Apple could use a 'bundle' plan to persuade you to pay $1,000 for iPhone 8, according to Barclays (AAPL)

pulse

September 10, 2017 8:46 AM

Free Apple Music and free iCloud storage for anyone who coughs up the high price.

The new iPhone, "iPhone 8," may cost $1,000.
Customers could reject that price.
Barclays analysts believe one tactic Apple may use would be to offer free Apple Music and free iCloud storage to anyone buying the $1,000 phone, thus making the device feel cheaper.

Apple will unveil its next iPhone on Tuesday, but there is a problem: iPhone 8 (or iPhone Edition, or whatever it is called) may cost more than $1,000, or £760.

The $1,000 level is a big ask for customers. It's $125 (£95) more than iPhone 7 Plus' lowest storage configuration. And iPhones already cost hundreds more than equally good Android phones, like Google's Pixel.

There is a real risk here: Apple wants the post-launch chatter to be about how cool the phone is and not how overpriced it is.

"Anything significantly over $1000 as the price for the lowest SKU of the iPhone 8 could be potentially detrimental to demand," Bank of America Merrill Lynch analyst Wamsi Mohan and his team told their clients recently.

So how will Apple persuade you to pay even more for a phone that runs the same operating system as the one you may already be holding in your hand?

Barclays analyst Mark Moskowitz and his team think they have figured that out, positing that Apple could offer free subscriptions to Apple Music and 200 GB of iCloud storage for one year, a deal worth $156, to anyone who buys iPhone 8. That would bring the perceived cost of the phone down to a potentially more palatable $844.

Moskowitz's analysis is based on a survey of wireless-service customers. It found that at $1,000, Apple might sell only about 40 million incremental iPhone 8 units. But if the new device were bundled with an Apple Music and iCloud storage deal, it found, Apple would sell 64.4 million incremental units:

That would net the company 7% more iPhone revenue, or an incremental $9.8 billion, Barclays believes.

There is a compelling logic to the Barclays plan. Apple's Services division — which houses Apple Music — is the only part of the company that is growing robustly. Locking new consumers into Services by making it free in the short run could pay big dividends to Apple down the road. It's harder to switch to a non-Apple phone if all your songs and photos are locked inside iOS. That's why Apple customers notoriously find it difficult to extract themselves from the various iPhone apps they become dependent on.

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