The tech world has grown accustomed to holding its breath each time Apple holds a major new product launch event. The fact that it still commands this level of interest 12 years after the first iPhone launched is a feat in itself. But the firm has been having a pretty tough time by its own high standards of late, squeezed by Asian rivals like Samsung and Huawei, Donald Trump’s trade war with China and a more widespread global downturn in smartphone sales.
So fans of the firm will be pleased to have seen the Cupertino giant bounce back with its latest product launch last week. It points to a new focus on regaining market share and driving services revenue.
At the launch event on Tuesday we saw:
Margins and services
Why has Apple, famously a tech vendor with a high margin business, decided to row back on prices with its latest launch? It’s all down to waning consumer demand for its hardware, especially in China and India where the firm has struggled to justify its high price point in the face of competition from cheaper but highly stylish handsets from the likes of Xiaomi, Oppo and others.
Will its strategy work? We think so. Despite the lack of 5G capabilities in the 2019 iPhone portfolio there’s good reason to believe in an upcoming mini-supercycle. Why? Because of a combination of the relatively low price of the iPhone 11 and the fact that the average device age of iPhones in use is at an all-time high. The relatively high cost of previous devices had persuaded consumers to hang on to their handsets, but as a result of iPhone 11 pricing, we can expect considerably more units of the new device to sell than the XR.
It can be seen as part of a wider strategy by Apple to refocus its efforts on winning market share. Both iPhone 11 pricing and its decision to absorb Trump’s tariffs on Chinese imports demonstrates the major shift away from ASP per device sold and back to number of units sold. This is a smart move, in particular as it will help drive Apple’s services proposition — its fastest-growing business area.
The free Apple TV+ subscription that comes with all new device purchases should be a good enough justification for many users to upgrade their old Apple device. At the same time, it will enable new subscription-based Arcade and News+ services to shine on newer and better hardware. Ultimately this will create a virtuous cycle of revenue generation through ongoing subscriptions, rather than one-time hardware purchases. That means a more steady income stream for the company going forward.
© CONTEXT 2019