Why Apple’s IPhones Are Viewed As Expensive (and the Company a Consumer Electronics Company)

Samsung Galaxy S3 and IPhone 4S

I recently read an article about the supposedly inexpensive iPhone that Apple looks to produce later this year (called “the iPhone Mini”), and two tech writers were in a debate posing questions and answers that they believe many of their readers want to read. They presume that their readership must have the same questions and answers on their minds (as do I), so they wanted to find a way to use dialogue to help their readers work through some of the questions and factors to consider when thinking about the possibility of an iPhone Mini to arrive this Fall.

The tech writers engaged in the discussion were Chris Rawson (known as “CR” in the dialogue) and Richard Gaywood (“RG”). Chris Rawson made a comment about the iPhone Mini rumor that struck me as a comment worth tackling:

“All these arguments for why Apple ‘must’ introduce a low-cost iPhone strike me as very similar to the pre-iPad discussions for why Apple simply had to build and ship a netbook. And yet I read an article the other day…that said low-cost netbooks have likely caused a market crash in the average sale price (ASP) of Windows-based PCs—possibly permanently…people see how much money Apple makes and how many devices it sells, and they assume it’s a standard consumer electronics company. It’s not. It’s still very much a luxury brand, and if they drift away from that they do so at their own peril. If they sell a $200 pre-paid iPhone, that creates the illusion that a smartphone ‘should’ only cost $200, the same way netbooks created the illusion that a PC ‘should’ only cost a few hundred bucks. And then, boom, crash, there goes the neighbourhood, and Apple’s profits along with it” (Chris Rawson, Point-Counterpoint: The ‘cheap iPhone’).

I have underlined some portions of Rawson’s comments above in order to highlight some responses I have to Rawson’s comments. First, it is true that netbooks have destroyed the PC industry; tablets are now effectively eliminating the mass laptop and notebook sales that once dominated the tech industry. While this is sad, and I do mourn the lost income for PC companies that were once on top of the world (Gateway, HP, even Microsoft), these financial losses are not the result of the economy; rather, they are the result of progress. Technology changes every day, and the changes humans must make often involve putting aside one form of technology for something that can do the same task better with more efficiency than the tech of yesterday. If we want to advance as a human civilization, we have to be willing to put aside old technologies and use existing technologies to enhance the quality of life.

Rawson, however, uses this to say much later in his argument (the ellipses indicate more was said in his article than what I have above) that, should Apple produce a $200 iPhone, the company will concede its large margins and consumers will stop paying more than $200 for an unlocked iPhone. As a result of this new mindset, Apple’s capitulation with the consumer will result in a loss of income and a reduction in profits. First, off, this is not the case. If Apple allows customers to pay $200 for an unlocked iPhone, customers will be so satisfied with the new costs that many of them may actually flock to Apple and leave Samsung phones (that often cost $600-$800 unlocked). Apple may actually steal some of Samsung’s thunder if the company does this.

Next, Rawson attempts to do away with the idea that Apple is a “standard consumer electronics company.” I’m afraid to say it, but Apple is a standard CE company; it has not arrived where it has by charging what many aristocratic and middle-class businessmen would pay for its prices. This may seem to be a different idea in countries outside of the US, but the average consumer here can afford an Apple iPhone. I know this because many of them enroll with carriers, where they spend two years at a time paying for both phone service and the cost of their iPhone. Consumers pay only $200 upfront, but they end up paying the entire $650 – unbeknownst to them. In this, iPhones are actually cheaper than some of Samsung’s high-end line (take $700 and $800 smartphones such as the Galaxy S3 and Galaxy Note 2).

Last but not least, if Apple sees itself as a luxury brand, why would the idea of an iPhone Mini be a possibility here? Contrary to Rawson, Apple has always seen itself as a company that just makes things that “work.” From the start of the company’s computers (Macintosh computers) to its iPhones, Apple has always produced products that are easy to use, that you can pick up and use in a heartbeat (children can play with iPads immediately). If Apple really branded itself as a luxury company, it would make products that only IT employees and computer technicians could handle. This has never been Apple’s target audience – thus, making the company a CE company. The touchscreen has been so marketable because anyone can use a device right out of the box.

In short, the move towards the iPhone Mini is positive, but how will the iPhone Mini differ from the larger iPhone? That is a question that only Apple can answer.