iPhone X and the tyranny of choice

The iPhone XR/XS generation fixed a problem — so now we get to see how much blood is left in the stone

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Due to the iPhone X, a non-trivial number of consumers have actually deferred demand. It goes without saying that this really didn’t inconvenience Apple, who intentionally throttled iPhone X supply for a number of strategic reasons (but more on this later). Oh, and, of course, “iPhone X was the best-selling smartphone in the world” according to Tim Cook.

iPhone unit volumes (Stratechery, 2018.09)

While the whole iPhone lineup regained its top spot for global marketshare in both unit volumes and dollar sales, its performance comps weren’t as earth-shattering, with total iPhone ASP -9% qoq in 2018q1. (Q1 tends to be the best period for gauging new iPhone performance, since it’s usually the first full quarter of sales for new models.) That particularly underwhelmed expectations given the sequence of events leading up to X’s launch — specifically, iPhone 6 was the best selling phone in Apple’s history, pulling-forward so much demand that subsequent models had difficult comps and deferred demand. Thus, while iPhone 7’s release was relatively a non-event, the subsequent iPhone 8/iPhone X generation was supposed to have displaced two years’ worth of waiting.

My personal hesitance to purchase an X wasn’t due to its lack of new features or my unwillingness to adapt to its new user experience. No, rather, I deferred because of the form factor. I want (and somewhat need) the latest-and-greatest tech, but I worried that the top-of-the-line iPhone X was too big — too hard to handle with one hand and too large to fit into my pocket.

But, the more I think about it, my personal experience was actually somewhat broadly applicable behavioral psychology: The more SKUs Apple releases, the more friction is introduced into all consumers’ decision-making processes. Indecision is one thing, but more specs to compare-and-contrast also mean more consumers will be left compromising their preferences — and more peoples’ optimal feature combinations will get neglected. For example, as mentioned above, in the iPhone 8/iPhone X iteration, I could not get my ideal combination of latest-and-greatest tech along with a modest screen size.

The latest iPhone lineup

As far as I can remember, the iPhone 8/iPhone X generation was the first in which I personally [would have] had to make such a compromise. In contrast, I’m not even given a choice on the size factor with last month’s most recent iPhone XR/XS/XS Max update. Since all of these latest phones are bigger than their predecessors, the XS is clearly the best fit for my own preferences, and I won’t even hesitate or feel compromised, because, again, not only does XS feature the latest-and-greatest tech, but Apple has also completely moved-the-goalposts on the size factor.

This reminds me of what Steve Jobs himself said in Walter Isaacson’s biography about the Apple cofounder:

“Some people say, give the customers what they want, but that’s not our job. Our job is to figure out what the people are going to want. I think Henry Ford once said, ‘if I’d asked customers what they wanted, they would have told me a faster horse’…
“People pay us to integrate things for them, because they don’t have the time to think about this stuff 24/7.”
–Highlights saved with Annotote

Sometimes it’s nice to have the decision made for you; to have no choice; or to have a false choice. It makes me think of the tradeoffs I’ve discussed between niche and scale — the rainforest floor and the canopy — and the dangers of getting stuck in the middle:

“If you’ve already won with either huge scale or niche focus, you can then try to creep down or up in scale to grow… But, you cannot start in the middle of either spectrum and grow out‬, because your competitive disadvantages let your rivals squash you from the outside-in.”

Accordingly, either Apple should have more options to allow customers to fully customize their iPhones, or Apple should limit the options to eliminate analysis-paralysis. (Obviously, the latter is more their schtick; the former is more Android’s.)

I’m interested to see whether or not 2019’s upgrades — the successors to XR/XS — will reprise these issues of consumer compromise. I suspect they won’t, at least not via a size/feature tradeoff, since all smartphones’ sizes appear to have already hit a practical ceiling at 158mm in length. But, expect Apple to keep experimenting with the upper-limits of pricing for its next top-of-the-line phone, because price elasticity is another lever for achieving the aforementioned supply “throttling”, which strategically buys Apple time to scale manufacturing of new, breakthrough components that aren’t ready for mass production yet — a strategy of stymieing demand that was first employed with iPhone X.

The point is not that Apple’s micro-management of demand is folly; nor that its phones are too big; too expensive; etc. Rather, the point is that Apple’s tyranny of choice was a momentary misadventure.

Now, of course, I myself am not entirely price agnostic, although a lot of people are more price sensitive than I, which means such consumers have to make relatively larger compromises to squeeze into (or remain within) the Apple ecosystem. To address this huge market, Apple sells older versions and maintains a robust secondary market for refurbished iPhones — both at lower price-points than the latest-and-greatest models. While Apple certainly benefits financially and otherwise from this big market segment, its focus is on its core users in the high-end, who are needed to not only maintain its gross margins, but also drive growth in its newest key performance indicator: ARPU.

To be clear, this was not and is not an existential risk for Apple — after all, churn will remain incredibly low as most of the userbase will upgrade their iPhones at some point and remain within the Apple ecosystem. But, this was an interesting misstep, and Apple won’t let the tyranny of choice fester for long. Assuming they nip-it-in-the-bud, 2019's upgrade cycle will the purest signal of whether or not we’ve reached “peak iPhone” penetration – beyond which lay a brave new world.

One more thing…

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