How Sustainability Can Be A Growth Business For Apple's Subscription Services

Tucked into last week's mobile-palooza at Apple was a potentially revolutionary pitch by a former EPA administrator. Essentially, Lisa P. Jackson said, Apple wants to reverse the planned obsolescence common throughout the mobile industry, and build devices usable far longer than the usual two-year replacement cycle.Though the presentation by Jackson – now Apple's VP of environment, policy and social initiatives –  was largely overlooked amid the greater hullabaloo of Apple's annual iPhone rollout, it has big implications for where Apple (and by implication, the rest of the mobile industry, eventually) is headed.This is all happening as Apple makes a pivot to bigger, more expensive phones with greater functionality, where people use those phones to watch (and pay for) lotsmore streaming video, video games and subscription services.Jackson said that Apple is trying to make hardware and software that can be used much longer. Even 5-year-old iPhone 5s models can run the just-released iOS 12 operating system, she said. That approach will continue with all of Apple's design efforts going forward, with the goal of "keeping iPhones in use."It sounds good for an audience that expects Apple to be on the right side of a range of political and environmental issues. But the move makes sense for business reasons too.As Horace Dediu pointed out this week in on Asymco, though the approach may seem counterintuitive and detrimental to Apple's bottom line, it isn't, when you understand the real play.First of all, Apple is making bigger phones that are also much more expensive. In the Android world, people have been moving toward bigger screens, a trend Apple finally started to embrace last year.And buyers of all sorts are moving away from a two-year replacement cycle, in part because many carriers no longer finance new devices through a long-term service commitment.So when consumers do buy, Apple is scraping more revenue from the initial transaction. The iPhone X, for instance, broke the $1,000 price barrier last year, soon to be followed by Android flagship phones.Though the iPhone X didn't sell as many units as analysts expected, Apple still reported record quarters, as the average price per unit jumped and so did profits.Big, capable phones that can be used for years will have value long after their initial buyer hands it off to their kid or parent, or resells it to a refurbisher. Why does that matter? Because that secondary owner is going to want to watch streaming video, create content and use all the other subscription services Apple is now pushing so hard."Apple is making a bet that sustainability is a growth business," Dediu wrote. "Fundamentally, Apple is betting on having customers, not selling them products."Apple CEO Tim Cook has for a couple of years emphasized the company's plan to double revenues from its services businesses. Earlier this year, executives pointed out the company's services revenues already would make the unit a Fortune 300 organization if it were a separate entity.We're seeing the trend toward pricier units with bigger screens all over the industry, as was evident at the Mobile World Congress Americas conference, in Los Angeles (also last week). There, all the announcements and major booths focused on the promise of 5G, the super fast next-generation mobile network already starting to roll out in a number of countries.Among the devices on display was Samsung's recently released Note9, which actually has a slightly larger screen than the biggest new iPhone. At the show, executives continued to pitch the Note9 to hard-core gamers, with exclusive access to the Android version of hit game Fortnite, the option of getting free Fortnite currency as a purchase premium, even such gamer tech as a water-carbon cooling system.And 5G as it rolls out holds promise to not only make the new phones more useful, but to also power cloud-based capabilities that rely less on the phone's capability to create amazing mobile-first experiences.Verizon was showing off several partners and internal units charged with developing new ways to use 5G networks. LiquidSky, for instance, was streaming Shadow of the Tomb Raider, a AAA-level video game that had just been released, through a fairly ordinary smartphone and an HDMI cable onto a big screen. Game play was as liquid as the company's name, with very little help from the phone itself.CEO Ian McLoughlin told me LiquidSky runs those high-end games – which normally would overwhelm a phone – in its cloud-computing operation, making for a remarkably playable and responsive experience.  Also on display were nifty new augmented-reality capabilities and experiences from a Verizon unit called Envrmnt.The challenge for many hardware makers will be trying to follow Apple's lead, moving from hardware to the content and services that sit on those expensive new phones. Google is well positioned, with its own music service, YouTube and productivity software, and now the high-end Pixel phones.Amazon could get there, though its previous mobile initiatives have done poorly. And Samsung, as it pushes not just the Note9, but the Internet of Things with smart refrigerators, lights, speaker systems and much else, will clearly be a player, though perhaps a different altogether.