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Editorial

Why was iPhone X so successful at $999 despite a mountain of false reporting?

Reporting by Bloomberg, the Wall Street Journal and Japan's Nikkei created and perpetuated an absurd fiction that Apple's iPhone X was a "disappointing," "overpriced" product with "weak" sales, when it reality it remained Apple's most popular iPhone every week this quarter across 14 percent growth in iPhone sales in a business where no other company "mostly" sells their most expensive flagships, and where overall demand for smartphones is actually shrinking globally.

iPhone X



A Series of Sloppy Supply Chain Stories



How did these major financial newspapers fall on their face so sloppily on a story that wasn't really that hard to get right? In part, it was because the various reporters working for them refused to admit they really know very little about Apple's complex global supply chain--which they attempted to decipher with the sophistication of a swinging sledgehammer.

Nikkei claimed to know of "channel check" data revealing "disappointing holiday season sales" for iPhone X back in January, before it was revealed that iPhone X was the most popular smartphone in that quarter as well.

That was followed by a report by Tripp Mickle for the Wall Street Journal who claimed Apple "is slashing planned production" of iPhone X "in a sign of weaker-than-expected demand."Rumors of "order cuts" clearly do not translate into "slow sales" nor can be interpreted as "sluggish demand," or these channel check reports would sometimes be correct rather than being consistently wrong

These two papers have consistently issued incorrect reports of "weak" sales and supposed "order cuts" for a series of Apple's previous iPhones--models that were incredibly successful, not just as standalone products competing against cheaper rivals, but in targeting specific areas of demand.

Last year, iPhone 7 was falsely maligned for supposed "sluggish sales." Nikkei similarly claimed Apple had decimated its orders, but it actually achieved new growth and the highest ever sales for an iPhone.

The same nonsense news cycle occurred for iPhone 6s. And prior to that, iPhone 5c was lambasted as a failure but was actually a top-selling smartphone model beating out other flagships and attracting a higher percentage of Android switchers.

Rumors of "order cuts" clearly do not translate into "slow sales" nor can be interpreted as "sluggish demand," or these channel check reports would sometimes be correct rather than being consistently wrong.

The $999 Hype Fantasy



Writing for Bloomberg, Mark Gurman was so confident about "lackluster" iPhone sales that he actually stated, "Apple Inc. earnings this week will confirm what most investors have finally accepted: The iPhone X didn't live up to the hype."

But the "hype" being shoveled out by Bloomberg and other financial papers —not just some casual Android bloggers —was not that iPhone X would take over the entire world as the best selling iPhone, but that its "$999 starting price was too much for some consumers," an idea Gurman repeated ad nauseum since the product went on sale.

Bloomberg

Bloomberg's hype didn't live up to the hype


Its premium price was supposedly depressing demand and was declared to be the reason for bad news up the supply chain, including Samsung's OLED business. Gurman specifically crafted a story about slower Display Panel segment growth at Samsung and directly associated the fact that Samsung supplies OLED panels to Apple for use in iPhone X as proof that Apple's expensive new flagship was not selling well.

To arrive at that conclusion, he had to avoid mentioning that Samsung itself stated both its OLED and conventional LED panel businesses had been impacted by slow demand and difficult competition, and that the company also noted that "demand for flexible panels remains strong in the high-end segment" where iPhone X actually sits.

How a $999 phone turned pundits into clowns



Many bloggers and analysts similarly expressed a self-assured confidence that Apple had priced iPhone X too high, despite the fact that Apple has a very strong historical track record of pricing its products incredibly well to maximize volume sales at sustainable margins while delivering extremely high customer satisfaction.

Other companies have reached impressively low price points that could not be sustained (such as Google's cheap tablets), or priced products high without achieving significant sales volumes (Google's Pixel and Microsoft's Surface) or without achieving margins or satisfaction (Andy Rubin's Essential), but Apple has been unique in developing premium priced products that people want to buy, over and over again.

This was the case with years of iPods, and again with the first iPhone —which was offered at a price that Microsoft's then CEO Steve Ballmer laughed at, before the company later tried to raise the price of Windows Phones to match it, unsuccessfully.

Last year, a pearl-clutching media narrative about the prospect of the next high-end iPhone costing $1000 failed to take into consideration that high-end smartphones have been priced at $1000 since before the original iPhone was released. And Apple's own high capacity iPhone 6/6s/7 Plus models were already in the area of $950, making a $1000 price point hardly even news.

Further, while all of its new 2018 models started at higher price and capacity tiers, Apple wasn't just raising prices of its iPhones. It also expanded its pricing downward to offer the least expensive iPhone ever. So it was willing, tech-hungry customers who pushed Apple's average selling price up, not some sort of dark nefarious plot to raise everyone's prices, like a San Francisco housing supply moratorium.

Apple 2018



Why is Apple alone able to sell high-end mass market products?



Nobody has wept for Samsung's $1000 phones. Before Apple introduced its larger format iPhone 6 and 6 Plus, Samsung was offering flagship models with a higher price than an iPhone. Yet the majority of Samsung's sales were very low-end models, so much so that its average selling price was still around $200 despite having $700 and up products for sale.

Unlike Samsung and a variety of Chinese phone makers with similar aspirations to get into the luxury smartphone tier, Apple's ASP across all of its iPhone sales has generally always been above the entry price of its latest new iPhone, not centered around the middle of its most budget offerings.

In part, Apple attracts premium sales because it keeps identifying exciting new technology that it can incorporate into its products. Inventions like the iPhone 4 design, Siri, Touch ID, 3D Touch, Live Photos, Portrait Photos, Face ID and Animoji have all driven sales of new generations of iPhones. Apple's iOS ecosystem of apps and services, and its envelope-pushing work in performance, photography and security also drive premium sales of new iPhones.


Face ID


However, it's not just features and specs that drive premium phone sales or Samsung and Chinese makers would also be experiencing high ASPs rather than barely making money shipping out devices at an average selling price at or below $200.

A big part of Apple's allure in higher-end products is the way they make people feel. Apple is astute at marketing and product development that delivers products that empower people to use them and feel good about their purchase. Apple combines the luxury and fashion allure of its brand with design cues that make its products easy to use and feel safe.

Unlike Android and Windows PCs, most users don't have to feel like they need help to do basic tasks. As anyone who has ever worked in sales knows, it's preferable to upsell buyers because they will be happier getting the better product, and will be more likely to come back for that satisfying experience again.

Apple's Tim Cook revealed that the company seeks (obviously) to reach prices that are affordable. Apple is relentless in negotiating component costs and lowering those expenses to achieve profitability even at low prices. But the company is also willing to incorporate high-end components that deliver a superior experience.

While tech bloggers have long been enamored with cheapness, the experience that comes along with saving money often is a bigger problem for most mainstream users than simply spending more money in the first place. That's why many people willingly pay more money for known brands, higher quality clothes and premium food.

When Apple moved to Touch ID, state of the art fingerprint sensors were too expensive to be considered for inclusion on highly competitive smartphones. The same thing occurred in high-end optics, memory and in high-performance CPU and GPUs. Apple kept adding higher-quality components and passing the cost to customers, who benefited from a better product.

Pundits, analysts and tech bloggers have long complained that Apple's prices were too high to be competitive with $300 Androids, and have lavished praise on cheap Google-branded devices and cheap Chinese imports. But across years of purchases, consumers have willingly voted with their dollars to raise Apple's average selling prices and largely ignore Google's cheap hardware. Even in China, Apple has resisted the onslaught of cheaper competition while making the majority of all profits in the industry.

Clearly, those analysts and other professional talkers were dead wrong in their efforts to explain how Apple's mainstream audience would react to pricing. Rather than smartphones trending toward the middle of $300 devices, the entire industry is experiencing a rise in ASP as even Apple's rivals ignore punditry and seek to deliver more premium offerings, rather than cheaper commodity units.

The $999 X halo



iPhone X was the pinnacle of Apple's efforts to build a high-end, luxury smartphone, with novel features and thoughtful design. The fact that Apple also released an updated pair of iPhone 8 models--which shared many of its advancements, including the same processor and similar camera features--indicates that Apple had no illusion that everyone would rush out to buy its most expensive iPhone X starting at $999.

In fact, Apple knew that one of its biggest repeat customers--government and corporate enterprise--would hesitate to jump on an entirely new, ultra-premium priced phone that required training and adaptation. iPhone 8 wasn't a hedge against the failure of iPhone X but a pragmatic, conservative alternative that Apple needed to offer to be taken seriously in the business world (where Android and Google are not).

However, by releasing new, exclusive features for iPhone X, from its Face ID and Portrait Selfies to its uniquely rounded corners and curved OLED display panel, Apple created an aspirational product that not only sought to justify its own higher price tier but would also cast a halo over Apple's entire brand.

iPhone X also introduced a roadmap of the future for iOS devices that indicated Apple has ambitious plans for its hardware, even if its other, more affordable 2018 iPhones still looked quite conventional--a kick in the face for all the naysayers crowing that Apple suffered from an affliction of innovation-deficit.

Shut up and take my money!



At the same time, the $999 price for iPhone X is not as breathtakingly, unapproachably high as many bloggers, pundits and analysts seem to think. Ever since the first iPhone, the true costs of owning a smartphone with data service has been mostly reflected in data carrier fees. If your phone bill is more than $40, owning an iPhone X for two years is the cheaper part of that experience.

As with car sales, a leasing contract or financing makes a high-ticket item approachable to people who don't have savings allocated for an expensive purchase. A smartphone is one of the things we interact with most every day. Spending an extra few cents per day on the nicer end of that smartphone experience is not a financially insurmountable problem for many people.

Instead, it's an expense willingly incurred to have not just the latest technology, but to be in possession of a valuable device that feels luxurious to use. For Apple to keep that lucrative business going, it needs to maintain a high quality of experience for iOS, iCloud and related services. That's a lot easier than the prospect in front of other phone makers, who are struggling to grab volume sales at the low end where commodity affords little differentiation.

Apple also doesn't have to keep ratcheting up the price of new iPhones to keep its business going. By building a solid base of luxury buyers, Apple only needs to spread its aspirational products across new markets willing to upgrade. Apple has been upgrading PC users into more premium priced Macs, selling MP3 users iPods and selling iPhones to basic phone buyers for years, so this is right in line with what it's been successfully doing.

Apple's competition, the companies that built both Windows PCs and Android phones, have been locked in a commodity battle for low-end market share over those same decades. Wanting to switch to Apple's model is obvious, but not so easy to accomplish, as Google and Microsoft have demonstrated over the past several years of trying.

Huawei, Lenovo, Samsung, LG and Sony would also like Apple's high-end sales, but none have done exceptionally well in achieving this in the PC and mobile device categories. Interestingly, all the blogger and pundit advice and outlook that's currently admonishing Apple that its prices are too high has never turned around and even noticed that other makers are also trying to sell their products at similar prices (and simply failing at it).

This indicates that their "concerns" about the $999 iPhone X was entirely phony. It also makes it clear that Bloomberg, the Wall Street Journal and Nikkei all have incredibly poor insight into what customers actually want, what buyers consider "innovative," what they choose to pay for, and the aspirational value consumers see in Apple that they don't see for its rivals.

That's their job as journalists, and they're failing at it. If they don't know what they're talking about, they shouldn't be confidently publishing their flawed ideas as facts.