Apple should mix hardware & services into 'Apple Prime' subscriptions, analyst says

The fundamental issue is that Apple is competing for customers with companies like Amazon — which pulls people into its ecosystem with Prime memberships and low-cost devices — and Google, which makes Android free to phone and tablet developers so people will use its ad-based services, Horace Dediu commented to the Wall Street Journal. To build services revenue under the current situation, Apple will likely have to keep selling and maintaining older iPhone models, suppressing its typically high profits on hardware.

Apple customers already spend an average of a dollar a day on hardware and services, Dediu noted. Pair something like the iPhone Upgrade Program with a bundle of services — such as Apple Music, iCloud, and/or the upcoming TV slate — and the company could count on more consistent revenues, not dependent on one device or another being a hit.

In the December quarter, iPhone revenues rose 13.2 percent year-over-year even as iPhone units shrank slightly. This can be credited largely to the $999-plus iPhone X, as well as a $699 baseline price for the iPhone 8. An "Apple Prime" model might put less pressure on Apple to continually grow hardware numbers.

Dediu didn't address the potential obstacle of competition regulators, who might argue that such tactics would shut rivals like Spotify and Netflix out of a major platform.