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At its debut Apple Park public event today, Apple unveiled a host of new products including the iPhone 8, iPhone 8S, Apple TV 4K, and third-edition Apple Watch.
But the most exciting product on the list is the new iPhone X (the name is a sly nod to the tenth anniversary of the iPhone as well as to the fact that everyone knows it’s the coolest letter in the alphabet), the highest-end phone in Apple’s lineup priced at an eye-popping starting point of $999.
This represents a change in strategy, on a number of levels, from the basic formula that Apple has used for its mobile phone business. And Apple’s mobile phone business is not just the most successful mobile phone business in the world, it’s essentially the most successful business of any kind in the world — so any change in approach is noteworthy. Why mess with success?
The iPhone’s success paradox
Not every successful product is “the best” product in its category.
The point of Ikea furniture or a Toyota Camry isn’t to be the greatest, most high-end offering in the realm of houseware or sedans, the point is to meet a practical consumer need at an attractive price. There are Ferraris and Porsches in the marketplace, too, but making “the best” car isn’t necessarily a more successful business strategy than making a good enough car at a reasonable price.
But the iPhone is different. From the day it was first introduced, it was positioned in the market as the best phone in the world. But it’s also become the best-selling phone in the world. And like any marquee smartphone, it needs to be updated and upgraded every year.
This gives Apple a big problem. Year after year, any new ideas they want to bring to the iPhone need to be capable of being manufacturing on a massive scale in a relatively compressed timeline. That’s hard to do and, in practice, it means that certain things simply can’t be done. And that means risking the iPhone’s quality leadership.
In concrete terms, low-power OLED screens are spreading in the Android world and they provide real user benefits in terms of increased battery life and the ability to take the display edge-to-edge. But nobody has yet figured out how to manufacture really high-quality OLED screens at the volume Apple needs to meet the consumer demand for iPhones.
The solution is the iPhone X. It’s essentially a Lexus to the iPhone’s Toyota — pairing the OLED screen with a few other high-end touches while containing substantially the same guts and commanding a premium price. Most people probably won’t want to shell out a thousand bucks or more for a smartphone, but that’s fine because Apple couldn’t make this phone in high volume anyway. The outer frontiers of quality require scarcity, and high prices turn scarcity into profits.
Apple risks losing the Coca-Cola factor
Andy Warhol once said that “what’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest.” He took as his example Coca Cola.
“You know that the president drinks Coca Cola, Liz Taylor drinks Coca Cola, and just think, you can drink Coca Cola, too,” he said. “A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good. Liz Taylor knows it, the president knows it, the bum knows it, and you know it.”
The iPhone isn’t exactly priced to appeal to the poorest people in the world, but it operates on broadly the same principle. Middle-class consumers all around the world can and do own the very same smartphone that celebrities and presidents and billionaires use. A brand-new iPhone is certainly a premium product — you can get a perfectly serviceable Android phone for $200 — but it’s also a mass market product, an “affordable luxury” that lets regular people achieve phone parity with the elite.
iPhone X changes all that. The anticipation now is that most iPhone buyers won’t be getting the best phone in the world, they’ll be settling for the iPhone 8.
The most interesting Apple launch in years
In the plane of pure reason, the iPhone X shouldn’t be a big deal. Either consumers will buy a $1,000 phone and Apple will make some extra money or else they won’t and Apple won’t repeat the experiment. Either way, the iPhone 8 will be the big financial driver.
But consumer purchasing decisions don’t happen on the plane of pure reason.
The risk for Apple is that people who are willing to pay $750 for the best phone in the world may not feel like shelling out that much cash to have the second-best phone in the world. If the best phone in the world is out of your price range and you’re a value buyer now, maybe you decide that the real value proposition is that $200 Android. Or simply not upgrading your phone at all. The best phone is a powerful idea that potentially transcends narrow cost-benefit analysis. Voluntarily surrendering your mass market product’s status as the best is a risky move.
Of course it’s also a risk with considerable upside for Apple. But in a world where the past few iPhones felt like sure things and Apple seemed to have decisively pulled ahead of its major competitors, the fact that there’s a risk at all makes this the most exciting iPhone launch in years.
