Last week Apple announced that they were taking a step towards a subscription model around the iPhone. Rather than paying upfront for the hardware, you pay each month and get access to iPhone as a product — effectively whatever is the ‘best’ version of the product at any given moment.
This is thematically quite consistent with what is going on all across the economy. Software isn’t shrink-wrapped anymore: instead you pay subscriptions for things like Photoshop and the Office Suite. Paying for personal transportation once meant buying a car, although for the last few decades it has meant leasing for many people, and we are rapidly moving towards paying as you go — Uber today, self-driving cars tomorrow.
Even housing is moving this way: businesses like Common and WeLive signal a long-term shift towards on demand primary residences. In the next 100 years we will get to the point that the only things that will not be on a rental or subscription model will be things you immediately consume, like food.
While businesses typically would prefer to sell something and get the money upfront, that’s not as valuable in a low interest rate environment where there is generally ample access to credit. Cash today isn’t meaningfully more valuable than cash tomorrow.
Another reason this is happening now is that it’s only recently possible to pull off a rental-model for everything. Renting requires a much higher trust-bar then selling. You have to know your customer and know if you can trust them. You also need to be able to manage dramatically more data and have access to very cheap communication and coordination in order to make rental efficient. The ability to store, move, and process information — the new powers of our time — are literally the exact powers you need to run an efficient rental (and sharing) economy with dramatically higher overall asset utilization.
Moreover, having a very deep and personal connection with customers is extremely valuable to businesses, giving them the ability to understand consumer behavior and make new and relevant offers over time. This is particularly useful for companies that historically had to deal through intermediary stores. And it happens that the stock market creates a tailwind for companies moving in this direction by giving more credit for subscription revenue.
My expectation is that in the not-too-distant future it won’t just be my phone that I won’t own anymore. I am sure I won’t own my computer. I might not own my TV, my bike, my Boosted Board, or my kite surfing equipment.
I would love to not own my fridge, but that may be harder until self-driving cars and drones make the economics of moving big things more efficient. What is probably more likely is that I just won’t need a fridge because the supply of cold consumables I demand at home will come in minutes from a depot.
In the end, good for Apple. The iPhone rental is an obvious but great move for them, and I can’t wait to see more and more of the world go in the same direction. If the Internet was the first step in makers of goods and services disintermediating retailers, by going directly to consumers and harvesting the benefits in owning the user and increasing margins, moving to rental is step two.