A major reason why Apple has sold so many iPhones in the US is due to the unusual way phones are subsidised by carriers over there. Very few people buy an iPhone for the full, off-contract $649+ price — instead, they get it for ‘only’ $99 or $199, with the rest of the phone’s cost being built into the hefty monthly contract that they’re bound into for the next couple of years. As far as the US is concerned, there’s not a huge amount to be gained by making a ‘cheap’ iPhone since you can’t get that much cheaper than a $99 subsidised cost.
Yes, things are very different in the rest of the world where pay-as-you-go plans are much more popular and there’s more flexibility in subsidised plans. But there’s no doubt that carrier subsidies have been — and continue to be — a fantastic way for Apple to get people to amortise the cost of a very expensive piece of technology over 24 months. Most people never really used to do that for laptops or computers (unless you count the indirect method of credit cards) but they’ve managed it with phones.
And now there’s the putative ‘iWatch’, the wearable device that many smart people believe Apple is frantically developing right now. This watch will, of course, look amazing — and given Apple’s hires from Nike and from sensor manufacturers, it’s clear the iWatch will have a heavy healthcare focus.
In other words, the iWatch will make you healthier — and who doesn’t want to be healthier? No-one. But who’s willing to pay $200 or $300 for it? I think it’s a hard sell, no matter how many accelerometers and heartrate and blood pressure and pulseox sensors it contains. We aren’t as rational as economists think we are — even if buying an iWatch would make us more than $300 ‘healthier’ (through reduced future healthcare expenditures), we wouldn’t necessarily be convinced. The iPhone is fun and eliminates boredom; the iWatch is much less fun and also kind of a downer, since it might show how lazy you’ve been.
But what if health insurers subsidised the iWatch? They already subsidise lots of other crappy pedometers and gym memberships, which must cost them dozens if not hundreds of dollars per year per member. When I belonged to Pruhealth in the UK, I practically got a premium gym membership for free.
Here’s Apple’s pitch: if you give an iWatch to all of your customers, you can:
a) Incentivise them to walk more/eat less/sit down less (because, yeah, they consent to be monitored) in return for reducing their premiums
b) Provide a shiny enticement for people to join your plan, which is more important than it used to be due to the new healthcare exchanges
What used to be a $300 device now only costs $50 or $100 to the end-user after subsidies (assuming the user stays with the insurer for two years); not too much at all. Insurers get an easy way in to the wonderful world of ‘big data’, customers get a shiny new thing, and Apple gets a steady income stream with a clockwork two-year upgrade cycle with sales driven by insurers that already have hundreds of millions of monthly-paying members.