Apple's big secret: It's an insurance firm (now with added finance)

No use whining about the Cupertino Tax – rivals need to up their game

Analysis Remember "Peak Apple"? It looked vaguely plausible a couple of years ago.

For years, the media had stoked consumer expectations of Apple continuing to launch blockbuster, category-defining, market-making new products at regular intervals.

Jobs’ biographer had disclosed that his "secret legacy" was “four years of new products”. But these hadn’t arrived, and Apple’s ageing product line looked tired: device sales growth crashed in the first part of 2014 as the market became comfortable using larger phones – which Apple didn’t produce.

"Peak Apple" disappeared almost overnight after Apple launched larger iPhones. The spotlight turned to diminishing profits at Samsung and huge losses at smaller phone rivals.

But "Peak Apple" always struck me as wrong or hopeful, because it defined Apple as a gadget company, rather than what it really is – a kind of insurance company.

What you really do when you buy an Apple product is de-risk the future: consumer electronics is confusing, and will get more confusing ... but Apple will take care of it all for you at a pace you’re comfortable with. There are plenty of other things in life to worry about and deciphering your energy bill or pension options will take up far more of your time.

I know a few tech-savvy consumers (many of them Reg readers, and our editor) who fume at Apple’s rip-off margins – particularly on flash storage memory. They rightly point out that the absence of expandable storage memory in an iDevice creates an artificial scarcity, which Apple then fulfils through exorbitant prices.

But to the buyer, it doesn’t matter – their new phone merely needs enough storage memory. (Arguably, Apple is selling phones that aren’t expandable and don’t have sufficient storage for prolonged use, which causes regular "memory full" problems and upgrade woes. But that’s another matter.)

In any device-against-device comparison, it’s a scandal. But evidently, there’s more that goes into a buying decision than a simple device-against-device comparison. If storage memory pricing actually mattered in the marketplace, then the iPhone would have grown a flash card slot years ago. Apple is shameless (or pragmatic, if you prefer) about executing a 180-degree turn.

Steve Jobs once scoffed at the use of a stylus on a tablet, famously saying: “If you see a stylus, they blew it”. Now it has one. Jobs also mocked small, Kindle-sized iPads and expounded at length about how you couldn’t just squish the beautiful iPad design into a smaller display, mocking such concept as a “tweener”, meaning neither one thing nor the other.

Apple kit carries a hefty price premium, but then so does insurance, where you’re paying for something you hope you never need at all. It’s risk money – money down the drain.

Consumers eventually cooled on the iPhone because it was small, but not because it lacked a storage memory slot. The promise of “Apple Insurance” outweighed that consideration.

So what is this ineffable value proposition that Apple delivers? What’s really in their “Insurance Policy”?

Next page: Actuarial science

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