Thanks to the 24/7 news cycle we have come to embrace, it seems no iPhone rumor today can be unhinged enough to not at least be regurgitated by a few online outlets. Over the last couple of days, this everlasting narrative has been dominated by two hot-button issues especially, since some respectable sources added their voices to the guessing game: Apple’s alleged failings to wrap up the iPhone 8’s assembly amidst design and component shortages for one, and of course the projected, steep price hike brought about by Apple’s anniversary iPhone.

While it doesn’t take a brain surgeon or marketing guru to figure out the apparent correlation of those two stories swirling about (low supply and high demand setting an inflated asking price), I would contend there’s a much more critical correlation at play, one that is very tough to redress for Apple and equally tough for customers to accept: the causation of innovation and price.

Provided all the reporting is true and the shiny new iPhone 8 will enter the market at a price point north of $1,000, critics will have a field day, a number of shoppers will be dissuaded, but for the most part Apple customers will ask the simple question why ? The guys at Let’s Talk iOS have given this question a good shake already in this week’s Podcast #195, however if you turn the table around and look at the situation from Apple’s perspective, you will find that at the heart of it lies a more abstract dilemma for the Cupertino giants, a balancing act that can and likely already has hurt us customers in more than one way.

To illustrate the predicament, let’s briefly sideline the impending iPhone 8 and talk abstract. Many smartphone customers in the market go wherever the innovation puck currently is, they clamor for new technology, unprecedented features and are quick to sneer at companies (Apple being the butt of all jokes) if a new phone feels kind of iterative rather than spanking new. Specs and tech have become the most expressive measuring stick in the industry (and rightly so), new releases are scrutinised and judged by the potentially show-stopping soft- and hardware built into the phone. Does it do facial recognition? Is it capable of Augmented Reality yet?

At the same time, the internet (and by extension customers) is prone to erupting in indignant outcries every time there is the slightest mention of an uptick in unit pricing. Apply these two (widely accepted) views to any other product in the market and the absurdity of it is flagrant. Yes sir, I would very much like to unlock my new car by simply touching the door handle and do away with the pesky car keys. What’s that? Do I want the bigger, better panoramic sunroof in place of the skimpy old one? You bet. Wait, you’re going to charge me more for that? HOW DARE YOU!

You get the picture. Customers at the best of times wish for, usually though outright demand, bleeding edge innovation in the next iPhone, while simultaneously crying foul the moment a price raise is being discussed. In other words, innovation by all means, price bumps on no account. As Apple, how can you reconcile or at least manoeuvre these two (very human) urges? Innovating weighs heavily on the bottom line, not only regarding money sunk in the Research & Development department, but sometimes it can be as simple as a new, more costly component replacing an old, superseded one. Think of the iPhone 7’s taptic engine supplanting a lightweight such as the headphone jack or the costs incurred by Apple when switching from a mono to dual camera system on their plus-sized iPhones.

Perhaps it’s not so much incumbent upon Apple to bridge the innovation versus cost gap, but up to us to wake up to the fact that our demands for revolutionary tech and stagnating prices are somewhat at odds. What’s happening at present is doubtlessly illustrative of what Apple faces every year, except this time there seems to be so much more riding on the completely redesigned iPhone 8, hence the magnifying glass effect.

By the same token, just like every year, Apple will currently analyze precisely what technology they can unleash on us – and this is the important bit – at what we deem to be an acceptable price. I don’t believe for a second that Apple does not have the tools to integrate Touch ID into the OLED screen by way of example, the question for them is going to be whether or not they can pull it off at a cost the customer will be willing to compensate them for.

The least Apple will aspire to achieve is to retain their already high product margins, however with innovative and spendy technology biting a chunk off said margin, plus the customers’ overt unwillingness to even out the differential by way of a markup in price, there is only one tenable solution: hold back the highly coveted feature for another year or two until mass production becomes cheaper. Which is where it goes full circle, as that decision will be met with snark and contempt by the the very same people that did not want to pay the balance.

In closing, this is where our price sensitivity only hurts ourselves. One can only imagine the flashy features Apple has stalling behind closed doors right now, because although mind-blowing, they fear the backlash or reputational damage the well-off company could sustain from asking for let’s say $1,500 for an utterly gamechanging flagship iPhone.

I’m not trying to make apologies for these guys, nor am I in the business of defending extortionate pricing, but if you asked me how much money I would pony up for an iPhone eschewing the dreaded rear Touch ID sensor, or to get an iPhone capable of holographic projections right now, I would probably fork out a lot more than the purported $1,000, and I suspect I’m not the only one.

So to the trigger-happy folks out there, the ones quick to lambast Apple for sobering, incremental innovation on the one hand and price advances on the other, let’s boil the tech industry down to an old saying: sometimes you can’t have your cake and eat it too.

Whatever happens in September – or October – let’s put the outrage on hold until further details emerge. And when the anniversary iPhone finally sees the light of day, keep in mind that the price tag is not necessarily proportionate to the iPhone’s advancing marketing numeral, but maybe proportional to the innovation crammed between the supposably ultra thin bezels.

  • David Gow

    Good article

  • Jamessmooth

    Good article. Is an iPhone with all this supposed capability worth well over 1k? Sure. Am I willing to pay well over that? I love my iPhones as much as the next guy, but probably not.

    • Same here, I love Apple’s eco system and iOS in general, but do I really need those extra features to justify spending over $1k? Probably not. I upgrade every 2-3 years in general, but it’s still a huge hit on the wallet.

      • Andrieux Querido

        In Brazil, my iPhone 7 Plus 128 cost 4500, thanks to the Kleptomaniac Government we have. If price rise it will be like 6k

  • jacjustjac

    Count me in as one of the people willing to pay whatever Apple is asking for the iPhone 8. But I’m also happy to take the side of anyone complaining about the price. It may come as a surprise, but not everyone can afford a $1000 iPhone, and let me tell you, not everyone is convinced they *need* AR and fancy dual cameras. Tons of people want and bought the iPhone 7 Plus for Portrait Mode, yet when asked, they have no clue that it’s the secondary camera that makes it possible (and even more have no idea why their regular iPhone 7 can’t do it). I’ve also met tons of people who had no idea their 7 Plus even had a portrait mode, despite owning it for a year. Still more, if not most people, are still running their iPhone 6, and when it breaks, what do they want? Another iPhone 6! Why? Because that’s all they need!

    So in short, iPhones aren’t just driven by cutting edge technophiles. In fact we make up a tiny minority. The vast majority buy it because it’s the only phone they know how to use, plain and simple, and as so they actually don’t want it to change. That’s who Apple made the 5SE for, and I think it’s reasonably priced.

    Now, on the other side of the spectrum, we have the people who frequent this blog and others, myself being one of them. Those who know Apple could have made the the iPhone 8 last year if they had pursued it as fervently as they did the first iPhone. We are the people who secretly bought a Note 7 on launch week just to experience wireless charging and OLED, a superior low light camera and a stylus, but also expected to hate everything else about it and returned it within a week.

    But back to that first iPhone. Apple only had to assemble a few thousands of them at a time. The sheer popularity of the modern iPhone is also its biggest disadvantage in this regard. Apple is competing on a global scale with other manufacturers. There are prototype iPhones with cutting edge technology that you’d never imagine, but good luck spitting out a few million of those over the holiday.

    I think Apple releasing the iPhone 8 alongside the 7S and 7S Plus is a way to take the pressure off of the cutting edge, without having to charge such a huge price premium. Remember when Cook said how surprised he was that the 7 Plus sold so well? That’s because there were scores of people like my aunt and my mom who just wanted a bigger screen for their aging eyes, and didn’t want a year old phone either. But they would not care for AR, at least not this year, and they’re not going to invest in a whole new charging method, or care that the screen they can barely see is now an OLED.

    The good old days of waiting in line for a phone is over. There were no lines for the Apple Watch, nor the AirPods, as much as we nerds wanted to experience that degree of social connectedness in the real world. Also, the market for line sitters and resellers kind of ruined it.

    No matter what and how much we complain, we’re all going to get one eventually. And we’ll love it, like we always do, and show it off to our friends who got Galaxy S8s, knowing full well they are the real “early adopters” who suffered so we didn’t have to. And I for one will not hesitate to order two this time, which I never did before, because if I’ve learned one thing from the Apple Watch and AirPods, it’s that you should never doubt the demand for new Apple products. And I feel like a bad person for admitting that.

    So, complain as much as you like. The Mac Pro guys did and look what Apple has promised them, a modular Mac Pro and the iMac Pro. I’ll keep complaining that the AirPods don’t come in jet black and hopefully Apple will answer my prayers in October (I won’t hold my breath for a premium noise cancelling one until after 2018 when they’re done pricing out Bragi). See you on preorder day at 3am… and don’t get in my way! 🙂

  • Yiannis

    To OP: Are you serious ????? Every year Apple provides a new iPhone with advances compared to previous model and the price remained the same , and you wrote a big article saying you are not defending them? I only agree with you that we should wait to see what their plans are, but if they decide to raise the prices , then game over !

    • mickey

      If they release a 7s for the same price and the 8 is a bit more expensive than that will be their excuse. I’m not agreeing this is the right way but Samsung also increased the galaxy by $100 and I wouldn’t be surprised if Apple followed.

    • Rowan09

      Not true they actually raised it $20 more from last year. Meaning they made millions with that slight move. I’m assuming they only make the 8 I’m 128 and 256 which would be a reason for the price.

      • Yiannis

        I had in mind the base model (649$), but you are correct in your thinking. Even that storage increase doesn’t cost them 100$ or so to justify the price increase. That’s just a trick (from their side) that has proven to work.

      • Rowan09

        Just like the 7 Plus in the Jet Black only came in 128 and 256Gb. It doesn’t make sense like people are claiming with a phone north of $1000 for a 64GB or 128GB device. I’m assuming they may make a 256GB and 512GB device for the 8 and then 64GB, 128GB and maybe 256GB for the iPhone 7S/S+ devices. With that notion that would mean the 8 would be a $1000 device since the 256Gb phones cost $969+ tax and you’re over $1000 and if they introduce a 512 then you’ll see a $1069 price device. I reallly think people are blowing this way out of proportion because we already have a $1000 iPhone right now with the 7 Plus at 256GB.

        To simply things I just think they’ll make the 7S/S+ in 64GB and 128GB (hoping they just get rid of 32GB if not then that will be the base model).

    • Steffen Reich

      that’s exactly my point – they’ve done pretty well so far innovating and yet retaining the pricing structure. In spite of the fact that more intricate (=expensive) tech is being built into every new iPhone. At some point however, and it could well be the all new designed iPhone 8, costs of new parts could simply exceed those of previous years, which would spill over to the shelve price.

      Youre obviously entitled to disagree with me on this.

      • Yiannis

        Dear Steffen,

        I believe in constructive dialogue. I read your article and I actually agreed with you on one thing. That was, we should wait first to see what’s Apple’s future moves and then we can apply constructive criticism. I don’t agree with your opinion that iPhone 8 internal parts would be so expensive that Apple would be pushed to increase prices from 649$ to >1000$ (that’s close to 35%-40%) . iPhone 7 bill of materials was estimated at ~220$, iphone 6s around 211$. Of course these are just parts, excluding soft development and other operational costs, but I am just saying Apple has a lot of margin, if they would like to keep the same price. Part prices decrease year over year, and Apple is a wholesale buyer, meaning they get very good deals with their suppliers. Also, competitors, like Samsung have access to the same resources and they have already been providing technologies that Apple hasn’t introduced yet.

        I am a huge Apple fun regardless of this message looks like.

  • Black Canada

    Yet’ they can spend on a buildings bigger then your head. How much you think these phones are being made at. So don’t give me this excuse and yes you are defending them.

  • triggerhappypunk

    The question Apple needs to ask itself is, do the consumers want to pay extra for these AR features? The consumer ends up paying for some hardware that they don’t really care about. Perhaps instead of focussing on AR features, they should focus on what most consumers want, better battery life, expanded storage, improved water/shock proofing. Those are the features that I’d be willing to pay extra for.

    • Rowan09

      Expanded memory with 128Gb, 256 and now 512Gb? Expanded memory argument is pretty much dead.

  • M_Hawke

    Good points, in spite of a few claiming that you are defending Apple. (I guess they are taking it personally.)

    I agree with your premise. However, I also think that there will not be many, or at least AS many, people willing to fork over four digits for a….PHONE. I’m into tech as much as the next guy–OK, maybe more so than the next guy–but I really do not care about AR or holographic projections from my phone. I’m more interested in hard/software features that enhance my ability to use my smart phone. Of course, iOS is one of the biggest gaming platforms and of course, gamers will really be interested in such features. But I think a majority are not. It’s a novelty and cool, for sure, but I’m not going to pay four digits to get features that I don’t care about. Right now, I’m pretty happy with my 7 Plus. Now if I could just jail break it…

  • In a market where high end smartphone prices range anywhere between $400-700 (looking at you Android), I can’t see where Apple is going with this, increasing prices to justify the extra “improvements” which frankly only a small number of adopters will care for initially.

    • Steffen Reich

      don’t forget about Google’s Pixel though, or Samsung’s flagship phones. They’re neck and neck with Apple in regards to pricing, and they’d be the first to quietly raise their prices in the wake of an iPhone 8 price bump. In that sense they’re complicit, and arguably making matters worse as Apple likes to differentiate themselves as the high end + luxury brand, meaning ultimately they’ll again go another $100-200 north just to stand out from the Android offer. Bit of a vicious cycle.

    • Galaxy Life

      The difference is that for the $850 my S8 cost I get tons of hardware and software that isn’t available on any iPhone or other Android phone.

      A $1000 iPhone will still come with Apple pay that doesn’t work in most places, will still have the same 326ppi display from 2010, still have very limited NFC capabilities and you still won’t be able to set your own app choices as you default.

  • Greg S

    Great article Steffen.

    Extrapolating on what you’ve said. What happens the second and further years after the initial big bump in price?
    2017 = US$1100, 2018 = US$1300, 2019 = US$1500, etc.

    Personally if it was a ~$200 bump above the current model I could be tempted. But not every year, only on my 2-4 year buying cycle.

    Some tech companies would find it hard to rein in their annual price rises.

    • Steffen Reich

      thanks Greg, I also agree that it’s obviously a thin line to walk for Apple. I’m not advocating yearly price bumps either, especially not if they’re enforced only because Apple knows they can get away with it as a means of rev making. Best case scenario for Apple is to offer iPhones at the same steady price point year over year (provided they don’t have to throttle R&D as a result) until they have earned the benefit of the doubt from the customers when/if a major price bump occurs.

      Based on the reactions to iPhone8 rumors, I’m unsure whether or not that’s the case.

  • Rowan09

    I think people are blowing this way out of proportion. The 7 Plus in Jetblack only comes in 128GB and 256Gb. That means the phone starts at $869 and then $969 ($1000 phone) for 256Gb.

    I believe Apple will introduce the 8 in only 256GB and 512GB which would mean $969 as the base and $1069 at the high end making it a $1000+ device. I don’t see any other strategy they could use to get people to buy the 8 even with all the features promised.

    The 7S/S+ would only come in maybe 32GB at base, 64GB and 128GB leaving the higher capacity only for the 8.