when the iPhone 6 and 6 Plus were released. They became the best-selling iPhone models of all time, selling more than 220 millions units worldwide. Their successors, the iPhone 7 and 7Plus, have sold less than 80 million units to date. It’s hard to know how many iPhone 12s Apple could actually sell. You can listen to my podcast interview at Channel News Asia with Lin Suling and Bryan Ma here.

The fundamental problem is that those faster speeds will be important for video streaming and gaming, but they won’t necessarily make a difference in regular web surfing or email checking. That may make some consumers pause before they spend money on a new phone, particularly given the very uncertain economic times we live in.

If you are a shareholder, please don’t sell your Apple shares quite yet. There is one more trick Apple has to get people to buy the latest iPhone they don’t need.

Everything is a Subscription

Starting in fall 2020, Apple One will be available in over 100 countries, including in the US. Subscribe to Apple One and you’ll get Apple Music, Apple TV+, Apple Arcade, and iCloud storage. Apple Premier will add on Apple News+ and Apple Fitness+.

Apple TV

Apple One alone might not get consumers to buy new iPhones. But if it’s bundled with those phones, it might do just that. 

Since last year, people have been able to pay for a new iPhone on a monthly basis. In the US, for example, you can get an iPhone 11 and Apple TV+ for $17/month. Apple also adjusted its AppleCare+ terms. You can subscribe monthly, and AppleCare+ will carry on until you cancel, just like other Apple services such as Apple Music. Of course, Apple has its iPhone Upgrade Program, which bundles a yearly upgrade and AppleCare+. But this shift to selling AppleCare+ on its own is another step to make Apple’s relationship with its customers into a subscription-based one.

If this sounds complicated, it is. That’s because Apple is running all these different bundles to gather consumer data. It needs behavioral data to calculate the lifetime value of a user. If I give you a new iPhone, how likely is it that you’ll cancel it in six months? How likely are you to break it, so that I’ll will need to replace it for free? If I bundle different services, are you going to upgrade them or not?

All these questions can only be answered by real-world experiments. And you can bet Apple is running those right now.

It’s only a matter of time before Apple offers a variant of the iPhone Upgrade Program that is simply an all-inclusive Apple subscription. You’ll pay one monthly fee, and get everything Apple has to offer. Indeed, in the era of the iPhone 12 and beyond, nothing would show that Apple is a services company more than making the iPhone itself a service.

When that happens, make sure you really stock up Apple shares.

The Hottest Way to Make Money

From Netflix to Amazon Prime, from Disney+ to Microsoft 365, the subscription model is king for one reason: customer adoption. Whenever something turns into a subscription, you no longer pay a lump sum upfront. You pay a small monthly fee and then get habituated. When was the last time you canceled a magazine subscription?

Apple services

But for a technology company like Apple, subscriptions solve another problem. They help push the technology toward maturity rather than having it pull the consumer over. Here is the scenario. Unless there are lots of phones with 5G chipsets, telecom carriers won’t be very eager to roll out 5G on a large scale. But without a good 5G network, the iPhone 12 won’t have big appeal.

A subscription model will break that cycle. You and I won’t mind having a feature we don’t really use. Since the monthly subscription feels cheap, having a new phone with a nice packaging is already enough. That lowers the barrier to consumption, which in turn creates this push for telecom providers to plunge ahead with 5G rollouts.

Is it a sustainable strategy? We don’t know. But it’s the only viable strategy to keep Apple growing. So the company is trying it.


Stay healthy,

Howard Yu signature

P.S. What about you? Will you buy the new iPhone? What if you could pay via a monthly subscription? Let me know what you think below. Join the discussion.



M. A. Bergagård Oct 21, 2020 at 2:19pm

A good read and analysis of the new iPhones Professor Yu. As your IMD colleague Prof. Didier Bonnet would say, it is a "platform of platforms" that they have created and will deepen this to create a subscription of hardware and services on-top of it. I guess it could also be one reason for this, is that the technical differentiator is not so big as it used to be in comparison to other mobil manufacturers from Asia. Still the new iPhone 12 does perform on 5G with a max 2 Gbits Download speeds. Now we only need service that can use that speed to give a great customer experience where such data speeds will be needed. I see FaceTime AR/VR as the next level services that can render with these speeds and low latency for the consumer market.

Howard Yu:
Howard Yu Oct 23, 2020 at 5:00am

Thanks a lot for the observation! That's so true, it's platform of platforms. I agree with you the big use case should be on real-time AR. That would be of high potential. Thank you for sharing your insightful thoughts.

Omri Hephner Oct 19, 2020 at 4:40am

It depends on the fee - I'd do a simple calculation and decide if I want to do a subscription or not. I change phone every 2 years on average. I pay for 200Gb of iCloud, I pay about USD 6 for Netflix all these comes down to about USD 70 a month. I don't think I'd be willing to pay that much for subscription even though it makes sense to do so.

Marco Oct 18, 2020 at 7:50pm

Hello Howard, I find the price in Switzerland rather high 1100chf) so I would definitely move into subscription assuming it’s worth it.
Stay safe

Howard Yu:
Howard Yu Oct 19, 2020 at 1:32am

Great to hear from you Marco! Yes, over a CHF1,000+ for a phone is really in the extreme. I agree!

Henry Oct 18, 2020 at 4:05pm

It’s really a mix of models. It’s subscription pricing for content and a sort of leasing for hardware (bundled). Content scales really well. Hardware is more capital intensive. Apple had been a brilliant inventory manager. Now all that inventory will sit on their balance sheet (as an asset). They have plenty of cash and in that one sense their opportunity cost is low. But a good return on that incremental asset base isn’t without risk - think of the traditional car leasing model. If any one can do phone rental well it will be Apple but maybe the law of large numbers you mention just makes incremental growth really hard. That said, nothing ventured nothing gained.

Howard Yu:
Howard Yu Oct 19, 2020 at 1:31am

Henry, thank you so much for your insightful comment. I like that you compare to the car leasing model. That's a great analogy!

Hans-Peter Rohner Oct 17, 2020 at 4:22pm

Steve Jobs developped the philosophy of apple as a customer-friendly "prison" - once you are "in", you hardly get "out".....the successors are struggling in keeping this "prisoners-feeling" alive......i am personally more like "freedom-of-choice".....and therefore my next phone is probably something else....paid cash at once.

Howard Yu:
Howard Yu Oct 18, 2020 at 7:17am

That's so true Hans-Peter. The switching cost is just piling up... Great observation!

Gram Makwarimba Oct 17, 2020 at 1:01pm

A very interesting article, instead i got to learn a lot

Howard Yu:
Howard Yu Oct 18, 2020 at 7:16am

Thank you Gram!

Jeremy Tucker Oct 16, 2020 at 6:07am

The LIDAR scanner is pretty cool and it would be my best reason to upgrade to iPhone 12 Pro! It's really an interesting move from Apple.

Howard Yu:
Howard Yu Oct 18, 2020 at 7:16am

Yes, I can't wait to see what kind of application will evolve around the Lidar functionality.

Norman Leadley Oct 16, 2020 at 5:43am

Very insightful article, Apple is really taking a giant leap ahead!

Howard Yu:
Howard Yu Oct 18, 2020 at 7:15am

Thank you Norman! Glad that you enjoyed the piece.

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