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

Actuarial science

It’s changed over time, gradually becoming more like a de-risking, future-proofing deal. When the iPhone had no modern competition (meaning its competition was Symbian and BlackBerry), then Apple could boast unique ease of use and web browsing which no rival handheld could match.

As Android took off and learned the ability to perform similar tricks, Apple could no longer claim to have an app advantage. The value proposition became more focused: the iPhone reduced complexity and took care of confusing choices. Today, the proposition looks rather more like a traditional insurance policy. It guards against technological obsolescence and offers a gradual pace of change.

I think that’s one of the most underrated and interesting parts of its “consumer value proposition”, if you’ll excuse the jargon. On a macro, or trend level, Apple doesn’t actually move very quickly. Contrary to almost all popular perceptions, Apple actually introduces new platforms or platform-level technology like payments, gradually and incrementally, leaving others to bleed to death out there on the bleeding edge.

This caution has served it well: it allowed Apple to bypass all the headaches associated with BluRay and DRM. Apple joined the trade association in 2005 but never supported BluRay in its Macs. VoD eventually became viable, and Apple had dodged the bullet. It’s doing something similar with TV: ie, nothing for years, then an incremental skip.

In Berlin at IFA last week, it was apparent just how the consumer electronics landscape is more diverse and confusing than ever. Partly this reflects a global glut of overproduction, but partly the reality of technology getting smaller, and in more annoying places.

There’s “smart” home appliances, contactless payments, car consoles, home cinema, fitness bands, watches – creating an exponentially growing number of compatibility headaches. Buying Apple insurance de-risks those choices.

What Apple delivers isn’t often the best. For example, I find AirPlay streaming woefully unreliable and frustrating, compared with the industry standard DLNA, and it’s inferior in quality to a proprietary set-up like Sonos.

Switching between functions on an iPhone seems incredibly archaic compared with a BlackBerry, and the UI is rigid and impersonal compared to a Windows Phone.

The Apple Watch is just as horrible as a non-Apple Watch – and it's strange to hear Apple quoting consumer satisfaction surveys to try and redress the perception that it's an expensive dud. But the value of Apple insurance is measured in the aggregate. Apple promises to take care of a lot of choices.

Yesterday, Apple added financing to its insurance business. For a fee, payable to Apple rather than your mobile network, you’ll be assured of the most up-to-date iPhone every year. The auto industry has been a financing business for a long time and it helped increase sales of new models by broadening the market.

It’s something Apple, with its huge cash advantage over rivals, can afford to do – but Sony (say) can’t. Carriers – who perpetually grumble about paying billions up front for iPhones – will have more to spend on networks, although they’ll fear the impact on high street footfall.

You’ll hear this move described as “hardware as a service”, which is true, but not quite the whole picture. It’s Apple creating an insurance policy against the future of consumer electronics. Given how incoherently Apple’s main rivals Google and Microsoft (once, Sony would have been in that list) express their version of the future, who’d bet against it?

Feel free to rail against the "Apple tax" (or insurance fee) or "brainwashed iSheeple" all you like (the latter is particularly unwise) – you don't have to pay it. Apple can charge an insurance fee because it appears to be trustworthy and competent, and today, Google and Microsoft aren't. ®