How annual upgrade programs could change the game

This article may contain personal views and opinion from the author.
How annual upgrade programs could change the game
We're in the middle of a change in the way that we all buy smartphones that could ultimately have a major impact on the way manufacturers design and build the devices that we use every day, and it all started because T-Mobile wanted to have a buying option for consumers that distinguished it from other carriers: it's JUMP! annual upgrade program. Pretty soon, other carriers followed suit and offered similar programs that switched customers to monthly payment options for devices and allowed for upgrades faster than the usual two-year cycle.

Now, Apple has become the first manufacturer to offer an annual upgrade plan directly to customers and this is where things really get interesting, because suddenly we're not only talking about a shift in the average upgrade cycle for consumers, but there is also a shift away from carriers as gatekeepers to new devices. Both of these changes can potentially have a major impact on the mobile ecosystem as a whole. 

Carrier breakup


The first change is in how users view their relationship to their mobile carrier, because two-year contracts for wireless service are quickly becoming a thing of the past. Sure, there are still two-year contracts for device payment plans, but ending that early just means you finish paying off your device. Then, you can up and move to any carrier you want. And, we're finally to the point where that statement can be used without caveats. 

How annual upgrade programs could change the game
Major carriers and MVNOs are all on LTE networks, and the top three (Verizon, AT&T, and T-Mobile) all have overlap in support for LTE bands 2 and 4. Every device sold by Verizon is unlocked, and if you have been on another wireless carrier and fully pay for a device (and the device is locked), that carrier will unlock the device for you. If you're leaving Verizon, chances are your device supports GSM; and, if you want to switch to Verizon, chances are your device supports LTE, so you should be able to make the move without issue. 

There may be trouble with LTE band support, especially if you're dealing with Sprint or US Cellular, but ultimately it has never been easier to leave your current carrier. And, it's even easier because of all the deals available for users who want to switch: Verizon and AT&T both offer up to $300 on device trade-in plus $100 for switching to them; and, T-Mobile or Sprint will cover the remainder of your device payment plan and your early termination fee. 

People will always have to look at issues of pricing and local performance for each carrier, but at this point, lock-in with a carrier has a lot more to due with human nature and the psychology of change than ever before. The last strands of carrier lock-in are with device payment plans (although those are thin because of the carrier switch deals mentioned), but manufacturers are poised to break that as well. 

Manufacturer rise


At least, there is a chance that manufacturers can break that last lock. For better or worse, Apple is in the best position to start the push both because of Apple's loyal fan base, but more importantly because of its footprint of Apple retail stores and prominent displays in other stores, like Best Buy. This gives customers better access directly to Apple devices and lessens the need to deal with carriers at all in the device purchase process. Add in Apple's new annual upgrade plan and the easiest path for carrier freedom now comes from Apple. 

It seems likely that Android manufacturers will follow suit, especially since some already have the setup to directly sell to users in place. Motorola has the easiest path and just needs to add an annual upgrade plan to MotoMaker, but Motorola doesn't sell many phones, so that wouldn't move the needle much. The same would go for Google, which could easily offer a Nexus annual upgrade plan very similar to Apple's plan, although Nexus phones never sell too much compared to titans like Apple and Samsung. (Still, full disclosure, my order for a Nexus 6P is pending, and I'm honestly annoyed that I can't do a monthly payment plan and trade-in for a new Nexus next year. The only Nexus phone I haven't owned was the Nexus S, and I'm a bit tired of having to sell my old phone to subsidize the new one.)

Most Android manufacturers, including the reigning leader Samsung, don't have that direct sell infrastructure in place and would need to work with stores like Best Buy to offer such plans. Some may argue that dealing with Best Buy for a device purchase plan isn't much better than dealing with a carrier, but it's not hard to imagine Amazon getting in on this game. Amazon doesn't sell many phones in general, but it has solid customer service and if direct annual upgrade phone sales pick up steam, there is an audience that trusts Amazon for that purchase. And, any company that is going to offer such a plan would need to have the ability to resell the devices that were traded in. Amazon could quite easily handle that as well. 

How annual upgrade programs could change the game

Expectations change design


But, there is another, possibly unintended, consequence coming for manufacturers that get into any annual upgrade system - customer expectations are going to change. Customers have traditionally been upgrading every two years and are used to a certain level of change when moving from one device to a new one. Similarly, manufacturers have taken advantage of that cycle. Apple is the most blatant example of this with its so-called "tick-tock" upgrade cycle, which had the overall design of the iPhone staying the same for two years, while the "S" versions of iPhones have been more about refinement and performance upgrades than major feature additions. Apple seems to have already taken on the challenge of a new yearly upgrade cycle with the iPhone 6s, which was more of a substantial update than most "S" year devices. 

It could be that users will learn to deal with more incremental upgrades on a yearly cycle rather than the level of change over a two-year cycle, but it could also happen that the mobile ecosystem, which has felt a bit stagnant, could see a bump in creativity. There's not a ton of room for making processors or cameras much better on a yearly cycle, so we may end up seeing more interesting changes in design, like the curved screens Samsung has been experimenting with, or software features. 

This doesn't just affect manufacturers, and could put more pressure on Apple and Google to make sure that each year's upgrade of iOS and Android feels more substantive. Having an upgrade like iOS 8 or Android Marshmallow, which is more about under-the-hood refinements than outward features, might not be enough to keep users interested. Of course, a yearly upgrade cycle would also be a boon for Android, because it would greatly reduce troubles with slow manufacturer and carrier updates of the OS, and get more people on the newest version of Android faster, so that may mitigate some of these issues. 

Conclusion


No matter how you look at it, we're in the middle of a very interesting time for the mobile ecosystem. Power is shifting away from carriers. Customers have more freedom and choice than before. And, manufacturers and retail stores have an opportunity to benefit from these changes. It could well cause ripple effects that we don't expect, but it is exciting to see what is coming. 

It will be good for manufacturers and retail stores because anyone who isn't trading in regularly is giving money for no reason, and it's a more consistent revenue stream. And, it can actually be good for customers as well. Sure, you won't really own a device ever again, but it's your choice to go to an annual upgrade plan. If you value a constant warranty and a new phone every year, then not owning the device probably won't matter to you. But, if you want to actually own your device and not be constantly paying, that option will still exist. It's not an either/or scenario. It's just a new option to make faster upgrades easier for everyone. 

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55 Comments

2. Goldeneye

Posts: 419; Member since: Jan 22, 2011

Come on now, common sense should tell you that trade ins are a ripoff. People don't be lazy and put your old device up for sale. But if you prefer to let manufacturers to rape you off, be my guest.

17. 47AlphaTango

Posts: 709; Member since: Sep 27, 2015

How can they sold last years device if those devices were broken/destroyed by the user because of flappy bird?

30. CableTelcontar

Posts: 84; Member since: Nov 19, 2014

Lol. He said rape you! How apt

40. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Depends on market and if people want to buy your phone. And if you get what you want for it. Take the example. 700 bucks. I use it for a year, want a new one. I still have to pay 700 bucks. Then I have to get at least half to really get any good deal out of it. So that means I am selling a used phone for 350 bucks, on last year specs, most likely a little used around the corners etc. Or you can pay 200-300 a year, get a new phone every year, and not have to worry about 'selling' that phone. In the end it's the same cost without the added hassle of having people buy the phone. As well, now with some of the On Demand programs, some people can get the new iphone for 5 bucks a month, meaning 60 bucks for the whole year...hardly a ripoff.

42. Goldeneye

Posts: 419; Member since: Jan 22, 2011

See? ^The perfect example of people that manufacturers are targeting. Lazy to do simple math. Forget about selling their own crap. Kid at the end your phone should at least will get you a few bucks for YOU not Apple or whoever is giving you these "awesome" deals or even to give it to your kids, nephews, neighbors or whoever YOU decide. I also wonder if you turn your device all screwed up how these leasing would work.

43. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

I highly doubt you would question my math skills if you knew my degree but OK. So lets talk about leasing cause I just got finished processing one not for me, but a customer. S6 Edge+, price 859. Lets assume for a moment that after one year the device will sell for half its price. So $430. Good amount on a 'used' phone. Now lets look how the lease went. 860 - 200 payoff, phone is now 660. Because it is a lease, there is 0 sales tax, which in his area would have been nearly 80bucks in itself. Instant 80bucks savings. They now pay $36/month. Now since it is on lease they can do this 3 times a year, no money down, no taxes. Considering the S7 is about to be out next year, possibly within 6 months. He can stay on his S4 and wait. Or get a phone NOW, and then trade in in 6 months. He would have paid 220 for 6 months. Trade it in, no cost, get a replacement for the same cost he is paying and go on his way. Then when the note comes out...6 months later...get the idea? You way. He would have had to paid, for just the 2 phones, s6 and s7. 1718 bucks! Plus the 200 in taxes! that is nearly 2,000 dollars! You honestly think he will get 1,000 back minimum return value for his device? Maybe, maybe not.

44. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Since the post was to long you forgot a crucial part, insurance covers the device. The tax savings is enough to cover the entire year of insurance just in case he f's up his device. Buy your own without it, and loose it? another 860 please plus 80+ in taxes thank you. Insurance...175. Yea real ripoff. And you don't even mention. When they resell the device, they are covered under warranty. When I buy it from jo shmo....no warranty. So a premium is had. Unless I can go to jo shmo 6 months later cause my screen stopped working...it is NOT the same deal. Not to mention jo shmo wants his big share too. Unless you want to argue that you will get some awesome used deal, but then charge the next guy some premium to make up the difference. what you are talking about, and tried to say with my math skills is very childish. Wanna play that game? Fine your a screw up and don't understand what the average person wants.

55. avalon2105

Posts: 352; Member since: Jul 12, 2014

Your numbers may apply to the U.S. but not for the rest of the world. Note 4 now costs approximately 500€ new and 400-450€ used and it's launch price was around 600€. iPhone 6 64GB (also 1 yeard old) in around 650€ new and slightly below 600€ used and was around 750€ when new. So you can get around 75-80% of your purchase value back if you sell it yourself after a year and "lose" 150€ for a year of use. I'm sorry but claiming that you can get only 50% back for a flagship grade phone after one year is silly. Only LG phones drop in value like crazy and they still keep 60-65% of hteir value after 1 year. Sony's phones retain their value even more compared to Samsung and Apple (at least where I live) so I think outright buying is always a better option.

60. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Please, post some EU sites showing that you will be getting over 50% of your device back on a personal sale. Not a personal experience. Because no one in their right mind will buy a used phone with no warranty for more than 50% of its costs. And as well with an iPhone they always, no matter the market, hold their value longer and more than any android phone. But hey I'm waiting. Also the article is clearly about US carriers. Also which carrier are you using as your reference for the 500 price point new? Or are we going through 3rd party sites?

63. avalon2105

Posts: 352; Member since: Jul 12, 2014

I don't live in the EU so I can't post any link that would answer your question. I was posting prices for Bosnia (where I live) and it was 3rd party sites, since it's only sane way to buy a phone here. Carrier prices usually go 20-50% higher for flagship phones compared to buying outright. Prices I mentioned for new now and new when it was launched was also form largest 3rd party site in the country and used prices were from local version of eBay. Nobody but desperate and uninformed buy phones through carriers here since they are robbing people blind. S6 Edge+ costs 675€ on 3rd party website and 825€ through the carrier.

64. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

So again, you posted zero sites, and no I will not go looking for Bosnia deals. And the better question would be where these '3rd' party sites are getting these phones for so cheap. As well, do they come with full warranty? Who do you call if they give out? And when you talk about 'for the US but not the rest of the world' you might want to consider same goes for your single Country. It must be noted that the US Smartphone Value of 41billion...is over 2 times the entire GDP of your country. This is not a country war, but you are failing to see anything related to the article. Also lets think of it another way using your carrier prices. S6 E+. With the current programs this article was talking about...over the course of a year when the S7 E+ comes out, I will have paid 412.50, vs 675. Now you have to pay 675 for the S7...I will pay another 412.50. Now the S8 E+ comes out. You pay another 675. I pay 412.50. Total buying outright? 2025, through payment plan with warranty? 1237.50. A 787 dollar savings over 3 years. An immediate savings of 213. Not to mention, no immediate impact up front through these programs, meaning I don't have to shell out 675, I shell out 35. Also even if you were to get half of what you paid after a full year, You are only going to make 1012 back. Over 3 years you have the potential to 'possibly' make 224 more than me on this plan. However, I would consider that an acceptable loss for, convienence and warranty and known new status.

65. avalon2105

Posts: 352; Member since: Jul 12, 2014

This is the link for carrier website I use:https://www.bhtelecom.ba/mobiteli_detalji+M5fbc9c2e786.html It's in Bosnian so you may wan't to use Chrome and hope it translates it properly. Price is 1609BAM and our currency it tied to the € and 1€ is always 1,955BAM. This is a link for 3rd party website (same applies as above):https://www.bhtelecom.ba/mobiteli_detalji+M5fbc9c2e786.html They have price listed in both € and BAM. Phones do come with full one year warranty with option to pay for another year. I didn't mean to start any flame or any country war (that war I could never win), it's just that in your post you sounded like this leasing deal is be all and end all of smartphone buying without acknowledging that classic buying at full price can still be valuable, if not even the better option.

66. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

No country war at all my friend. However second link is the same as first. Again though the math still works in the favor of carrier if you don't plan on keeping your device for very long. It is aimed at frequent upgraders who don't want to end up paying full price. 825 cut in half is 412.5 or 413, vs having to shell out 675 up front. Not to mention they are small monthly payments, 35...vs 675 up front. By years end I have spend 413, vs you spending 675. I will then get another phone spend again 413, while you are spending again 675 and hope that you get minimum of 524 (which I find highly unlikely for a used phone), to break even with me at 0. Not to be ahead...but to break even with the leasing guy. Don't forget, I own, outright all my phones currently in use. 930, 1020, 1520 x 2, 640 x 3...all lumias (and others including a Z3). So I am the last person to stick up for payment plans. However, I also work for a carrier...and see the advantages every single day.

67. avalon2105

Posts: 352; Member since: Jul 12, 2014

Yeah, that would make sense but you would never own your device. I'm not sure what would the return policy be on rooted/jailbroken devices. Also, carrier payment plans work differently here. Price of the phone is divided into 12/24 monthly payments and then you have to pay full tax with first monthly payment. So for 825€ device tax would be 140€ (17%), remaining 685€ is split into 24 monthly payments (28,5€) each. 12 months would make that 342€ + 140€ tax for a 482€ total, just for your phone. Plus you have to be on a 50€/month plan to even be able to buy the phone so your first month bill would end up 218,5€. Then it's paying 78,5€ every month. When buying through 3rd party site, I don't need 50€ plan, I don't even need a sim card so in the end you do get better deal in the end with 3rd party website. Here is the link for S6E+ I messed up first time:http://www.univerzalno.com/proizvod/samsung_galaxy_s6_edge_plus. Also, sweet collection of phones you got, just why do you need two 1520s and three 640s?

68. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

If you root etc, the carrier simply has you buy it out, here at least. So no real blow. But this is mainly designed for people who don't care to actually own a phone for longer than a year, at most two. I watch over phones for my family (large family here) and extended family and friends etc. I always use them at least a week on any new model, even if its a 521 to make sure it runs etc. My account alone is 9 Lines. If I was to include others I could claim some Note series, Z series, and LG's, but I don't include those cause I did not live with the current ones like I do my families, but I set them up for business etc.

3. Subie

Posts: 2265; Member since: Aug 01, 2015

Annual upgrade programs will be no different then leasing a car. In the end the Manufacturer will have taken even more money out of your pocket.

7. bizwhizzy

Posts: 51; Member since: Aug 04, 2011

But just like leasing a car, there will be people who prefer the warranty and always having a new car to the annoyances of owning a car that keeps getting older and breaking down.

12. joevsyou

Posts: 1091; Member since: Feb 28, 2015

at least leasing a car makes sense depending on your needs unlike these plans that are just a rip off. These plans are you just going end up paying more for the same thing as everyone else. buying a new unlock phone every single year and selling it on ebay is cheaper.

33. tomn1ce

Posts: 247; Member since: Mar 12, 2012

That is so true, you pay half of what the device is worth in a year. Then the manufacturer or the carriers turns around and sells it for more than half of its original price to those looking for refurbish devices because they don't want to pay full price for whatever device comes out on that year.

45. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Prove they have taken more money? Lets see your math to show this. Remember these are targeted at people wanting a new device at a much quicker exchange rate than others. My car is 13yrs old, but you would be hard pressed that I don't want a newer M3 instead of my e46 M3.

4. yyuu1000

Posts: 260; Member since: Jul 26, 2012

Its really not as good as it sounds. You keep on paying and paying and you don't really own a device. I payed off my galaxy s4 and i haven't been paying for the device for half a year now, and if i sell it i can make about 100 bucks. Sure its great having a new device every year but if you care about money it doesn't pay off to take a lease on a phone

8. bizwhizzy

Posts: 51; Member since: Aug 04, 2011

Why does it matter if you own the device if youre gonna get a new one every year anyway?

39. aHance

Posts: 1; Member since: Oct 13, 2015

because then you've spent money on something that is yours, rather than something you have to give back. at that point, you either have a spare backup phone, or you can sell it to help lessen the cost of a newer phone.

46. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

It's yours for as long as you own it. Also he didn't make 100 bucks, in accounting he lost 400 (assuming it was 500 brand new). You only make money when you get back more than what you paid. Unless you do depreciation which we could assume that too. Say he kept his s4 for 3yrs. We could argue he made a 100bucks because it went past what many would consider a 2yr life cycle of a phone. At that point he made 8 bucks a month. WoooHooo. While the other person is spending the same money and getting new phones every year, or 2-3times a year depending on program. Without having to worry about paying it off, or selling it.

5. roldefol

Posts: 4744; Member since: Jan 28, 2011

With annual upgrades, will my phone start sucking after one year instead of two?

6. yyuu1000

Posts: 260; Member since: Jul 26, 2012

wouldn't be a surprise

18. 47AlphaTango

Posts: 709; Member since: Sep 27, 2015

Yes. As long as there's a brand new phones with new features & additional bonus. Then your new phones will look like old ones.

20. roldefol

Posts: 4744; Member since: Jan 28, 2011

I mean the phone just won't work like it used to. Internal batteries lose their ability to hold a charge, antennas mysteriously stop working, OS updates slow things down, that sort of thing. Planned obsolescence.

26. ILikeBubbles

Posts: 525; Member since: Jan 17, 2011

I've heard the rumors of your complains but have never experienced them... I felt like modern battery technology kind of defeats the battery problem.. And the antenna thing I have no idea what you're talking about. But I doubt those two specifically will be an issue unless you're trying to keep your phone for 3+ years. Which is your own choice, but with the upgrade cycle on phones being so much faster pace than cars, computers, tvs, each year is worth 2 or more of the others. While I'm not specifically a fan of the annual upgrade within carriers... I still appreciate the ability. I like how at least when someone pays off their device they're not forced to buy a new one. And the idea of a separate payment for the phone vs the service when you DO pay off your phone your monthly payment goes down to just the service again. Which was previously impossible before in the states because the phone subsidy was built into the service. Also the term "new phone" is relative.. I've been using an m7 by choice since 2013 when it came out. But soon I think I'm going to switch to an og nexus 5.. Which for me will be "new" but isn't technically new. These open ended options to provide your own phone works wonderfully with swappa.com for users who aren't interested in a phone that was released months ago but still want something new. But it also allows me to save up and wait for a phone that I actually want when it comes out and buy it without carrier involvement at all. Isn't that the point though?

47. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Indeed, the fact it is not forced on customers on my carrier is big. They want to buy their own? Like I will with the 950xl in a month, then be my guest, do it. But the program allows for minimal input for customers who most likely will be buying a new phone every year. Does it matter cost up front? nope. Now put that Nexus 5 from certified preowned with a 3month warranty and they go for 200 on my carrier. Put 8 buck a month insurance. Or use jump. You will pay 200 but still have the option to trade it in after 100 is paid off, for another phone. Can be used, can be new. The point remains...a good deal for people who don't want to sell it for them. I like bubbles too

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