Well, they went and did it.
This year’s iPhones have officially shattered the $2000 price-ceiling. We now live in a world where it’s possible to go out and spend two grand on a flagship smartphone. Congratulations to everyone involved.
In case you missed it: the 512GB version of new Apple iPhone XS Max is priced at a whopping $2369 in Australia. Now, in fairness, there’s no real requirement that you buy the largest size of the iPhone XS Max. There are several other, cheaper sizings available. However, it still represents a sizable increase on the $1829 price-tag of last year’s high-end 256GB iPhone X and a step upwards for premium smartphone pricing as a whole.
If you had told me at the start of 2018 that Apple would be selling a new iPhone more expensive than the already-absurd and expensive Porsche Design Huawei Mate 10, I would have called you crazy. Admittedly, I did incorrectly predict that Apple would pursue cheaper iPhone pricing as a point of difference over more expensive competition from the Android market. You win some, you lose some.
Still, Apple’s move comes only about a month after Samsung’s own 512GB version of their Galaxy Note 9 turned heads with its $1799 price-tag. It bears repeating: we now live in a world where smartphones can cost more than a good laptop or gaming PC does.
And it’s easy to forget but smartphones didn’t always cost so much. Somewhere along the line, things changed. I mean, sure, back in the day a feature-phone could cost thousands of dollars. But smartphones? Their adoption by the masses has been fueled by their relative affordability. While iPhones have never been cheap, the gulf between what they offered compared to the rest used to be such that it didn’t matter.
These days, that’s not the case. Budget and mid-range smartphone buyers are getting more and more value for their money. So how - and why - did modern smartphones get so expensive? Who even spends that kind of money on a phone? And what will the $2000 “superphones” of today look like in five years time?
All Hail The Market
The simple, bleedingly-obvious, explanation for why modern phones are so expensive is that enough modern consumers are actually willing to pay that much for them for it to be profitable.
Big picture: we live in a world that’s driven by both global and local markets. Producers of non-essential consumer goods tend to price their goods at a price the market will bear. Successful capitalists tend to price their goods at the most the market will bear - that sweet spot where the potential for profit is highest.
With the iPhone X, Apple took a bet that customers were willing to pay more. They were right. The iPhone XS and XS Max represent a double-down. An experiment designed to see how far they can push it.
And, until their core customers meaningfully push back on that, this trend upwards will probably continue.
Earlier this year, Apple became the world’s first trillion dollar company. In order to maintain that valuation and continue to grow, they’re going to try and maximize growth in every way possible. And so long as customers are willing to pay that much for a new Apple phone, they’re going to charge them that.
IDC analyst Bilal Javed says that in markets like Australia, premium devices are seen as the norm for many consumers - many of whom rely on telco-subsidized plans other credit options like Afterpay.
He says “these options do not take a large share out of the consumer wallet as buying outright would and somehow seems affordable to consumers even though they are paying a higher overall amount after the contract period ends. Options such as these have played a key part in the trend of premium device shipments.”
Magic In Our Palms
The other factor that Javed cites behind the rise of in how much phones cost is the increasingly-centralised role our smartphones now play across our everyday lives.
These days, most web-browsing is done through phones rather than desktops. Our phones - and the apps on them - are central to everything on our lives. They’re not just for making phone calls and text messages. We now use them to check train times, manage calendar appointments, juggle different messaging services, watch videos and even create our own content for sharing online.
According to Javed, “we as consumers continue to rely on our smartphones for almost every daily task and as our reliance and demands have increased so has the capability and functionality from phones.”
Modern phones service more of our everyday needs than ever. Thus, it’s easier to justify paying more for them.
Importantly, Javed adds that “with the higher price, consumers are holding onto their phones for longer than ever before. This can be seen as vendors such as Apple are not necessarily selling more phones yet still have rising revenues from sales across the globe.”
Inevitably, these shift in how consumers use phones has shaped today’s landscape of ultra-capable, ultra-expensive premium devices and the rationale that goes hand-in-hand with purchasing one.
If you watch a lot of videos on your phone, why not pay extra for the phone that has the best display? If you take a lot of photos on your phone, why not spend the extra couple of hundred dollars to get the phone with the camera you want?
The technology is there if you want it and the demand for the best experience has fueled innovation and investment in technology from smartphone vendors across the board - not just the giants like Apple and Samsung.
Bilal says that “we see other vendors such as OPPO, Huawei, Google also looking at this premium device segment with higher prices. One would expect this trend to continue especially as vendors look to take advantage of newer use-cases such as AR/VR, ML or AI being embedded into devices as well as the hype around 5G builds up. These factors gives them another avenue to manufacture devices with enhanced capability and one would expect the prices to continue to rise!”
As more and more new smartphone technologies get invented, miniaturized and prepared for mass consumption, the upshot is that mainstream consumers now have access to smartphone that are considerably more capable than those of the past.
We’ve never been closer to having that one portable computing device that can do it all. However, the catch is that each iteration of these devices is going to cost more and more.
This Is What A Phone Looks Like
The final market force pushing the premium smartphone market towards a new era of super-expensive “superphones” is tied up in aesthetic trends. Phones are lots of things now - and for many customers that includes being a form of self-expression or a kind of fashion accessory.
As with many consumer products, your phone is a reflection of you. Nobody wants a blocky, dull phone. Most consumers want a handset that reflects well on them. One that seems modern, hip, quirky, smart or professional.
Apple get that. It’s often said that the company are as much of a marketing or fashion company as they are a technology one. They might not always make the best products, but they know how to make people want their products - and that’s one reason why their walled garden strategy has proved so successful for so long.
And, in retrospect, it seems obvious that everyone who can’t keep up with that would bring in outside talent. If you can’t get your customers to see your technology company like they do a high-end fashion brand, bring in a fashion brand to teach you how.
From there, any kind of union between technology powerhouses and their fashion counterparts becomes a small step. So it’s no surprise that we’re seeing more and more collaborations of exactly this kind.
Beyond the powerhouse phablets offered by Samsung and the prestige afforded to Apple’s iPhone XS, brands like Oppo and Huawei are embracing their own excess through special editions of their mainline products like the Porsche edition of the Huawei Mate 20 Pro and the Lamborghini edition of the recent Find X.
And, smart money says this is only the beginning.
The trends driving us towards $2000 devices like the iPhone XS aren’t going away. If anything, they’re intensifying. It feels like the age of the smartphone is ending and the age of the superphone is upon us.
It’s a brave new world - and it’s not going to be a cheap one.