The iPhone X

Ben Thompson writes,

The iPhone X sells to two of the markets I identified above:

  • Customers who want the best possible phone
  • Customers who want the prestige of owning the highest-status phone on the market
  • Note that both of these markets are relatively price-insensitive; to that end, $999 (or, more realistically, $1149 for the 256 GB model), isn’t really an obstacle. For the latter market, it’s arguably a positive.

    Thompson is giving irrational reasons for people to buy this phone, and maybe those will be sufficient. But no review that I have seen has made a use case for it, and for many people $1000 is real money. If consumers behaved rationally, then the iPhone X would join New Coke in the annals of product rollouts.

    It seems to me that Apple is not going to convince Android users to switch to this new phone. So basically their goal is to gouge their existing customers when they need to replace their phones. They figure that people are afraid of losing important information if they switch from iPhone to Android, so they are picking a price point for the 8 that they think their existing users will suck up and pay. And they are hoping that these replacers will say to themselves, “Shucks, as long as we’re paying that much money, why not throw in a few hundred bucks more and get the X?” We’ll see.

    If my hypothesis about gouging existing customers is correct, then one would predict that Apple will deliberately deprecate old phones in order to coerce users into upgrading. You can expect to see “we no longer support. . .” whenever they think they can get away with it. Upgrade your iPhone 7 to the latest version of IOS? No can do. Data backup? Sorry, does not work on old phones any more. etc.

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    32 Responses to The iPhone X

    1. Robert Sterbal says:

      There are 3 new phones.

      They seem to sell phones with an expected life of 5 years or so

      • mb says:

        This is one reason I picked finally bought iphone, Google Android treats their phones as disposable – 2 years.

        So the comparison is paying $300 – $400 every 2 years versus $800 – $1000 every 5 years.

        not much difference

        • Butler T. Reynolds says:

          “not much difference”

          Keep telling yourself that. ;-)

        • Slocum says:

          You don’t get Android OS updates after a couple of years, but it really doesn’t matter, you can still install any app you want. I’m happily using a Samsung that’s a few generations old and don’t have any near term plans for an upgrade. The new phones don’t really do anything mine doesn’t (at least nothing that matters)

    2. Mark says:

      Apple is, and always has been a cult, at least since Jobs returned in the 90s. This isn’t necessarily a bad thing, but without him leading (manipulating, perhaps?) the marketing campaign, this may fail. He did have ideas, and it is that deficiency lately which is hurting Apple. The iPhone 8 is apparently no better than the 7, which was little different than the 6.

      I’m happy with my 4-year-old iPhone 6 and have no reason, nor desire, to upgrade.

      • Mark says:

        I should have added after the cult part, this is why Apple faces a more inelastic demand curve for its products. At the top of this are the die hard Apple users who seek both status (at least among other hardcore Apple users) and the latest seemingly Apple gimmick. They’ll wait in long lines and willingly pay $999 for this.

    3. collin says:

      But no review that I have seen has made a use case for it, and for many people $1000 is real money. (I think most new phones are $600 – $700 so we added $15/month on the bill which is how most people think of the cost.)

      It depends on real money and how many buyers here. I bet a significant number of people purchasing have to get a new phone every year because work & live on it 16 hours a day. (It might even be expensed partially or fully.) Also, the big point on modern phones is they do substitute a lot of other goods.

      Anyway, Apple phone prices are probably the best way the company is figuring out how oppose any government monopoly cases as they show they a

    4. static says:

      “If consumers behaved rationally”
      Clearly, this is just more evidence to throw on the pile of indicators that they do not behave in the simple rational manner described in basic econ models. While status goods have been a well-known phenomenon since at least Veblen(1899), it is not clear that the pursuit of status is itself irrational.

      I find it amusing that people are still obsessing over the design of modern touchscreen phones as the difference between them approaches zero, and most people throw them in a protective case anyway.

      One note is that the processors they are putting in these phones are quite good and of a proprietary design that integrates well with their proprietary operating system. Not only does it beat anything Android and the Snapdragon processors can do, they beat many current Intel laptops on real-world benchmarks, such as speed of rendering JavaScript-heavy web pages, while consuming less power. Whether anyone values how quickly all of those ads render is probably another question.

      As a side note, love reading Ben Thompson, he generally reaches a good level of analysis.

    5. Tom DeMeo says:

      The major differences between an iPhone 8 and iPhone X are a 5.8″ edge to edge OLED screen and an automated facial recognition unlocking feature. I think its fair to question whether those features are worth $300, but they are both significant.

      • jc says:

        Bingo.

        Yes, many will buy it for less rational and/or status-oriented reasons above. But there’s also a lot of pent-up demand from people who haven’t upgraded since the 6, whose “plus” version introduced another game-changer to many, a giant screen on an Apple phone that “just works”.

        Here, the edge-to-edge screen is a clear game-changer that makes this far more than an incremental improvement. In fact, to many this has been a Holy Grail of sorts for a while now, the borderless phone.

        Now, one *could* lump this into the category of “wanting the best phone you can buy”. But one can also quite easily many would want an edge-to-edge screen even if the phone was a bit *less* powerful, for its aesthetics and practicality (e.g., more usable real estate plus noticeably smaller form factor that fits in my pocket and can be used with one hand).

        Thus, if there was ever a version where we should perhaps *not* attack people for being hive-minded lemmings and/or irrational, this is it. You’ll see plenty who haven’t upgraded in ages buy it.

        In fact, an argument can be made that the emotional, less rational reaction is coming, this time, from Calvinist souls who are simply appalled at the high price. Yes, a four-figure phone seems absurd, but it’s not really as different a price as it *feels*, e.g., a top of the line iPhone 6+ went for $950, and that was four generations ago. If one is more offended this time than they were before, perhaps the four-figure barrier is exerting its influence.

    6. The data shows Apple continues to gain US market share
      https://www.recode.net/2017/1/11/14239038/iphone-apple-android-sales-united-states

      To be fair, the install base between Android and Apple is rather flat. But most analysts agree people switch from Android, but far less often the other way around, so on balance over time there’s a creeping increase in Apple share.
      https://www.statista.com/statistics/266572/market-share-held-by-smartphone-platforms-in-the-united-states/

      One could call this irrationality. Or one could just say the market for smartphones is now similar to that for what cars used to be. A high cost device which is becoming more market segmented (think Sloan and GM in the 1920s). Android is the model T of phones. Sometimes people like to pay extra for nicer things for the (irrational?) satisfaction of it.

      In short, I think the New Coke angle on iPhone X is completely wrong. This is Apple attempting to do a classic market segmentation move for a maturing market. Which is Ben Thompson’s point as well. If that is true, then I’d predict “that Apple will deliberately deprecate old phones in order to coerce users into upgrading” is also wrong. But be careful. No doubt Apple will do something that looks similar to this. History shows Apple is very aggressive in deprecating old connectors (remember new lightening cable with iPhone 5 in 2012). Today I’d say it’s clear that the 2012 connector shift wasn’t done to “coerce users into upgrading”. Despite many people claiming that was the motive at the time. Rather it was done because the old cable was worse than the new one. But it did have the effect of forcing upgrades. And of course Apple was very happy to make more money when that happened.

      To be clear, Apple has massive hubris! But it lies in them being the most artistic wonderful designers with a saint-like founder who knew far better than you what is right. They feel they deserve their money. And their fans can be annoying. But I wouldn’t say Apple obsoletes tech merely to make more cash. If you ask, they’d tell you condescendingly this is beneath them.

      I predict iPhone X will be supply constrained for at least 6 months. Especially in China. That said. I have no interest in buying one. But I do upgrade my phone annually, so intend to get an iPhone 8. As for my car, my wife got angry with me two years ago that my Accord had 300k miles on it, so I got another Accord (bought a two year old 2013 model). I’m 54. But my tastes on where to splurge are definitely more aligned to the smartphone generation than the car generation. I’m using the car/smartphone analogy since I think it provides a useful frame for what’s going on.

    7. Dave says:

      “one would predict that Apple will deliberately deprecate old phones in order to coerce users into upgrading”

      In my experience, this usually more subtle and happens by making OS upgrades that slow down old hardware to the point of being unusable.

      • Jeff B says:

        Newer operating systems are generally doing a lot more. Its the flip side of the fact that Apple is also much better at supporting older hardware than their Android based competitors, which have no incentive to support newer software because they don’t gain from the aspects of owning the software stack.

        That said, this phenomenon will also be likely to lessen over time. While the Apple CPUs are still advancing at an unbelievable pace, there’s probably going to be a ‘good enough’ for much of the day to day OS tasks. My 6s is probably not going to feel much slower going to iOS 11 as my iPhone 4 felt going to iOS 6.

        Anyway, the notion that they intentionally make things slower is silly. Most of the features missing from older phones w/ the newer software is because they don’t have the chips to support it (which is a pretty reasonable limitation in my view)

        • Dave says:

          I don’t think the iOS upgrades’ purpose is to intentionally make old hardware slow; I just think that when they make new OSes, they focus primarily on the experience on the latest hardware without much regard for how older phones perform with them (beyond compatibility testing). You can postpone iOS upgrades of course, but eventually you won’t be able to use apps that drop support for old OS versions.

    8. B.B. says:

      Are you just complaining, or is there a policy agenda?

      Apple’s behavior is not consistent with strong competitive markets. It is monopoly behavior.

      So. Do you want: (1) government regulation of monopoly, (2) antitrust action, or (3) do nothing and wait for the problem to go away, if it does?

      • Roger Sweeny says:

        4) Knowing that the problem won’t go away but knowing that government action often makes things worse, suggest that people take a good hard look at whether this phone at this price is a good purchase and then make their own private decision.

      • Justin D says:

        Apple sells smartphones that are quite cheap, including the small screen iPhone SE for $349 or $15/mo and iPhone6S Plus with a large screen for $549 or $23/mo. The SE blows away the iPhone5S released in 2013 for $649, coming with a faster processor, better camera, improved touch ID, and 32GB of storage rather than 16GB. I don’t see how adding a new premium tier to this existing range of products suddenly shows evidence of monopoly behavior.

        Sure, the smartphone market isn’t perfect competition, but what is? It’s an example of monopolistic competition as are most markets these days. If you don’t like what Apple sells, then you can go to Samsung, Google, LG, HTC, etc.

      • static says:

        They aren’t even the leading seller of phones. Monopoly = BS.

    9. ThomasL says:

      Do they have to do that through software attrition?

      There is a lot of natural attrition; batteries weaken and screens, charging ports, etc. often break due to minor accidents. I suspect that happens often enough that all you need to do is have those people decide it is better to upgrade than pay to have the existing phone repaired.

      If that is the case, high repair costs would be a less obvious way to encourage upgrades.

    10. Jeff B says:

      It should also be noted that the price differentiation is due to the fact that many parts are going to be supply constrained with the X. The OLED panels are on the bleeding edge, as is the manufacturing to support it all (and additional camera sensors to support face unlocking) — why shouldn’t that carry a price premium?

      The iPhone 8 actually has many of the same chips as the X (places where supply isn’t limited) — so I think people are underestimating what a good option it still very much is. If it wasn’t in the shadow of the X, it would still be the best phone available like any new iPhone release. The photography camera improvements alone make me look really hard at upgrading from my 6s…

      My hope however is they actually make a smaller-sized X-like edge to edge display. I feel that would be the best reason to get it, as I miss the size of the 4/5s but don’t want to give up the resolution of the 6s.

    11. John Hall says:

      Apple’s already dropped support for 32bit iPhones, like the iPhone 5. Apps are already starting to come out that don’t support these older iPhones.

    12. Dan W. says:

      I think paying more than $500 for any smartphone is crazy when a perfectly fine one can be bought for less than $300. But then I was completely wrong in 2007 that so many people would be willing to pay as much as they did for the first iPhone and the cellular service to make it work. Clearly my indifference curve is not the same as those who are buying the newest iPhone or Samsung device. Consequently, I have learned I have no insight on what consumer goods will sell and what ones will not.

    13. Isaac says:

      Apple is well known for having the longest support for their phones both for new OS versions and security updates. The OS update that came out today can be installed on a 5s, a phone that was released in 2013.

      Odds are that smart phones are going to start to having update cycles more similar to computers before too long. Apple’s OS updates for Macs support computers that are 9 years old.

      It would be surprising if Apple changes this behavior now, it is part of their value proposition. I think it’s hilarious that people try to apply monopoly reasoning to Apple prices. They only have about half the market in the US and far lower than that everywhere else. They are most certainly facing stiff competition, especially by price.

      I also chuckle at anyone that says that Apple’s success is because it is a cult. They have the highest retention rate of any manufacturer. It turns out that people that keep buying Apple products aren’t brainwashed, they just like the products. Say what you want about Apple’s prices but they do make quality equipment, have excellent service, and deep integration across their devices. It is far more likely that Apple’s customer base simply likes the equipment than them being brainwashed surely?

      • Barry Zuckerkorn says:

        +1

      • Slocum says:

        But…when Apple drops support for OS updates for a model, it starts getting hard to get new apps for it. My experience is that doesn’t happen with Android. All the apps continue to be available and work fine. You may not get an Os update, but you really don’t need it either.

    14. D. Moore says:

      “…Apple will deliberately deprecate old phones in order to coerce users into upgrading.”

      Apple has a history of doing this across all of their product lines. They deliberately support only a core set of hardware and will drop the kexts (akin to device drivers) from later iterations of an OS once a given set of hardware becomes unsupported/discontinued; this generally takes 3-5 years. Cynics will say that Apple does so in order to force consumers to upgrade. Apple says they do it so that they’re not spending development effort in an attempt to continue supporting outdate software.

    15. Max says:

      Last Time I checked Apple CPUs had only one distinctive advantage: Single Core Tasks. That means Apple CPUs were highly optimized for single core usage (short bursts of high activity), while Samsung & Qualcomm mostly have the upper hand on multi-core tasks. At least that was still valid for the last generation.

      See also here; http://www.trustedreviews.com/news/snapdragon-835-phones-processor-specs-speed-benchmark-chipset-cores-2944086

    16. Barry Zuckerkorn says:

      The market for cell phones remains one of the most competitive and dynamic in the entire economy. There remains a large number of OEMs selling a broad range of high quality phones for $200-$1,000. There are plenty of alternatives to the iPhone X and the “lock-in” effect is highly overrated…I have seamlessly switched b/w Android and iOS several times. Thus, I am a little perplexed by this post.

      Fwiw, the iPhone X was produced for 2 main reasons: 1) to quell all of the criticisms that Apple was no longer innovating and 2) to satisfy all of the tech blogger desires for a bezeless phone. Veblen had nothing to do with it.

      That said, the Note 8 and other phones are just as overrated as the X at a similar price point. Buy the S8, v30, Pixel 2 or iPhone 8 and move on with life. Geez.

    17. Casey Barwell says:

      Arnold, like others I’m a bit surprised by your post. Is it rational for those in a certain market segment to purchase a Lamborghini ? How about a similar market segment who purchases Tesla cars? What makes cars different than mobile phones? Also, for others talking about benchmarking cpus and other performance criteria, if dodge and Maserati both produce 450 horsepower engines, does that mean they are equivalent in power and performance?

    18. Butler T. Reynolds says:

      This is not an anomaly.

      People I’ve met who have the latest iPhones (and even the most expensive Android phones) are often most concerned with the monthly payments, not the total cost of the phone.

      Car dealerships have been profiting handsomely from this kind of arrangement for decades. Their favorite customers are the ones who ask first, “What are the payments?”

      I asked a co-worker who is getting ready to buy the X what she does with her high end phones given that I always buy unspectacular inexpensive phones with cheap plans.

      She says that she wants a fast phone because she likes to use Pinterest and watches a lot of Netflix on it. :-o

    19. Jason Braswell says:

      I’ll never understand the upgrade hate. To me it makes perfect sense to upgrade rapidly provided you’re above a certain income threshold. My phone is my primary entertainment device. I read blogs, surf the web, take photos and vids, and play games multiple times per day. Increases in screen quality, speed, and photo/vid quality are huge payoffs. (This is especially true because I have kids, take a lot of pics, and look at them displayed on a decent-sized tv screen. The quality difference is noticeable with every major iteration, especially for things like this image stabilization.) And don’t even get me started on the virtue of improved battery life!

      I’d much, much rather drive a Honda and always have the latest phone than drive a Mercedes while using an old phone.

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