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The Future of Gadgets Is Monthly Subscriptions


steven36

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Paying all at once is going out of fashion

 

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When I found myself slapping the refresh button last week, trying to snag a preorder for an Xbox Series X console, I found myself surprised by a choice right on the buy page: Would I like to subscribe to the hardware, rather than pay the full price up front?

 

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The choice seemed simple enough. Instead of paying $500 outright, I could pay $34.99 per month and get an Xbox Series X console. While subscribing to an Xbox isn’t a new offering, it’s the first time it’s been front-and-center on the product page during a launch.

 

For the $34.99 monthly fee, Microsoft also provides access to its new on-demand game service, Game Pass Ultimate, which allows you to play over 100 games like Halo without paying for those outright, either. That subscription is usually $24.99 per month.

Being offered this choice caught me off guard because consoles are expensive up-front investments, and I had never contemplated subscribing to hardware before this. For an extra $10 a month on top of Game Pass Ultimate, which I’d already be paying for anyway, Microsoft is throwing in the entire console, which seems like a great deal. There is a catch, however: You don’t actually own the console until you pay it off over a period of 24 months.

 

I ended up buying the Xbox outright because I prefer to pay up front and actually own my devices. But Microsoft’s choice to highlight the subscription option during purchase, right next to paying full price, is a huge shift for the industry, and a sign of what’s to come for other hardware, as well.

 

In 2020, it feels like there’s a subscription service for everything from music on Spotify to toilet paper from Amazon, and it’s somehow completely normal. I’m slightly embarrassed to admit I actually have subscriptions to not only a monthly wine box, but coffee and vitamins, as well: I’d just forget to order them on time otherwise.

 

Buying devices via a monthly fee, however, has largely been limited to smartphones before now. Many people are on monthly subscription plans from their mobile carrier or directly from companies like Apple that allow them to get the latest device every year for “free,” so long as they keep making their payments.

 

While these plans aren’t explicitly positioned as “subscription services,” they are wildly successful in North America because they soften the blow of an expensive phone. By rolling the cost of the phone into your monthly plan, it makes you feel like you’re spending less, even if you might end up paying more in the long run. (Upgrading every year means you’ll always be paying a monthly fee, whereas paying for a device in one lump sum might lead you to hang onto it for a longer period of time.)

 

Microsoft recently bought this idea to its laptops with its Surface All Access program, which offers a laptop or desktop along with Microsoft 365, starting at $26 per month for the cheapest device, all the way up to $151 per month for its desktop, the Surface Studio.

 

It wouldn’t surprise me if Google’s Nest thermostats or Philips Hue smart lights eventually switch to a subscription model, which would get more expensive the more of them you add to your home. Instead of convincing you to spend $300 on a thermostat, Google could ask for $20 a month instead, allowing you to take it home without realizing the true cost in the long run.

 

The benefits of monthly subscriptions for companies is obvious: The money keeps rolling in, especially if consumers are incentivized to upgrade on a regular basis and stay within their chosen ecosystem. If you pay for an iPhone every month with the ability to upgrade to the latest iPhone every year, you’re probably not going to make the jump to Android, after all.

 

Getting the average customer to pay $35 and immediately get an Xbox is dramatically easier than trying to convince them to drop hundreds of dollars up front because it feels cheaper, and most people won’t do the math before signing up.

 

To be clear, however, despite the bundled console, online access, and free games, all of these subscriptions — from Apple’s iPhone program to Xbox All Access Ultimate — are actually loans. For the Xbox subscription in the United States, Microsoft works with a lending company called Citizens One to provide the financing, and it notes in the fine print that the subscription is actually a “Line of Credit at 0% APR and 24-month.” Unlike Spotify, where you simply lose access when you stop paying, you can’t cancel or return the Xbox during the 24-month term because you’ve agreed to a loan — albeit one with 0% interest. For some people, this might be a better deal or make it more affordable to buy an Xbox or iPhone rather than save up, but it also might mean they don’t understand the true cost of what they’re getting into.

 

If monthly subscriptions are the future of gadgets, that will fundamentally disrupt the idea of ownership. I’m afraid of a future where these companies don’t offer the outright purchase of their hardware at all. If they can keep you paying every month to use your gadgets, why would they do it any other way?

 

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