Best Buy Co. Inc. (NYSE: BBY) has started to offer the Apple Inc. (NASDAQ: AAPL) iPhone 6 for $0. The decision shows both the needs of Best Buy, as well as where Apple sits in the hierarchy of technology companies — which is at the very top. Best Buy, meanwhile, is much further down the chain of products and distributors and likely does not have a single product so attractive to consumers.
The Best Buy offer comes with the nearly universal tether of carrier contracts. Customers have to marry the iPhone 6 with a subscriber plan from Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T) or Sprint Corp. (NYSE: S). Those deals have a lot of fine print:
Carriers, coverage and products may vary by store. Requires credit approval, wireless service plan, qualifying device, and an installment billing agreement for the carrier’s required term. $0 down for well-qualified buyers. For all others, down payment and other restrictions may apply. Monthly payments for term (20, 24, 30 months subject to carrier) at full retail price. 0% APR. Sales tax (on total price) may be due at purchase. If you cancel wireless service, remaining balance on device becomes due. Restocking fee and other charges may apply. Number of financed devices per account limitations may apply. Subject to carrier terms and conditions. Terms subject to change.
Suddenly, the $0 down becomes much less attractive. That does not change the fact that Best Buy wants to help the carriers for selfish reasons. The retailer may get a piece of the contracts. The Apple iPhone 6 also brings people into the Best Buy, people who would not shop there otherwise. Maybe these customers will buy something other than the iPhone 6 before they walk out the door.
The Best Buy offer is better for Apple than it may seem. Based on industry analysis, Apple gets several hundred dollars for each iPhone 6 it sells to carriers. Best Buy is a distribution channel the same way the carrier retail stores are. Best Buy increases the number of locations where the iPhone 6 is available by several hundred. The risk of iPhone 6 sales through Best Buy (and carrier locations) is that some customers who get an iPhone 6 will keep their multiyear contracts, but others will break them. Using the iPhone 6 as bait has a number of risks, not the least of which is that people want the phone but not the carrier. And the retail location is a secondary consideration, whether it is Best Buy or another.
Best Buy offers an iPhone 6 for $0 down, an offer that may get people to walk through Best Buy’s doors. It is not clear the deal does much more for the retailer.