Here’s How Apple Will Convince You to Spend $1,000 On An iPhone

Here's How Apple Will Convince You to Spend $1,000 On An iPhone

If you received Apple Music free for one year and 200GB of iCloud storage, would you purchase an iPhone 8 for $1,000?

For months, tech analysts have speculated that Apple would sell the iPhone 8 for around $1,000.  But with such a high price tag, how would the Cupertino-based company convince consumers to make the purchase?  According to Barclays, the answer is actually very easy: throw in one year of Apple Music for free.

In a note published on Thursday morning, analysts at Barclays speculated that the Cupertino-based company may bundle a one-year Apple Music subscription with the iPhone 8.  Consumers who purchase the phone may also receive 200GB of iCloud storage.  According to the analysts, Apple could make $9.8 billion in additional iPhone revenue with the bundle.

A chart published in July by investment banking company CLSA shows that most people still purchase iPhones for around $700.  A smaller group purchases higher-end models for over $800 and older iPhones under $700.

Image by CLSA

The new iPhone 8 will reportedly ship with a new design, a bigger screen, and features including facial recognition.

However, people could be turned off by the high price tag.  To convince consumers to make a $1,000 investment, the company “may need to include a sweetener.”

Analysts at Barclays published a chart showing how an iPhone 8 bundle with Apple Music and iCloud would fare.  The company would earn $2.3 billion bundling the iPhone 8 with 200GB of iCloud storage.  With a one year subscription to Apple Music, the Cupertino-based company could earn $7.6 billion.  Bundling both services would lead to $9.8 billion in additional revenue.

Image by Barclays

Writing about Barclays’ speculation, Business Insider’s James Cook noted,

“The bundle would make sense for Apple:  It convinces more people to buy the expensive new iPhone (win), and it could introduce more people to Apple’s subscription services (another win!)”

Analysts at Barclays said that an increase in iPhone 8 sales would cover the costs of bundling these services.

We estimate incremental profits generated from higher iPhone 8 sales could outweigh additional costs, achieving gross profit accretion of $1.3bn, despite 1.8 pts of margin % dilution.

The company will reportedly introduce the iPhone 8 at a special launch event on September 12.

 


Image by Pictures of Money (CC by 2.0)

6 Responses

  1. Anonymous

    So… if Apple Music is bundled with the iPhone, this would be considered a bundled service. In theory, Apple would then be obligated under their licenses with publishers and songwriters to pay a percentage of revenue, except instead of subscription revenue at $9.99/month, it’s now iPhone sales revenue at $1000 a pop.

    Sounds good to me. Carry on.

    • DB

      Umm no. Thats not how it works.

      The way these deals *actually* work is that Apple would pay something in the region of 35-50% of the value received by labels/publishers for an Apple Music Subscription for one year, but only for those users that actively use the free access to Apple Music. Spoiler alert- thats probably about $2.50/month so $30 in total for the year.

      For the users that don’t decide to use it (as they’re Spotify users or whatever), Apple will pay almost nothing.

      Ergo: lots of new Apple Music subs, but they’re ‘worth’ far less than a $10 retail subscriber- therefore bringing down the overall effective per play rate received per artist.

      If you think that Apple are going to start giving real % points to the music industry for sales of each iPhone, you’re smoking crack. Apple are smart. Music used to be.

    • Nick

      This would be great, but they’d probably just attribute the value of the activated subscriptions to the revenue share agreement with the music industry, not the whole sale.

  2. Allan Singleton-Wood

    I am still using a 3 year old phone. The features of new ones are virtually identical.
    I would need to see amazing new features before purchasing another – at any price!