Apple is going after market share with the iPhone 11. Finally.
What ruined Apple was not growth. They got very greedy. Instead of following the original trajectory of the original vision — which was to make this thing an appliance, to get this out there to as many people as possible — they went for profits and they made outlandish profits for about four years. What that cost them was the future. What they should have been doing was making reasonable profits and going for market share.
These words were spoken by none other than Steve Jobs himself back in a 1995 interview as a critique of Apple’s Machintosh strategy under John Sculley that eventually lost out to Microsoft’s Windows platform and PC manufacturers.
Then in 2007, Steve Jobs did the very thing he denounced by releasing the iPhone with a steep price and an exclusive contract to a single mobile carrier, AT&T.
And history repeated itself.
Once again Apple raked in outlandish profits and became the most valuable company in the world. But it came at the cost of its market share. Like Microsoft had done years before with Windows, Google was given the room to catch up with a cheaper and open alternative, Android.
Last year, Apple lost its position as the second-largest smartphone maker to Huawei. Today it still ranks third in the world, holding just above 10% of 2019 Q2 worldwide smartphone sales and an overall 22% in active iOS devices(vs. Android’s 76%) in the market category Apple itself invented 12 years prior.
The story in the United States is better. Android is still the largest mobile operating system in the US, but iOS is a close second. Apple made up over 40% of smartphone sales over the past year.
However, the profit-chasing strategy that has served it so well for over a decade appears to be changing with the recently announced iPhone 11.
Apple has realized that it can no longer sustain its growth through its smartphone business alone. The category is oversaturated by competitors, but more problematically, its technology has grown mature. The bezels on today’s smartphones are nonexistent. The screens have more pixels than most 60-inch flatscreen TVs. The ever-advancing picture quality of its cameras is eating away the digital camera industry. The battery lasts all day. And the processors that run the phones are so fast, they are starting to beat out the chips Intel makes for laptops.
So what can Apple offer in its next iPhone iterations that will keep its users upgrading the product that accounts for over 50% of the company’s revenue?
The answer is not much. If the latest iPhone 11 Pro is anything to go by, Apple’s “must-have-feature” tech is running thin. This year’s biggest draw in its flagship phones is only a modest camera upgrade that Apple’s competitors like Samsung have already incorporated into their phones previously. Still lacking from this latest iteration are the many other advancements found in Android phones such as smaller notches, through-screen fingerprint readers, faster screen refresh rates, and more.
But Apple still has one big advantage over Google and the Android manufacturers—the iOS user base. Not only do Apple users buy expensive phones, but they also spend more money, much more money, on phone apps than Android users. This is evident in the fact that despite Android’s nearly triple-sized market share, the Apple App Store generates double the revenue of Android’s Google Play Store.
It seems, a few years ago, a lightbulb went off in the heads of Apple’s leadership. With such a premium user base, why not replace the digital services they get elsewhere with Apple’s own? Not only would this increase and diversify Apple’s revenue during a time of lagging phone shipments, but it would also further tighten the hold on user loyalty — a tad difficult to switch to Android when all your media is on Apple’s servers.
Apple has offered its iCloud service since 2011. But recently, its subscription efforts have doubled. Apple Music, which launched in 2015, recently surpassed Spotify in the US with 28 million paid subscribers and reached a worldwide total of over 60 million paid users this June. That’s an enormous achievement.
This year, Apple is releasing Apple News and Apple TV Plus, two new services that target newspaper and online streaming subscriptions. Apple TV Plus will launch in over 100 countries. If the services go the way Apple Music has, Tim Cook and friends will be well on their way to start the post-iPhone chapter of the Apple success story.
But there’s just one problem.
Unlike premium-priced high margin products, subscription services rely on user growth. But Apple’s subscriptions depend on the user base of their most popular device, the iPhone. In 2017, the flagship iPhone’s base price raised from $649 for the iPhone 7 of the previous year to a whopping $999 for the iPhone X in the United States. In other countries, the price could be even more staggering after tariffs and taxes.
So how do you transition to a subscription business when your primary product is a thousand-dollar device with a slipping market share?
Enter the iPhone 11.
Like the iPhone 11 Pro, the iPhone 11 offers a bump in camera specs, but it still features the thicker bezels and low-resolution screen of last year’s iPhone XR.
What’s different this year is its branding and price. The iPhone 11 is no longer marketed as a lower-end “R” iPhone.
It’s the new iPhone.
And instead of the XR’s asking price of $750, Apple has dropped it to $700, making it competitive against the likes of the Google Pixel and the Samsung Galaxy S10e.
But understand this: the iPhone XR was Apple’s best selling product last year. Demand was high. And now Apple is lowering the price even further. For the first time in a long time, it can be argued that buying an iPhone is a good value to even those who aren’t loyal iOS users. That’s especially true with Apple’s latest deal — a one-year subscription of Apple TV Plus with any iPhone, iPad, or Macbook purchase, a $60 dollar value (Apple TV Plus is $5 a month), thus making the iPhone 11 price equivalent to the iPhone 7 at its release.
For those that still want the best of what Apple’s engineers can dream up, there is still the a-phone-for-a-grand club with the new Pro models that will help maintain Apple’s margins.
But make no mistake. The tech behemoth is changing its business model and following the advice Steve Jobs gave two decades ago —
Apple is going after market share. Finally.
