Why Apple's iPhone Upgrade Program Is a Bad Deal For Most

Mark Wilson writes: You may have heard that Apple had a little get together today. There were lots of big launches — the iPhone 6S, the iPhone 6S Plus, and the iPad Pro. Those waiting for an iPhone fix were given quite a lot of get excited about, but like your friendly local drug dealer, Apple has a 'sweetener' to help ensure its customers just keep on coming back for more: the iPhone Upgrade Program which lets you upgrade to a new iPhone every year as long as you keep paying each month. On the face of it, it might seem like a good deal — particularly as the price includes Apple Care — but is that really the case? What Apple's actually doing is feeding the habit of iPhone junkies, keeping their addiction going a little bit longer, and a little bit longer, and a little bit longer. In reality, Apple would like you to perma-rent your iPhone and keep paying through the nose for it. Ideally forever.

Comments

Get used to it, this is the future

[Aboroth]

Monthly payments for everything you use and pretend to own! From your music you listen to, to the movies you watch, to the software you use, to the storage space on the cloud where you keep all your data, and the physical hardware you pretend like you own. Pay for everything in your life, for the rest of your life! What a deal! Fall on hard times for a few months and miss a few payments, and watch your whole life disappear! Weeee!

Re:Get used to it, this is the future

[MasseKid]

Or put away a little money every month so when you fall on hard times? Although if I could really turn off and turn on the more expensive parts of my life at no penalty when I needed extra dough that would be kinda sweet.

Re:Get used to it, this is the future

[phantomfive]

What we really need is a payment program that will pay for payments.

Re:Get used to it, this is the future

[LaurenCates]

I can't imagine why this has suddenly become a thing. Outside of Netflix, which I understand, since movies are a way different beast than software and music.

If there's one damn thing right my parents taught me, it's about owning my own shit. Get things paid off as quickly as possible so that it's yours, and you don't end up dependent on anyone or anything for the thing you've paid for, especially if it's something you need on a moment's notice.

I've had to explain to more than one person that "the cloud" is a cute as hell idea, until "the cloud" is down for a few hours, or gets hacked.

Re:Get used to it, this is the future

[thedonger]

I can't imagine why this has suddenly become a thing.

It isn't sudden. Gyms have been on this train for years. New car salesman want you to "buy" a new car every three years. Make the monthly payment part of life, and people forget it is there -- it becomes the baseline. And it allows them to make more accurate revenue projections.

Re:Get used to it, this is the future

[CastrTroy]

Personally I'm OK with paying for a music subscription. There's so much music out there, that I couldn't hope to own even a tiny fraction of the good stuff if I was buying everything by the album. Music services cost about $10 a month. For that I'd be lucky if I could buy a single album every month. After 10 years of buying 1 album a month, I would still only have 120 albums. That's a pretty small selection of music as far as I'm concerned. Esepcially when you consider that you wouldn't always select the best option 100% of the time. After 10 years, probably only 80% (96) of the albums would be worth listening to. And that's being generous as far as how good I am at picking up albums. Then there's the problem of multiple good albums coming out in the same month. Do you buy 3 albums one month, and spend a lot of money, leaving you with no new albums for the next 2 months? Or you could just pay $10 and have access to just about everything.

Right now, my only complaint is that they don't have absolutely everything. I think there would be a decent market for a service that cost $20 and had absolutely everything, but the music labels won't let that happen. It would probably even be a good deal at $30. Same goes for Netflix. I would probably pay many more times the current rate if they had everything. $40 or $50. Most people were/are paying more than that for cable already, and they still weren't getting everything.

I think that all media bought on subscription is a pretty good deal, provided it makes it cheaper to access more. Personally I don't ever tend to read a book more than once, because it takes so much more time than any other kind of media, and there's just so much good content out there. I really don't see any value in owning a book.

Re:Get used to it, this is the future

[torkus]

So you're actually *complaining* that the carriers finally separated out the cost of the phone from the cost of their service?

Re:Get used to it, this is the future

[edtice1559]

Buying something for a one-time payment vs. paying a monthly fee *feels* like a smarter financial decision. But it isn't necessarily. Most things that you buy are very non-liquid (hard to sell) and depreciate quickly to zero. If you go out and spend $500 on a phone, you *feel* like you didn't really spend that much money. You used to have $500 in cash and now you have a $500 item, so you really just traded one asset for another of equal value. But this is just a psychological effect. Unless it's a piece of capital equipment that you are going to use for generating revenue, it's really an expense incurred immediately. If you wouldn't do the monthly rental plan, you probably shouldn't purchase the item. So if the offered monthly rental doesn't feel as emotionally good as an outright purchase, that's just psychology. You probably should neither buy nor rent the item.

Re:Get used to it, this is the future

[CastrTroy]

This is especially true since there are so many cheaper ways to get exercise. My local arena charges $2.50 to go skating. You can take a walk or go for a run basically for free, you just need a pair of shoes. Cycling can cost a bit more to get started, but you can get a working bike for not too much money off Craigslist, and it costs nothing for you to ride it.

You can get some decent exercise for just a fraction of what a gym membership costs. If you want to lift, pick up some cheap dumbbells from walmart and get started. Sure it won't be sufficient for the fitness maniacs who like to spend 10+ hours at the gym every week, but they are probably getting their money's worth from the membership. If you just want to get in shape, and do some mild exercise, it costs almost nothing. I never understood why anybody would want to pay for a gym membership and then never use it when there are so many better options.

Re:Get used to it, this is the future

[kurkosdr]

I can't understand what the "author" is babbling about. iPhone's have the best LTS from any other mobile OS. Devices get upgrades for a long time (compared to many "open" Android phones like the relatively recent Galaxy Nexus which has no official support for the latest version of it's OS), and even after they don't receive upgrades, they do not stop working. I see people with iPhone 4 phones still using them. But if your lifestyle demands having the latest and greatest iPhone, Apple will offer you a service to "assist" in that. In no way is this an indication that "evil apple doesn't want you to own your device". But you see, most people here secretly hate people who can afford having the newest, and try to spin them as "sheeple".

Re:Get used to it, this is the future

[Grishnakh]

You can preach this stuff about living within your means to people all you want, but they're not going to listen, especially people at the bottom who, as you put it, can't afford to participate in our shared culture. We've seen it over and over again, where someone from a poor background hits it rich (usually through sports or music fame), lives high on the hog for a while, and then goes bankrupt after their fame disappears.

Re:Get used to it, this is the future

[ProfBooty]

People's lack of impulse control, and future time orientation allows others to become rich, from stockholders, to stock buyers.

Re:Get used to it, this is the future

[ceoyoyo]

It hasn't suddenly become a thing. People have been leasing cars forever. This is the same thing. I know people who get a new car every two years. They like having new cars, and lease programs are designed for them. There are some people who want the latest shiny at all times. If you're one of them, this phone lease program will make it a bit cheaper for you to do that. If you don't replace your phone every year then this isn't for you.

The insidious thing is the cell provider model of obscuring the fact that you're leasing a phone by bundling it with the connectivity itself. Kind of like if the only price a car dealer would ever advertise was the downpayment, and your actual lease payment was bundled with the cost of gas.

Re:Get used to it, this is the future

[qwijibo]

Netflix pays royalties based on what movies get watched. The more people who watch something, the more the producer gets paid.

I'd definitely agree that a monthly entertainment expense would be popular if a similar model was used across content providers. If Amazon has content that Netflix doesn't, it would be nice to not have to pay two subscriptions to switch between them.

Likewise, if both have the same content but one has a better content delivery, the one that serves the customers best should get paid more. Screw Netflix's bad download rates that can be gotten around by stopping and restarting the video from a different server. That shows that their infrastructure, not my connection is the limiting factor.

Same thing could apply to free services like youtube. Skip the lame commercials and take a slice of that $50/month pie for those who produce good content. I don't think most people are against paying for something they like, but when it's a lot more work for the user, it's not going to happen.

Of course, the problem is that companies that provide content want the fixed monthly fee so they have a budget to work from. It's a lot harder to run a business if you don't know how much you can invest in infrastructure, content, etc. Companies like Netflix and Amazon would have to work together and pool resources to make it mutually beneficial. Oh wait, Netflix runs on Amazon Web Services already.

Subscriptions for services make sense and most people are used to these. Subscriptions for physical objects like phones just seems like a way to feed junkie consumerism. While addiction is a great thing for the bottom line, I think there's an adverse affects on the way people act in many other parts of their lives.

I like that when something is paid off, the Total Cost of Ownership keeps going down. Many things in life benefit from the not-disposable mentality. I take care of my phones and they last a long time and stay in good condition. This is just a matter of common sense to me, even though my employer pays for my phone entirely, so I don't actually save a penny on not smashing it every time a new one comes out. Other people seem to have 'accidents' within weeks of new phone releases, but that usually appears to be part of a larger pattern of poor decisions.

Re:Get used to it, this is the future

[PopeRatzo]

As a society, we have a real inequality issue and I'm sympathetic to those who can't afford to participate in our shared culture

What if not participating in our shared culture prevents you from improving your financial situation? What if that "shared culture" was specifically designed to increase inequality?

We're creating a digital divide that's more effective than a fence at the border when it comes to keeping out the "undesirables".

Re:Get used to it, this is the future

[ArmoredDragon]

That seems foreign to me. I've always been putting a third of my income into savings every month, no matter what my income level, and my income has ranged from very low (12,000 a year) to what some call middle class (roughly 48,000.) Sure I always feel like I'm in a money pinch, but I'm so used to this being my standard of living that it doesn't bother me.

Re:Get used to it, this is the future

[edtice1559]

If these were capital equipment purchased for business purposes (Perhaps you run a business that tests Android apps for a fee), this would be a reasonable accounting method. Assume three year linear depreciation or something along those lines. That's not my point, though. In your example, I buy the device for $730 knowing that a year later I could sell it for $365. Or I could rent it for $1/day for a year. Both are the same from a financial perspective. In the first scenario somebody will say "ut I own it." Yes and in the second scenario you could rent it for a year for $365 and then buy a used one at the end for $365. You're slightly ahead in the second scenario since you could have earned interest on the $365 in your pocket. Of course in real life, you won't get this deal. The lease will end up costing $1.10 / day or something. Given the two scenarios the outright purchase *feels* better to most people, but it's simply not significantly better if the rental price is reasonable. The OP to which I was responding was pointing out that, in the rental scenario, you don't *own* anything in the first scenario. My point is that it doesn't make a difference. At any time after purchase the device will have less value than when the purchase was made. Renting from initial time x to x+1 for approximately the depreciation cost during that time is the same, financially, as owning. Since these devices eventually go to zero after some time, lets suppose it's three years, this means that a three-year rental for the full price of the device is no different than owning. You might say that at the end of the ownership scenario you have a device that's worth nothing where as at the end of the rental you have nothing. And, of course, you can use a device worth nothing. With the rent, you are forced to rent again. But this isn't true as exhibited by the fact that used iPhone 3s are available for free or $5 (essentially free) at the local Salvation Army store. The only time that owning is beneficial over renting is if the item in question has the potential for capital appreciation (going up in value). Buying a depreciating asset isn't any better financially than renting a depreciating asset at a reasonable price. But it *feels* better which is a problem because it leads to poor decisions.

Re: Get used to it, this is the future

[Anonymous Coward]

This is why we have the problems we have today. Phones are not obsolete in a year or two. The companies trick you into believing they are. And you fell for it. Hook line and sinker. You are what we call a sucker.

Re:Get used to it, this is the future

[JudgeFurious]

You really think it was designed to increase inequality? Seriously? That is for to laugh. It was designed to make money without regard to equality, inequality, sustainability, or anything else. It was designed to make money. This digital divide you talk about isn't intentional at all. It's worse than that because if it was intentional then it could be stopped in a fairly straightforward manner. Instead it's like an annoying little gnat that keeps flying in the face of these companies and surfacing at awkward times like a random fart floating around in the middle of a cocktail party. They address it with a program or an offer, give away some stuff every once in a while, and hope everyone quits noticing it and resumes throwing money at them. It's just a side effect and the companies making all this cool stuff really would prefer that every single person in existence could afford their stuff. They just aren't interested in doing anything to make that happen. Not their problem.

Re:Get used to it, this is the future

[viperidaenz]

fsociety will fix that

Re:Get used to it, this is the future

[Grishnakh]

The 60s-80s reference should make it pretty obvious I'm a fan of classic rock, and also metal (but not really extreme metal; think Iron Maiden, not whatever the latest Norwegian growling death band is), so obviously I'm not interested in anything playing on the radio these days (aside from the classic-rock stations where I can hear the same 5 Pink Floyd songs over and over and over), so we're talking about indie stuff here. I'm sure there's decent stuff out there somewhere, but good luck finding it. Record labels are no longer going out and finding actual talent and making and marketing albums any more like they used to; this sounds all evil-corporate, but it actually served a good purpose in being a quality filter. After all, look at how talented and influential Led Zeppelin was, which was a product of that system. There's lots of great bands that came about because of that system (and of course there's plenty of crappy ones like Poison...). I also think that it's quite likely the finished product from these discovered bands ended up being different because of input from the record producers. Sometimes this was a disaster or negative in some way, but other times it was probably quite positive, helping new bands get access to experienced professionals to help guide them (as well as sound engineers to help them with that aspect, before the advent of the Loudness Wars).

Nowadays, garage bands can record their own albums, but they don't have experienced people around to help them or give them feedback. They can post their music on YouTube, sell it on cdbaby.com, etc., but you really have to be active in a particular subculture to find out about them, and then you're going to spend tons of time sifting through a lot of stuff that's probably quite mediocre at best hoping to find a gem. And that's if you can even find any bands that play stuff in the genre you're looking for. It's like everyone has diverged far from the mainstream. I like a lot of classic metal for instance (Iron Maiden, Crimson Glory, Queensryche (first 5 albums), Scorpions, Testament, Dream Theater), but if I hang out in Reddit's /r/metal, while there's lots of activity and lots of new music, it seems that it's almost all from Europe, and frequently some kind of death metal which just isn't of interest to me.

Also, even if you do find some great bands on Youtube or wherever, that's nice, but what about concerts? If you're a fan of some Swedish band, you're probably not going to get to see them live when you live in the US. If you're a fan of some garage band, you're almost definitely not going to see them live because they don't tour. There's still bands playing to arenas, but they're all old classic-rock bands like Styx that are making the money they can (all their fans are middle-aged and have good incomes and can afford $50-100 for a ticket, and they bring their teenaged kids with them too) before they're too old to tour any more. Black Sabbath is already saying this is their last tour because Tony Iommi can't do it any more. These guys are getting old and touring is hard, and there's no new bands able to build up the fan base needed to support that. Things are a bit different over in Europe where they have regular metal festivals in Sweden, with lots of local bands you probably won't easily hear over here.

For anything played through corporate channels or sold on CD at Walmart, it's just like what Gr8Apes talks about below.

Apple pretty much had to

[hsmith]

Carriers are moving away from subsidized phones due to changes they are making to make more money off of you. Due to this, it puts sales of shiny new phones at risk.

With Apple's leasing you the phone plan, it completely makes this irrelevant. Not many people want to shell out $700 for a new phone, but $30 a month they don't have to realize they are paying $200 in interest. It is silly human psychology.

They had to do it to keep things going.

Re:Apple pretty much had to

[jandrese]

The cost is pretty much exactly new phone and Applecare + for the year. Apple is offering what is effectively a 0% interest loan. It's a bad deal if you don't want to upgrade every year, but for people who absolutely must have the new shiny and spring for the insurance it is break even.

Re: Apple pretty much had to

[Anonymous Coward]

Only if you trade it in each year. Keep it for two years and you own the phone.

Zero opportunity cost...

Re: Who cares

[Anonymous Coward]

So, all of Slashdot, then!

Dumbest article ever

[Maury Markowitz]

Let's see, Apple does *exactly* what everyone else is already doing, for a slightly lower cost, with clearly defined terms and nothing hidden in the price, and slightly improved conditions (AC+).

Apple is evil. ::rolleyes::

Depends on lots of factors

[xtal]

I sell my phone every 18 months. Technology is moving fast.

It's closer to break even (with AppleCare) than you might suspect; the variance will be on the policies around damage, wear, replacement, etc.

Also consider the out of pocket on taxes - my 128GB phone cost me around $1000 out the door here in Canada. (15%)

I think it's ~$20/mo depreciation over a 2 year period vs. $34/mo they're taking, but my time is worth something, and if they make it headache free - it's not as crazy as it might seem at first when you run the numbers. I'm already paying $120/mo all in for service - yay Canada.

Over 4 years? The depreciation is very high - it's stupid to keep the phone this long if you want a new one.

If things get so grim $14/mo is a problem, no, this service isn't for you - but it's not as crazy as you might first think. I'll probably take them up if the price differential isn't too crazy here over the US.

Re:Depends on lots of factors

[wardrich86]

Android phones definitely outlast iPhones. My S2 lasted me a good 3 years. When I finally ditched it, it was still very capable, and running Kitkat thanks to the Slimkat ROM.

Apple is way too locked-down and restricted. They last as long as Apple lets them last.

Re: Depends on lots of factors

[Uberbah]

It's the Hatorade Distortion Effect.

Article tells us headline is wrong.

[Thruen]

FTA:

For someone who knows that -- without a doubt -- they will upgrade to whatever new iPhone comes out in a year's time, and they're confident that they'd definitely take out Apple Care, it amounts to a saving of a few dollars over two years.

This is just another pointless article by a hater, he doesn't even agree with himself. It's bait, and not even good bait, he throws a few numbers out there but doesn't show us any actual cost comparison between using the upgrade program Apple offers and, say, paying full retail or taking advantage of other upgrade programs offered by the service providers. Indeed, he even states that you can save money using the program while complaining that you're just sending more to Apple. There's no substance to the article, no facts to back up all of his complaining about the bad upgrade deal. He's probably just sour he's already in a contract and can't dump his outdated phone to take advantage of the new program. This article is just one of the many new additions to the pointless Apple hate on the internet we'll be seeing now that they've announced another upgrade to their mobile product line.

Just a quick disclaimer, since a bunch of you will no doubt label me a fanboy, I use Apple AND Android products, they both have different advantages and disadvantages. I find myself defending Apple products most often though because for some reason there's this strange hate towards them from people who don't use them, as if we should all be that worried about what phone other people are using...

This article is ridiculous

[WD]

Phones are different than computers, yet people still try to apply the computer mentality to it. You don't just buy a smartphone and sit back and use it until it breaks. Unlike Windows XP, your smartphone OS has a very limited window in which it will receive security and other software updates. For iPhones, it seems to be a few years. For Android, it is worse and generally always less than two years. For some of the discount Android phones on discount carriers, the phone may have been abandoned before you even made the purchase!

In what world do you buy a smartphone and use it for the rest of your life? An upgrade plan that includes Apple Care "bad for most"? Hint to the author: You can't extrapolate your personal opinion to apply to the rest of the world.

6S

[iTrawl]

Nothing spells "success" like 6S. Others might say that spells "sucks ass", but to each their own.

If this catches on

[Marginal Coward]

If this catches on, I bet the car companies will be doing it soon. Imagine a scheme in which you pay a monthly fee for the use of a car, though you never actually own the car. If they put their minds to it, I bet the car folks could even get people to pay some sort of large, up-front fee for the car they'll never own. (Sweet!) And as an inducement, the deal might include all maintenance, for free. Not only would you save a lot of money that way, you'd never have to worry about replacing the battery. Best part: you never have to buy a car again!

Is it really that bad?

[thedbp]

OK, so $27.45 * 24 months is $658.80, that's $109.80 more expensive than the unlocked iPhone by itself. AppleCare+ is included, that's $99, so that brings the leasing premium down to $10.80 over the course of two years in Apple's pocket for financing the hardware. And then, halfway through the 24-month financing period, you get an upgrade to the latest device. Sounds legit to me, and a much better deal than carriers are offering.

If you purchased outright each year, you'd spend $648 the first year, $648 the second year, but get back approx. $300 for selling your previous-gen iPhone, bringing the total hardware cost over 2 years to $996.

This program also puts a whole lot more power into the hands of the consumer, as they are unlocked and can be used on any network. If more and more people are using unlocked phones, we might actually see some real competition in the wireless industry when it comes to things like customer service.

It depends.

[halivar]

I have a mostly iOS household, but we do not upgrade every cycle. In fact, we usually skip two or three upgrades per device. And for the most part, I prefer to do so. The upgrade plan offers me nothing. Now, my friends who insist on upgrading every chance they get, this may be a better value proposition for them.

It's slowing down

[Blaskowicz]

By now I believe even non technical people are realizing the phones are computers. Some PC computers became very tabletish (the ultrathin with rotating stand and keyboard, the outright tablets) and the phones computer-like, even the old and bad ones : it gets common to use external speakers on them, and perhaps known by some people that you can use an external monitor (usually TV).

But what I want to point out is they're becoming somewhat mature, and the specs are plateauing (display res maxed out, need to wait 3 years between semiconductor process shrinks). Smartphone life will probably increase : there was a time were desktop PC were worthless after two years, but that climbed to three, five and easily ten years or even more if you know what you're doing.
(Funnily you kept a 8/16 bit home computer or an XT longer than a mid 90s PC, as you at least had any kind of computer at all. Similar to keeping a dumbphone or feature phone for five years)
Android 5.1.x is perhaps a decent OS, Google even weakly hinted at support for third-world mobile phones (promised upgrade to Android 6.0, but maybe that doesn't mean much if that's a version around the corner).
iOS has the better "long term" hardware support.
There are less excuses to drop support, because hardware used to become actually obsolete (128MB or 256MB RAM or less, tiny flash, OpenGL ES 1.x). Now 1GB is slowly becoming the minimum, etc. Even Windows 10 supports 1GB RAM, although that was a low amount to run Vista or 7.

I would laugh at this but...

[hughbar]

I don't have a iPhone and hardly ever change my phone anyway. This is pure consumer fetish behaviour. However, these accelerated product cycles put a lot of toxic stuff into landfill, waste a lot of energy and don't provide any extra utility. Listen carefully for the sound of 'maximising shareholder value' by supplying a great deal of negative ecological externality.

Re:Lame doom and gloom article

[ruir]

It is got nothing to do with renting, or brand loyalty, iphone users are one of the most loyal. It is about killing the 2nd hand market.

Depreciation for independent contractors

[bidule]

I know independent contractors in Canada who'd rather rent their car and computer because the cost is 100% deductible on the first year. Buying thing means dealing with depreciation and getting your tax break later.

Recurring revenue

[adam525]

As far as I can tell, it's the first rule of business - Figure out a way to generate recurring revenue. What business owner wants to get $500.00 from you one time and then take their hands out of you pockets? Most of these greedy bastards would take everything you have and leave you homeless if they got the chance. I worked for a major cell phone provider and it was miserable under the regime I was working for.

First of all, they hope that there are lots of "features" on your phone that you pay for and don't use or even know about.

I'll give an example : this company rolled out a "pay per use" data package and sent it to EVERY customer (even the ones with flip phones where data is basically useless) and didn't tell them about it. When these devices have a data connection they use it whether it's intentional or not.

I had tons of customers calling in saying "What is this Pay Per Use Data" on my bill? By the way, I want all of that money back.

I would go to my supervisor and was told to reimburse the customer for _some_ of the charges and then try and sell them some OTHER useless feature. It made me sick to my stomach to do that to another human being. By the way, this is leaving out all the customers who don't look at their bill and just pay it.

After that experience (luckily I don't work for those a-holes anymore) I started paying more attention to how other businesses billed for certain things and learned that this is a pretty common practice - get as much money as you can for as little as possible.

I don't mind someone trying to make a buck. We all have to have a living, but to outright rip someone off to make your living is sickening.

headline isn't wrong

[Chirs]

It's a good deal if:
1) you upgrade every year
2) you take out Apple Care

For everyone else it's not a good deal.