The iPhone 7, Apple Watch 2, a redesigned MacBook Air. As in previous years, Apple is expected to bring loads of new hardware to the table in 2016. But 2016 is also going to be the year that Apple becomes less a hardware company and more focused on services and subscriptions, Piper Jaffray managing director Gene Munster told Business Insider's Ignition conference on Wednesday.
The foundation is in place for many of these services -- the iPhone Upgrade Program, the Apple Pay mobile payment service and Apple TV -- all of which were launched in the past year. But 2016 and beyond is where Munster expects to see the services behind the devices becoming a bigger part of Apple's revenue mix.
iPhone As A Subscription
With Apple’s upgrade program in place, customers can still pay the same price for the iPhone over the course of two years but switch to a new model annually. Of 239 people in the U.S. recently surveyed by Piper Jaffray, 18 percent said they planned to upgrade their iPhone on a yearly basis. Piper Jaffray expects that number to rise to 75 percent of owners in five years’ time. It's a larger trend that has also taken hold in U.S. carriers, which mostly ditched two-year contracts in favor of the installment plans.
This year was an adoption year for Apple Pay, with hundreds of banks hopping on board, but only a small percentage of iPhone owners are using the service, according to Phoenix Marketing International. Next year is where Munster expects usage to expand in a big way with the introduction of person-to-person mobile payments similar to Square Cash and Venmo. Another way it may also expand is through the introduction of Apple Pay via the Safari mobile browser.
"Apple wants to sell iPhones with Apple Pay," said Munster. "They want to have a great payments experience. By doing that they are essentially going to make it more compelling for us to buy iPhones because of Apple Pay."
“A box, not a panel,” said Munster. “Not what I was expecting but a success nonetheless.”
Munster estimates about 3 million units will be sold during the December quarter for Apple and will account for about 1 percent of Apple’s revenue. Its latest stab at an “over-the-top” box that replaces cable services hasn’t been without its obstacles. While the revamped box launched in September with a large number of streaming services and support for third-party apps and games, absent was a highly anticipated live television subscription service. For now, Apple has shelved its plans to pursue the service, according to a unnamed source speaking to Bloomberg.
But in the meantime, Munster expects Apple to expand the set-top box by way of integration with its HomeKit home automation service and potentially a Siri-based always-on voice command system similar to Amazon Echo’s Alexa.