The iPhone is more expensive than ever. here's why

In the aftermath of Apple's announcements last week, it's so easy to refer to the $ 749 iPhone XR as a cheap model, unlike the $ 999 iPhone Xs and the iPhone Xs Max at 1,099 $. Only three years ago, Apple billed $ 749 for the most expensive new iPhone in its line of products, the iPhone 6s Plus.

It has never been more expensive to enter an Apple Store and go out with an iPhone. Changes in the way mobile operators approach their customers have, unsurprisingly, resulted in changes in the buying behavior of those same smartphone users. The change in buying habits then affects Apple, which makes its own changes to compensate.

There is a lot going on here, and although the end result is that Apple is slowly increasing the average selling price of the iPhone, it does not necessarily mean that most people are spending more on iPhones than on iPhone. before.

The grant is dead, somehow

At the time, at least in the United States, most people did not pay a high price when they bought an iPhone. Instead, they paid a lump sum that was sold with a 24-month contract to a mobile phone company. The mobile phone company basically subsidizes the overall purchase price of the phone by committing yourself to a two-year contract, part of your monthly bill being spent on your phone's refund.

Even though the total amount you spent on the phone was actually quite high, a lot of it was carried over to monthly payments, which eased the pain. However, it was often a very bad deal for consumers because in most plans, after two years, your bill would not go down. Which, in turn, was a motivation to get a new phone every two years so you can get your money.

Apple

The times have changed. These days, both operators and Apple are offering monthly iPhone plans with built-in upgrades, structured as loans rather than wireless contracts. It's a more transparent system and once you pay for your phone, it's you. It has also led to innovative programs like Apple's iPhone Upgrade Program, which allows you to get a monthly subscription for one year, resell it, and get a newer model. .

Apple

You can also access an Apple Store and buy an unlocked phone at a high price. No monthly fee, no complications, just a package. This price is not cheap, especially compared to the old subsidized prices, but it remains nonetheless.

The net result is a change in the way people buy phones. If you spend $ 1,000 on a phone, you are more likely to keep it longer than the old two-year cycle. (Or maybe you pass it on to a family member – my son always uses an iPhone 5!) Of course, there are people – probably from you – who get a new phone every year. But I would bet that the change in the way we buy phones has lengthened the phone's buying cycle.

Fewer new phones bought every year are bad for Apple? What's a company to do?

The growth of iPhone units is approaching zero

Given the encouraging quarterly results announced by Apple in recent years, you may feel that iPhone sales are increasing. That's not true: iPhone sales growth year-over-year was 5% or less over the last 11 quarters.

Jason Snell

Not good, right? If the iPhone is growing in sales, its growth is very slow – a few percentage points. So, why is Apple's iPhone activity perceived to be so strong?

One of the reasons is its size and profitability. Even without massive growth, the iPhone remains a huge company that makes Apple one of the most successful and profitable companies in the world.

Another reason is that if iPhone sales do not increase much, the iPhone earnings do a lot, a lot better. Revenues have increased over the last seven consecutive quarters, and the last three quarters have posted double-digit revenue growth compared to the same quarter last year.

Jason Snell

What is happening here only requires basic mathematics to understand. Take the amount of Apple's iPhone revenue and divide it by the number of iPhones sold. The number you will receive will be a measure of dollars per iPhone – what is commonly known as the average selling price, or ASP.

The ASP continues to climb

Since the end of 2016 and the introduction of the iPhone 7 and the iPhone 7 Plus, Apple has increased prices of the iPhone – and the ASP followed.

Jason Snell

In 2017, the iPhone 8 ($ 699) and the 8 Plus ($ 849) were both priced at $ 50 more than their predecessors a year ago – and a new $ 999 slot was introduced for the iPhone X.

That brings us to this year. Apple has eliminated the price range of $ 649 / $ 699 for a new iPhone model, replacing it with a new phone at the top of the price list. Instead of offering models at $ 699, $ 849 and $ 999, it offers models at $ 749, $ 999 and $ 1,099. Unless Apple starts selling a much higher percentage of discounted models in the past year as part of its total, ASPs can only go up.

Here is a graph (thanks to Kirk McPike for the data) that shows, historically, that the prices of the iPhone models stickers have adjusted to 2018 dollars. I admit that this is an oversimplification of things because it does not take into account the long-term cost of subsidies. But it's still useful, if only as a rough measure of how Apple is shaping its range of iPhone products.

Jason Snell

The top line is the price of the most expensive iPhone that you can buy. This line has exploded in the last two years, thanks to the iPhone X and XS. This is Apple who captures money from customers who are probably always willing to pay more for an upscale iPhone.

The middle line is the price of the base model of the lowest price New iPhone template. Given the adjustment of the chart to 2018 dollars, it seems that Apple is actually quite consistent with the size of the price he wants to see on his basic iPhone.

The essential is the price of the cheapest iPhone model sold directly by Apple – usually a model from the past year or the SE iPhone. Again, this shows some consistency at Apple – and that makes the shutdown of the SE iPhone seems a little more a correction to a trend that had gone too far.

I read the growing gap between the top and bottom lines of this chart as Apple moved away from the iPhone product line to broaden the appeal of the product. Apple wants to sell the largest number of iPhone XS Max units of 1449 511GB, it is also happy to sell the iPhone 7 to someone at the price of 449 dollars, a thousand dollars less.

Higher prices for longer cycles

Lisa Jackson's claim that Apple is very committed to extending the useful life of iPhones is one of the most interesting statements of the iPhone event last week. Of course, iOS 12 also focuses on improving its performance on older devices.

Apple

This is not just a marketing speech. (It's a marketing talk, of course, but it's not just marketing discourse.) This is part of the same picture, of a changed global smartphone market. In this new world, phones cost more in advance, but they are usable longer and retain a greater portion of their value if they are resold (or recovered by a subscription program in exchange for a new phone) after a year or two.

When people keep their phones longer, what do phonemakers do? Make more expensive phones, ideally ones that last longer. That's exactly what Apple does. If you are someone who buys the most expensive iPhone each year, it is undeniable that you pay a lot more. But maybe you can get a good deal by selling the model from last year to compensate.