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

Posted:
in iPhone edited December 2019
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.
mwhiteprairiewalkerteejay2012lkruppgregg thurmanpropodracerhomie3Alex1N
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Comments

  • Reply 1 of 110
    SEJUSEJU Posts: 46member
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...
    elijahg
  • Reply 2 of 110
    BebeBebe Posts: 145member
    Negative comments about Apple by these “pundits” is a good thing.  This will avoid “analysts” from making ridiculously high earning expectation. 
    edited May 2018 watto_cobra
  • Reply 3 of 110
    MacProMacPro Posts: 19,718member
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...
    Sold more maybe but at less profit. It's about profits not volume.
    sully54supadav03Rayz2016gregg thurmanracerhomie3crabbyjony0magman1979watto_cobra
  • Reply 4 of 110
    MacProMacPro Posts: 19,718member
    Bebe said:
    Negative comments about Apple by these “pundits” is a good thing.  This will avoid “analysts” from making ridiculously high earning expectation. 
    Yet even when Apple beats all its own records it somehow always fails to meet WS's 'expectations!' /sigh
    edited May 2018 peterhartjony0magman1979watto_cobra
  • Reply 5 of 110
    larryjwlarryjw Posts: 1,031member
    There is nothing true said by analysts. It’s not just about Apple. They’re all marketers, buying and selling opinions. This has been true for at least the 50 to 60 years I’ve been watching them. 

    I’ve never known any to be correct, and certainly not for the right reasons. It’s all verbal masturbation. 
    magman1979watto_cobra
  • Reply 6 of 110
    SoliSoli Posts: 10,035member
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so…
    1) I've never understood why people make that statement. Based on your logic if they dropped the iMac Pro to a ha'penny they'd sell more. That's a ridiculous statement, so why state that lower prices allow more people to buy as if it's some sort of revelation.

    2) You statement in no way considers the cost of the device. There are plenty of reports that Apple's profit margin is lower than normal, but since the price is higher they can maintain profit per unit at a lower margin. They may even be getting less profit per unit for all we know.

    3a) You've also failed to consider that Apple looks to be selling as many as they can make. Despite the $999 starting price it was the hardest iPhone to find when it launched. Now, I'm going to assume you have some tinfoil hat conspiracy about Apple having warehouses full of the iPhone X but limits the number of units they shipped to stores and customers so they generate demand. The problem with that notion is that Apple's prices are set and that Apple doesn't make any revenue until it sells it an iPhone, unlike with companies like DeBeers that control the number of diamonds in the market because the market sets the price.

    3b) So why ignore that components and manufacturing are finite? Apple already does a seemingly impossible job at making the iPhone. I don't think anyone else could do what they do and yet demand still exceeds production for months after a new device has launched. Because of this, the immediate equilibrium price is inarguably too low.
    edited May 2018 mwhitepeterhartManyMacsAgoredgeminipadws-2gregg thurmanequality72521racerhomie3StrangeDayssessamoid
  • Reply 7 of 110
    FatmanFatman Posts: 513member
    I think we all know how insider wall street works - negative news prior to earnings announcement to drive down price only to make a quick profit when company exceeds expectations. I have a new term for it, 'fake news'. We can either be frustrated by it or makes lots of money by following the market manipulators. Apple went up 8% in a couple of days, and will likely continue to rise further with the upcoming new product announcements.
    razorpitgregg thurmanLukeCagewatto_cobra
  • Reply 8 of 110
    SEJUSEJU Posts: 46member
    MacPro said:

    Sold more maybe but at less profit. It's about profits not volume.
    I know, but in this case I am advocating for a more reasonable price, once the new technologies went mainstream. This might be a little bit selfish, but I am ok with that ;0)

    But seriously 1600,- euro for the 256 GB X plus AppleCare is rediculous! I have always bought the top of the line model with the maximum amount of memory plus AppleCare and that price is by fare the highest!!!
    spheric
  • Reply 9 of 110
    harry wildharry wild Posts: 807member
    iPhone X Mini and iPad Mini 5/Pro coming in May/June?
    edited May 2018
  • Reply 10 of 110
    sdw2001sdw2001 Posts: 18,015member
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...

    First, you don't know that...it's speculation.  Do you honestly think you know more than Apple's professional marketing and sales people?  It's not much of a difference compared to previous generations.  Second, $1,500?  Or are you in Europe?  I have the most expensive model and it's not $1,500.  
    macxpressequality72521watto_cobra
  • Reply 11 of 110
    DAalsethDAalseth Posts: 2,783member
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...
    Not really. As with previous Apple products, the sold all the phones they could make. Dropping the price to, for example, $799 would have just produced a lot of angry customers with backordered phones, and bad press about how Apple can't manage supply chain or demand.
    mwhitegregg thurmanStrangeDayswatto_cobra
  • Reply 12 of 110
    rogifan_newrogifan_new Posts: 4,297member
    Because it’s the best iPhone Apple has ever made and many people are not buying outright. Not complicated.
  • Reply 13 of 110
    SimonFSimonF Posts: 2member
    All the BS reporting by so called experts is because of two things. First they all want to take down the tall poppy.
    Second they have absolutely no idea about what they are talking about. If they did then they wouldn’t be spewing the same bullshit that didn’t work last time!
    It is interesting that they only spout this bs about Apple abd never about any other company such as Samsung etc! Maybe it is because Apple are so successful they do it! 
    Apple obviously do their homework, and while not perfect, and no company ever is, they certainly seem to know a whole lot more about their business than the idiots that write the pretend to be experts!
    gregg thurmanAlex1Nwatto_cobra
  • Reply 14 of 110
    prolineproline Posts: 222member
    SEJU said:
    MacPro said:

    Sold more maybe but at less profit. It's about profits not volume.
    I know, but in this case I am advocating for a more reasonable price, once the new technologies went mainstream. This might be a little bit selfish, but I am ok with that ;0)
    Obviously the price of phones that contain these technologies (i.e. FaceID, OLED displays) will come down. But Apple will continue to offer a $1000+ iPhone X equivalent, because

    a) It gives them a way to sell technology that isn't produced in volumes of 200 million per year
    b) It made a ton a money

    I put a) first because contrary to what all the douchebags said, this isn't just about making money. By restricting themselves to components that are produced in huge quantities at affordable prices, Apple was leaving it to Android to offer up the very most cutting edge features- the absolute best cameras and displays, for example. They're tired of it, and now their top phone will be the best in every respect. If you can't afford it, wait a year or two and get the mid-range model.
    racerhomie3StrangeDaysbonobobAlex1Nwatto_cobra
  • Reply 15 of 110
    rogifan_newrogifan_new Posts: 4,297member
    MacPro said:
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...
    Sold more maybe but at less profit. It's about profits not volume.
    BS. If nobody is buying your product it doesn’t matter how much profit it would make. It’s a balance of maximizing both. Also considering how important services and recurring subscription revenue is I think Apple very much cares about sales and growing the install base.
    Alex1N
  • Reply 16 of 110
    macxpressmacxpress Posts: 5,801member
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...
    Oh look...an armchair Marketing Executive who knows how to market Apple products better than Apple! Love these people! /s
    StrangeDayswatto_cobra
  • Reply 17 of 110
    SoliSoli Posts: 10,035member
    MacPro said:
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...
    Sold more maybe but at less profit. It's about profits not volume.
    BS. If nobody is buying your product it doesn’t matter how much profit it would make. It’s a balance of maximizing both. Also considering how important services and recurring subscription revenue is I think Apple very much cares about sales and growing the install base.
    Maximize both? 🤦‍♂️
    gregg thurmanStrangeDays
  • Reply 18 of 110
    macxpressmacxpress Posts: 5,801member

    iPhone X Mini and iPad Mini 5/Pro coming in May/June?
    Nope, Nope, and Nope...
    razorpitlkruppasdasdwatto_cobra
  • Reply 19 of 110
    slurpyslurpy Posts: 5,382member
    The best thing? These "analysts", "supply chain experts" and "news" sites will face zero repercussions for being so epically, epically wrong. What will happen is that their negative stories will continue to be breathlessly published,  pushed and shared, especially on Apple sites (and consistently reported as fact from the trashiest sites, like macrumors)- because they'll still bring in clicks. 
    gregg thurmankiltedgreenwatto_cobra
  • Reply 20 of 110
    slurpyslurpy Posts: 5,382member
    MacPro said:
    SEJU said:
    Ok, but if the price would have been comparable to the previous generations, they would have sold more. The configuration I usually purchase would have cost me 1500 or so. I hope they will bring down the price to where it used to be over the next generations, but I doubt they will do so...
    Sold more maybe but at less profit. It's about profits not volume.
    BS. If nobody is buying your product it doesn’t matter how much profit it would make. It’s a balance of maximizing both. Also considering how important services and recurring subscription revenue is I think Apple very much cares about sales and growing the install base.

    Your posts are always so..indecipherable, and you never fail in trying to twist positives into negatives. The iPhone X was the BEST SELLING iPhone. So, obviously the price wasn't a deterrent for most people that wanted it. Could it have sold MORE with a lower price? Sure. It could also have sold more for $1. That doesn't mean the right thing to do was to price it lower. There a shit load at play here, including supply constraints, SKU dynamics, psychology, ASP, etc. You don't have a shred of evidence that the X wasn't priced ideally all things considered- but you pretend that you do. 
    Solilkruppgregg thurmanStrangeDaysbrucemcsessamoidAlex1Nwatto_cobra
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