Apple's iPhones are the most popular smartphones in the world since their introduction a few years ago. While the pros and cons of this device can be debated endlessly, the fact that the iPhone is the best-selling smartphone brand is beyond question. So what makes an iPhone so expensive? The reasons are simple but often hidden by a simple vision.
IPhones are Premium
When Apple launched the iPhone, it decided to create one premium smartphone that does not compromise quality. Having positioned the product in this way, Apple cannot afford not to use premium components inside an iPhone. Putting Apple's huge profit margins aside, the components inside the iPhone still cost a lot more than most Android competitors.
La IHS analysis company calculated the price of components used in smartphones in detail proving that Apple has a high production cost for an iPhone of about $ 370 (updated to the production price of an iPhone XS Max).
The Apple ecosystem
When you buy the iPhone, you actually also buy the Apple ecosystem which gives you access to millions of apps and features like iMessage, FaceTime and iCloud services which are bundled for free. Above all, there is the proprietary platform iOS and periodic updates included with it. The development costs for all these elements of the ecosystem, especially for iOS, are to be added to the retail price of the device.
Such a uniform ecosystem helps avoid compatibility conflicts across the iPhone and iOS universe. Calculating the actual price for this premium ecosystem is hard to quantify but it is safe to say that the salaries of Apple's software developers, designers and other technical staff are paid in part by the sale of the iPhones.
A little economics: supply and demand
Another important factor to consider in the price of iPhones is the unique economy that revolves around them compared to Android smartphones. Apple pays more than the competition to have iPhones built. Due to this high base cost, the iPhone's supply is comparatively lower than the Android Premium competitors. Since iPhones enjoy incredible popularity, the demand is tremendously high compared to the quantity of supply. As any business novice would understand, low supply plus huge demand equals premium prices. This is exactly the case with the iPhones which leads to an inflated price influenced by this economy.
Advertising
Apple spends a lot of money on advertising and creates a hyping almost persistent around its products. The company has been extremely good at making users want to have an iPhone every year as well. This results in a massive out of stock as soon as a new product hits the stores.
Slow sales growth but a lot of revenue
Given the quarterly results reported by Apple over the past few years, you might get the impression that iPhone sales are on the rise. That's actually not true: iPhone sales growth year-on-year has been 5% or less over the past 11 quarters.
So why is Apple's iPhone business perceived as so strong?
One reason is its size and profitability. Even without massive growth, the iPhone remains a huge business that makes Apple one of the most successful and profitable companies in the world. Another reason is that while iPhone sales don't go up that much, the revenue of the iPhones is doing much, much better. Revenue has increased over the past seven quarters and the last three quarters have shown double-digit revenue growth over the quarter a year ago.
High prices for longer life cycles
One of the most interesting statements came from Lisa Jackson at a recent Apple event in which she stated that Apple is striving to extend the life cycle of iPhones. Of course, iOS 12 is also focused on improving its performance on older devices.
This is not just a marketing talk but part of a changed global smartphone market. In this new world, phones cost more upfront but are usable longer and retain more than their value when resold after a year or two (or recovered from a subscription program in exchange for a new phone).
When people keep their phones longer, what do smartphone makers do? They make more expensive phones and that's exactly what Apple does. More often than not, though, people who buy a new iPhone every year always manage to strike a good deal by selling last year's model to make up for it, making them a good chunk of money.
