Let me celebrate a call: as Apple was ramping up prices on the iPhone, I predicted in August 2017 that “Apple must have a phone with a price range in the neighborhood of $300-$450”. (The new iPhone SE begins at $399.) The debate on LinkedIn was intense as many dismissed any strategy of Apple going downwards on pricing. My prediction was based on finite hardware improvement. Yes, there is a ceiling on how far you can improve the value and quality on hardware to command more non-marginal dollars. What can you do to double the price of an electric iron? With other devices advancing, Apple’s moat of exclusive hardware packaged on proprietary software will crack for entrance into the castle. Simply, phones will have largely marginal value improvements for years!
More so, as I have noted, I maintain that we would see the iPhone being priced at $300 soon. Why? Apple is pushing a services-driven strategy, and that means the more people who are using the hardware, the better. It is a better business to have ten people on Apple Music, Apple Pay, etc than just one person who can afford an expensive hardware. The lifetime value of those ten customers from a revenue perspective would be superior to the money made from the one expensive buyer. With ten users, retailers will open their systems for partnerships. In short, across all metrics, you win with more users of iPhone.
On average, these trends are negative for Apple: anything that declines the absolute number of iPhone sold is bad because even the services which are supporting higher revenue cannot grow without more people using iPhones since Apple services are exclusive to the hardware.
Apple will be fine and investors will align. Simply, the company is making it clear that its future is going to include services. So, if you hold Apple stocks because of iPhones and iPads, you may have to reconsider. By dropping the disclosure, Apple wants investors to focus on its revenue bottomline and not the number of devices sold. As far as the company is concerned, if it can grow revenue through payment, apps, licensing, etc, investors should not overly care what is happening on hardware as the company transmutes into making services a key part of its future. Simply, Apple has gone Services.
So, the base of my call – $300 – remains possible for the iPhone.
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