Should Apple make a cheaper iPhone?

Apple's 5.8-inch iPhone XS and 6.5-inch iPhone XS Max (right)
Apple’s current 5.8-inch iPhone XS and flagship 6.5-inch iPhone XS Max (right)

Philip Michaels for Tom’s Guide:

There’s still another quarter to go, but Apple’s 2019 fiscal year is not going to go down as The Year of Booming iPhone Sales. After reporting its third-quarter numbers this past week, Apple has seen revenue from its smartphone business drop 15% for its fiscal year to date, as the iPhone goes from the engine that drove Apple to just another product.

A lot of factors have contributed to the slower sales figures. People are holding on to their smartphones longer. Last fall’s iPhone updates introduced only modest changes, and with the iPhone 11 not expected to reinvent the wheel either, anyone who can put off a smartphone upgrade is going to be inclined to wait for the more marquee features rumored for the 2020 model.

But there’s another explanation for why the latest iPhones haven’t caught on in quite the same way as their predecessors: Maybe they just cost too damn much.

MacDailyNews Take: Newsflash: Apple sells premium products at premium prices to premium customers.

For as long as Apple has been Apple there have been calls for the company to make “affordable products.” By this, most mean lower price tags. They’re not talking value or Total Cost of Ownership (TCO). When you bring those ideas into the discussion, Apple’s prices are very low indeed. Apple iPhones get software updates and the company supports older iPhone models for far longer than do fake iPhon peddlers (Android). No, this is all about sticker prices.

One major problem: Offering low priced products is, as Apple’s leadership likes to say, “not part of Apple’s DNA.” This is a nice way of saying: We can’t dominate entire markets (outside of the fluke iPod/iTunes Store) because it would irrecoverably damage the Apple brand or as Steve Jobs once said, “We can’t do it; we just can’t ship junk.” More recently, this has been parroted by Tim Cook: “There’s always a large junk part of the market. We’re not in the junk business.”

The other issue is that those who settle for Android devices are not equal to iOS users. The fact is that iOS users are worth significantly more than Android settlers to developers, advertisers, third-party accessory makers (speakers, cases, chargers, cables, etc.), vehicle makers, musicians, TV show producers, movie producers, book authors, carriers, retailers, podcasters… The list goes on and on.

The quality of the customer matters. A lot.

Facile “analyses” that look only at market (unit) share, equating one Android settler to one iOS user, make a fatal error by incorrectly equating users of each platform one-to-one.

When it comes to mobile operating systems, all users are simply not equal.SteveJack, MacDailyNews, November 15, 2014

As X-class iPhones continue to be released, older models (X, XS, XS Max) will remain on the market and drop in price, satisfying the mid-range iPhone buyer.

Again, Apple sells premium products at premium prices to premium customers. Android can have the rest. They’re more trouble than they’re worth as they generally only want things for “free,” “discounted,” or “cheap” and they buy demonstrably fewer apps, accessories, and subscriptions.

29 Comments

    1. The people who want $1000 phones, those that aren’t on fixed income, WANT $1000 phones. As long as there’s enough of those to return a nice profit, that’s all Apple needs. They will NEVER be the market leader and they don’t have to be to make the lion’s share of the profits. And profits is where it’s at.

      1. If you say so. It appears Google has put Apple in the No.2 spot for liquid cash available this past month. This is despite all those research projects they have consuming funds.

  1. The $1000 iPhones are just about the most popular iPhones there are so plenty of people want them. When Apple sold the iPod Classic that could hold thousands of songs on the huge spinning hard drives they contained, Apple also sold a Chiclet sized iPod Shuffle that cost $49, as opposed to maybe $350 for the biggest iPod. That was in Apple’s DNA, in the drive to satisfy the taste of as many music customers as possible. I think Apple should offer a low cost iPhone, stripped down but with the core functions.

      1. Absolutely not. It would run the same iOS, with simply a fairly less (for many people, useless) features running on it.
        Even the nowadays SE is quite fine for many.

  2. Attempting to sell $1000 iPhones in India and Africa isn’t going to work. However, ignoring two countries completely doesn’t exactly seem like a good business strategy for Apple. It just seems like they’re giving up too easily to Android. I figure Apple must have some relatively smart people when it comes to making marketing decisions, so they should know what to do without my help. It’s just obvious that a company has to sell an affordable product in order to get consumers to buy it. If consumers can’t afford to buy that product, then they’ll simply look elsewhere. Maybe selling any type of iPhone in poor nations isn’t worth the effort and Apple’s money might be better off spent on trying to sell its other products to richer nations. Nokia’s collapse came by trying to sell cheap phones to poor nations because there’s just too little profit in doing that. It’s a tough balancing act trying to beat out the competition and still makes profits so there may be no easy solution for Apple.

    I don’t mind paying $1000 for a product that I can use at least three years on a daily basis but I honestly don’t think most people need any type of flagship smartphone. Mid-range smartphones should be more than suitable for most consumers. If Apple can’t build the very best smartphone in the entire smartphone industry then they might as well just give up on trying to charge more. Consumers have to feel they’re getting something more for that extra money, besides an Apple logo.

    MDN says it’s OK for Apple to sell to a niche smartphone market but Wall Street certainly doesn’t see it that way. If iPhone revenue falls off, then that causes a loss in Apple’s overall value. It may be OK if revenue falls off from the iPhone but then Apple needs to offset that loss by some other means. That means selling more computer products or creating/acquiring another business.

        1. Sorry for this being off topic, but…

          This is NOT a “nitpick”.

          The U.S. has senior politicians who refer to Africa as a country. These are the same people driving U.S. foreign policy. These are the same people who get quoted by the general public. Thus there is no proof that “macnificentseven48” isn’t just using the same terminology those politicians use without knowing the difference.

          It is important to get such things right.

          1. I understand it may be important to get it right when many others are depending on the accuracy of your communications. However this is a comment section. In the end, did his use of Africa as a country detract from your understanding of the point he was conveying?

  3. “MacDailyNews Take: Newsflash: Apple sells premium products at premium prices to premium customers.”

    OK – but companies which only sell products at high margin boutique prices (and who keep raising them) have to be prepared when they start to have boutique-level sales.

    But re the “we don’t sell junk” from Cook, is the iPad (the model with no “Air” or “Pro” in the name), junk?

    Apple can and does compete on price and premium in the tablet market. And in fact dominates it! And the “iPad iPad” doesn’t seem to cannabalize the market for the higher end to any great degree.

    Also, after being re-positioned somewhat, one can enter the Apple Watch market without selling a kidney on the black market. And the watch is dominating its segment as well – for sales and profits.

    So why not a decent, well-made entry level iPhone with a prior gen A-processor that’s simply light on certain features…? (But more attractive than the 5c, please.)

    Apple’s been solving some of its long-time issues in various arenas this year. I think they’re still missing a trick here.

    1. Here’s a thought – Apple’s strategy in this arena has been to sell “hand-me-down” previous gen phones at lower prices – offering price tiers in this fashion. But this still screams (I’m guessing) “old phones” to many prospective, budget-limited iPhone customers.

      Why not, instead, reskin (all of most of) the same components with a new look outside and a new model name. This would hold down engineering and line-re-tooling costs to a few areas while giving a new life to the (state of the art at the time) parts kit.

      And maybe help Apple take off in places like India and the African continent….

  4. I would like to see a third flagship iPhone that is smaller. That is only addressed by some of the older models and I think apple are leaving some money on the table without that.
    Cheaper phones are useful if the correct strategy is used. Apple killed the music player market by gradually pushing the competition to the low end. They need to do this more aggressively either with rebranded earlier models or with new lost cost phones. The point is not to focus on market share but to squeeze the remaining profit out of the competition. There will always be low cost alternatives who succeed for a few years. But if Apple continue to pressurize the competition by taking all the profit they can maintain that leverage for longer.

  5. I rarely disagree with MDN, this will be the rare exception.

    I am fortunate to have many friends who are well able to purchase $5,000 iPhones. However, they aren’t even buying the X let alone the XS. Just like they refused to purchase Apple watches costing more than $700. There comes a point when the usefulness fails to justify the price. Apple appears to have reached that limit around the time of the iPhone 8.

    Among my friends I know two people with either the X or the XS. That is it. Several have recently purchased new iPhones. What did they purchase? The iPhone 8.

    When I asked why they bought an iPhone 8 their response was “I’m not paying a thousand dollars for a phone.” I have heard the same comments about the new iPad Pros.

    1. Exactly this.

      The business analysis is that the “utility function” of the product simply doesn’t merit paying $1K when there’s viable marketplace alternatives at a literal fraction of that price.

      And while one can say that the Apple brand carries a certain premium .. and yes, that’s a reasonable point .. even “brand name” has its limits to how much the marketplace is willing to pay.

      Now granted, Apple is free to try to make a killing on just a small, exclusive high tier slice of the market – – but that gets problematic when building an ecosystem, because the risk is that there won’t be enough customers for software developers to make their money. Once that happens, its a death spiral to the bottom, at an increasingly breakneck speed.

  6. It,s a choice and Apple like many other companies don,t mind squeezing every penny they can out of their customers justified or not…i.e. new MacBook Air with last gen BT4.02 instead of BT5.00. I’m just saying Apple could rule both smart phone arenas…high and low end…everybody wins and please stop insulting current iPhone and potential iPhone buyers with”Newsflash: Apple sells premium products at premium prices to premium customers”! It just sound elitist, rude!

  7. There are no killer features anymore justifying a higher price. Its all about evolution not revolution as the keynotes became boring. Of course people start using their phones longer and postponing upgrades.

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