Phone X event at Steve Jobs Theater frames the future of Apple, Inc.
Next Tuesday, Apple is expected to unveil its largest array of new product introductions ever, ranging from iPhone 8 and a premium new iPhone X to a new 4K/HDR Apple TV, new Apple Watch Series 3, revamped AirPods and the new HomePod appliance— as well as its new Apple Park campus. Here's why it all matters, focusing on the new lineup of iPhones.
The previous segment looked at the "largest" unveiling of the event: Apple Park itself.
The secrets of iPhone 8+X
We now apparently know what Apple will calling the new 2017 iPhones, as Neil Hughes reported for AppleInsider on Saturday. Rather than an incremental "iPhone 7S," it looks like we'll be skipping right to iPhone 8 and then skipping ahead even further ahead to iPhone X.
This sort of "ten" naming was partially anticipated last year, with the idea that Apple could rename its existing models as iPhone 7, 8 & 9 to make way for an iPhone 10 in time for the tenth anniversary of the original iPhone.
This is also an apparent homage to the original Mac OS, where Steve Jobs— having recently taken over control of Apple in 1997— outlined plans to jump from the Classic Mac OS 7.6 to the NeXT-based Mac OS X platform, with two interim Classic releases supplying the 8.0 and 9.0 versions. We've seen a dozen new versions of "macOS X" since then, paving the way for 2017's upcoming release of macOS X 10.13 High Sierra.
A decade later in 2011, Apple similarly jumped from Final Cut Pro 6/7 to "Final Cut Pro X" to highlight the complete architectural overhaul of the new product. Since then, Final Cut Pro X has been incremented with a secondary version number— it's currently Final Cut Pro X 10.3.4— rather than shifting to X1 or XI, following the same pattern as macOS X.
Additionally, Apple has also used X (the letter, not Roman Numeral ten) in naming its professional, high-end products, including Xsan (storage area network), Xgrid (a distributed computing protocol) and Xcode (Apple's code development tools package for macOS, iOS and its other platforms).
iPhone X Leaks
Other facets of the new iPhone X, particularly its use of a structure sensor to perceive accurate depth information for 3D scanning, were recently "leaked," even though this mechanism is straight from Apple's 2013 PrimeSense acquisition, and something AppleInsider detailed back in 2014.
The leaked applications of this new hardware, including Face ID authentication and animated emojis that reflect the user's facial emotions, are also closely tied to recent Apple acquisitions. However, there's also a lot that isn't yet known about the potential of these technologies, just as there's still a lot to learn about ARKit even after Apple demonstrated the new platform for augmented reality at WWDC this summer.
We also know virtually nothing about the A11 Fusion processor or what GPU it will be using, and whether Apple will have its own graphics technology installed in the newest iPhones. Similarly, we have some idea that it will apparently include Apple Watch-style wireless charging, but not much is known about the details.
We've always seen leaks of case design photos, screen shots of upcoming iOS features and leaks of codenames and product packaging. Many of the leaks are already known facts or strongly speculated well in advance based on Apple's previous acquisitions and investments. All the same, every Apple Event also carries new surprises and details that were kept tight secrets, and this Tuesday should reveal plenty of new things about Apple's known products and initiatives.
So long, S models
The naming of iPhone 8 drops the "s" cadence and makes it clearer that iPhone 8 will be a significant generational jump. The previous iPhone 4s, 5s and 6s all involved major new technology introductions but were somewhat blunted by their "s" names, which suggested that they were only a model refresh, rather than delivering a big new leap in technology.
This year's parallel introduction of a new iPhone 8 family alongside a premium new iPhone X edition also enables Apple to maintain its current pace (deploying new iPhones with new technology at the same price as the previous year) while also allowing it to introduce a new future-forward offering appealing to buyers who will spare no expense to obtain the best technology possible.
Previous generations of iPhones stuck to a two year cycle "tick tock" cadence based on case designs, where the "s" model enhanced internal components between major case redesigns. However, the biennial redesign of iPhone cases (iPhone 3G, 4, 5 and 6) is going away as the iPhone's case doesn't need to arbitrarily change every two years.
iPhone 7 and 7 Plus introduced a variety of very practical and useful advancements (including water resistance, faster silicon and better cameras) without significantly changing how the device looked. The need for an "s" model no longer exists.
Premium price X for better technology
Critics who once insisted that the only way forward for Apple was a massive price erosion of its $650 base iPhone were effectively silenced when Apple introduced the $650 iPhone 6 alongside a $750 iPhone 6 Plus, because that move helped to increase both Average Selling Prices and unit volumes.
In contrast, Apple's parallel introductions of lower priced iPhone models, first with iPhone 5c and later with iPhone SE, served a purpose but didn't have nearly the impact on future sales or demand as its premium Plus models, which keep getting more popular (and therefore become a larger percentage of the overall mix) each year.
If Apple had listened to the "go cheap" pundits, it would have watered down the iPhone brand and ceded the high-end (and profitable) phone market to rivals. As it is, Apple overwhelmingly dominates the global market for smartphones over $400, including the premium market in China— 80 percent of which is iPhone.
Without a lock on premium phones, not only would Apple not be making as much money (leaving itself unable to invest big in new technology), but it would also likely have been pushed out of China by domestic makers who are very good at making cheap products and are not burdened with making a profit at all. No other Western tech firms have performed well in China, in part because they have attempted to go cheap and lost rather than going premium and establishing themselves as a luxury brand. Apple followed the strategy pioneered by luxury makers, and it paid off handsomely.
This idea was once controversial. From the iPhone's debut until around 2010, Morgan Stanley analyst Katy Huberty consistently dinged Apple for the "high cost" of its hardware and insisted that the company needed to lower its prices to meaningfully enter developing markets such as China. Only after Apple decisively won the smartphone wars did Huberty change her tune, but even then she kept anticipating that Apple would slash iPhone prices to increase "market share."
In the summer of 2011, as Bloomberg and Wall Street Journal were incorrectly predicting that Apple would launch a new iPhone mini "half the size of iPhone 4," Chris Whitmore of Deutsche Bank similarly declared "It's time for a mid-range iPhone," priced between $300 and $500. Most analysts covering Apple voiced agreement.
Only a rare few analysts didn't buy into the "small and cheap" iPhone theory. Charlie Wolf of Needham & Company noted in 2014 that it would be "impossible" for Apple to successfully build a cheap iPhone without doing lasting damage to the company's highly profitable and successful smartphone brand. Standing on the other side of the iPhone 6/6 Plus launch, this is now unassailably obvious.
A Plus on its side is an X
iPhone X appears to stand for 10, marking the first decade of iPhones. However, another way to look at it (literally) is the "+" model turned on its side— or perhaps, "rolled forward."
Over the last three years of replicating the Plus model paring in the 6, 6s and 7 generations, Apple is now adding a third iPhone offering: a luxury X model with an even higher premium in price and features, echoing the "good, better and best" pricing tiers common among Macs and iPads.
iPhone 6 Plus allowed Apple to launch a larger new UI for iOS, one that begged for some extra scaling work from third party apps to take full advantage of its extra pixels. The majority of iPhone buyers stayed with the already slightly larger iPhone 6, but those who wanted a larger display showing more content (or larger text) sprung for the Plus premium.
The following year, a larger number of iPhone buyers opted for the iPhone 6s Plus, and the popularity of the big screen grew even more with the launch of iPhone 7 Plus, which not only featured a bigger display, but also a new dual camera system with optical zoom and Portrait features.
In February, Tim Cook noted the iPhone 7 Plus enjoyed a "higher proportion of new product mix than we've ever seen with Plus models in the past."
With iPhone 8, some of the demand associated with a larger display and premium camera features will be split; buyers who don't want to pay an extra premium can get iPhone 8 Plus, while those aren't as cost sensitive will see value in iPhone X, a product that delivers a Plus-sized screen in a smaller case. This will shake up the model for figuring out where consumer demand lies.
Further complicating things is the fact that many users who opted for a standard sized iPhone in the past can now get a larger display without the downside of carrying a purse-sized Plus device. And on top, they'll also get a new camera, depth, Face ID and other imaging features, albeit at a premium price.
X delivers innovation at a premium scale
Apple's success in launching mass market iPhone mega-hits each year at breathtaking scale over the last decade— unrivaled among its competitors— has created the problem of thwarting its capability to launch radically new technology until it can do so at vast scale. Anyone who has helped engineer or launch a technology product knows that ambitious is the enemy of scale over time.
Samsung (and certain other makers) have actually benefitted from the fact that they sell a relatively small number of premium models, because it's much easier to launch a high-end product like the Galaxy Edge that only needs to be built in quantities of a few million per quarter. Or in the case of Microsoft Surface, several hundred thousand.
Every recent new iPhone has launched with the expectation that it will need to be pre- built on the scale of tens of millions of units right from launch. That makes it far more difficult for Apple to lead in areas where emerging new technologies are difficult to massively scale up in manufacturing.
Android phone makers have touted new ideas such as the bleeding edge introduction of 4G LTE modems, NFC proximity, wireless charging, rapid charging, water resistance, curved displays, 3D screens, ultra high 4K resolutions, OLED screens and other concepts ranging from desirable to gimmicky— at least on their flagship models. The vast majority of Samsung's +80 million phones sold each quarter did not introduce any of those innovations.
Apple's iPhone model has rendered every phone it ships a premium flagship. That vast scale results in a massive installed base of common hardware and has allowed Apple to rapidly deploy practical new technologies such as Bluetooth 4, Siri, Touch ID and 3D Touch, but it also complicates its efforts to stay ahead of the curve.
By serving the mass market with new iPhone 8 and 8 Plus models, Apple can launch its newest tech faster on a premium iPhone X, paid for by a price premium. As noted above, this is an acceleration of what it did last year with iPhone 7 Plus, which introduced exclusive features such as dual cameras and Portrait mode using differential depth processing.
iPhone X introduces technologies like OLED that have never before been deployed on the scale of modern iPhone launches. While the media has desperately tried to equate Samsung's Galaxy S8 or Note 7 flagships with iPhone launches (and has even tried to suggest vanity launches such as Essential, Microsoft Lumia, or Google Nexus or Pixel launches are on the same level as iPhone!) the reality is that Apple launches new iPhones in incredible scale, with new flagship generations selling around 170 million units per year.
Apple is tasked with producing more than ten million new iPhone launch units for sale within the first weekend! This year, Samsung announced half that number of high-end Galaxy S8 flagships across the first month of its launch
Apple is tasked with producing more than ten million new iPhone launch units for sale within the first weekend! This year, Samsung announced half that number of high-end Galaxy S8 flagships across the first month of its launch.
Imagine having a luxurious month to accomplish all the work you had to get done in your busiest three days of the year! You could spend most of that month drinking martinis.
The future of X
Every year for the last decade, Apple has defined the pace of the smartphone industry. Some years iPhone has played catch-up to bring the features being offered on the fringe of premium rival flagships into the mainstream (such as with LTE, phablet sized displays or NFC). At the same time, Apple has introduced massive innovations that sent the industry reeling in efforts to catch up (such as Siri, Touch ID and 64-bit processing).
However, as noted above Apple has maintained its hyper competitive position while being tasked with serving a massive volume of buyers now demanding around 170 million units of each new generation of iPhone. Its closest competitor only builds about a tenth as many Galaxy flagships each year, and the showboats unveiled by Google, Microsoft, LG, Motorola, Essential and Vertu collectively amounted to virtually nothing, despite the inordinate amount of press they attract.
Apple now has an ultra premium iPhone X product line that it can use to launch avant-garde technology to a smaller but less price sensitive audience. This is not only an extension of the Plus iPhone strategy, but also the same sort of thing that Samsung, Google and teams like Essential have been trying to accomplish, without as much success, and at a much lower price point.
If iPhone X is in fact priced starting at $1000, that gives it a lot of room to introduce new premium technology features that aren't feasible to scale up into 150 million unit territory, or to deliver at the existing iPhone ASP of around $700.
How iPhone X changes the rules of luxury at scale
Many questions remain. Will Apple continue this same lineup, with an iPhone 9, 9 Plus and X2 next year? Or is this year's iPhone X just a fancy one-off model in the mold of the "Twentieth Anniversary Macintosh"? Or will this year's X become next years entry level, paired with a new X-Plus, a sort of qualitative leap upward for the product category, similar to iPhone 4 or iPhone 6?
If iPhone X indeed becomes a new luxury tier going forward, will Apple's focus on delivering extreme new technology for each year's new iPhone X distract from enhancing the base model iPhone (the way that iPad Pro has converted the standard iPad into a basic value model), or can Apple successfully deliver two tiers of market-exciting iPhones (as it did in previous years with consumer and Pro model Macs)?
There are many other unknowns that will be answered on Tuesday, and across the next year, as individuals decide which iPhone model (and which price tier!) appeals to them. In the past, even Apple executives with access to tons of data have expressed surprise and have admitted being wrong about where demand would ultimately lie. However, in most of these examples, Apple underestimated the demand for high-end luxury.
For example, the company appeared to have modeled in 2013 that iPhone 5c would attract more attention and while underestimating the number who would spring for the premium featured iPhone 5s. As it turned out, the investments made in building the futuristic technologies of iPhone 5s boosted Apple's bottom line while differentiating the company's offerings. In fact, it's hard to come up with modern examples of a major, advanced new technology that ended up a waste of time for Apple to implement and deploy.
Even technologies that arguably were less practical and valuable than depicted in Apple's marketing (perhaps we could include 3D Touch and the Mac Touch Bar in this) actually did serve to enhance the perceived value of Apple's offerings— both look cool, even if you may have to stretch yourself to make use of them.
Besides the minority of flashy features that could plausibly be dismissed as gimmicks, the vast majority of Apple's innovations and engineering work are monumentally valuable, and key drivers of why buyers remain so unusually loyal in buying the company's products. Apple's core competency appears to be identifying and deploying new technology at scale. But a smaller scale, more premium offering allows the company to drive innovations even faster while aggressively working to cut the deployment expense (paid for by premium pricing), enabling new tech to trickle down across other products faster.
If iPhone X serves as an accelerated vehicle for delivering new technologies that couldn't otherwise pencil into a $700 ASP or be delivered at massive scale, we could witness a new proto-singularity in ubiquitous technology advancement that radically upgrades our devices in an "insanely great" way. That will not only polish Apple's already gleaming reputation as a leader in consumer tech, but also extend the lead Apple enjoys as the world's only producer of extremely high volume, luxury electronics.
It is also certain to further erode the ability of rivals to maintain any appearance of being ahead of Apple. Samsung's phablet business was devastated by Apple's introduction of iPhone 6 Plus at an equal price point. How can Samsung (or Google, LG, or Essential other niche makers) compete with a high-end luxury iPhone X capable of attracting a much higher price?
The structured sensor of iPhone X shares much in common with the fingerprint sensor of iPhone 5s: the technology was considered too expensive for other manufacturers to use
The structured sensor of iPhone X shares much in common with the fingerprint sensor of iPhone 5s: the technology was considered too expensive for other manufacturers to use.
Google had similar technology with its Tango project, but it couldn't convince any significant number of licensees to use it because it was expensive. Apple looks capable of driving adoption of the new technology in ways that Android or other platforms can't, just as it took many years for Android licensees to catch up with Apple's fingerprint sensor— and those firms still lag behind in privacy and security.
Consider the top five vendors in China, who are unable to make any money while selling lower and middle-tier phones at half the price (or less) of the existing iPhone ASP. Or consider the historical trend among American and European phone makers who were once larger than Apple (and profitable), but were still unable to match the company's incessant pace in developing and deploying new hardware and software technologies at scale.
Competing against the newly expanded iPhone lineup will be even more brutal.