Roundup: The price of an iPhone

On Friday, I wrote about why smartphone innovation is “dead,” and how we should expect little more from a product that’s essentially become a commodity. The basics of what a smartphone is have been set for a while now. They still get incremental improvements, but the expectation that they’re going to significantly change beyond some gimmicky experiments and niche offerings on the margins is honestly unreasonable, just as we don’t expect major revolutions in what a laptop, a car, or a refrigerator are every few years.

But when I made that point, a lot of people pointed to the price: If they’re a commodity, then why are they so expensive? Well, there are a few responses to that.

First of all, the facts. A base iPhone has been $799 USD since 2020, despite all the inflation we’ve experienced since then. $799 is 2020 dollars is about $970 today when inflation is considered. On top of that, there are cheaper options, whether it’s the iPhone SE or a slew of inexpensive Android models. So, the base price hasn’t been significantly hiked unless you’re in another country and your currency has fared poorly against the US dollar.

What’s happened is that companies used to focus almost exclusively on that base model, but that’s much different today. Apple doesn’t release one new iPhone a year; it releases four or five, depending on whether there’s a new SE. That includes a premium tier that are several hundred dollars more expensive, which is where the major complaints about higher prices come from.

Apple does that for a few reasons that are all about capitalism, not charges of monopoly. In recent years, the company has found its unit sales — the number of iPhones it sells in a year — basically stagnating, and since publicly traded companies are expected to show growth every year, that’s not acceptable. So, since it can’t come up with a next new hardware product that can deliver anything near iPhone-level revenues (the car was canceled, the Vision Pro is a dud, etc.), it needs another way to grow its revenue. Since it’s not selling many more iPhones, it’s sought to increase the average selling price by enticing some customers to buy those pricier models and convincing more people to sign up for its digital services. It can’t just have a steady, healthy iPhone business or it would be punished by shareholders. It also can’t allow its high profit margins to fall for the same reason.

We saw something very similar play out this past week with Sony’s Playstation 5 Pro. Playstation 5 is far outselling its Xbox Series X/S competition, but that’s not enough because generational hardware unit sales aren’t significantly increasing. Unlike in previous cycles, Sony has not cut the price of the PS5, even though it’s been out since 2020, in part because it’s not willing to lose money on the device any longer, but also because of the inflation of the past few years. (In many markets, the price of a PS5 has actually increased.)

On Tuesday, Sony announced a Pro model costing $699 USD, compared to the base model price of $499 or $399 without a disc drive. Some fans were up in arms on social media, but the company is doing exactly what Apple does with its premium models: trying to get a bit more money from the people who are willing to pay an inflated price for extra features they likely don’t really need.

Welcome to capitalism in 2024. It sucks, but this is the world we live in. While there’s plenty of reason to hate the companies, let’s not ignore the structural reasons they act the way they do.

There’s more than usual in this week’s roundup because there were just too many great pieces published. The recommended reads include pieces on xAI polluting the air in Memphis, criminals abandoning Telegram for Signal, why NASA wants to keep Boeing around to offset its reliance on SpaceX, and more. Plus, the usual labor updates and other tech news you might have missed.

Over on Tech Won’t Save Us, I spoke to Matt Pearce, president of Media Guild of the West, about how Google killed an attempt to get digital-ad giants to pay news publishers in California and how the major tech companies are trying to structurally diminish the importance of hyperlinks on the web.

Have a great week!

— Paris