The Strategy Behind This Year’s iPhone Pricing ➝

John Gruber:

You can’t talk about iPhone specs and pricing without considering scale. It’s not enough for Apple to create a phone that can be sold for $649/749/849 with 35 percent profit margins. They have to create a phone that can be sold at those prices, with those margins, and which can be manufactured at scale. And for Apple that scale is massive: anything less than 60–70 million in the first quarter in which it goes on sale is a failure — possibly a catastrophic failure.

It’ll be a bummer if Apple announces the iPhone Pro with a starting price point above $1,000. But Apple’s scale is just too massive to put a bunch of brand new technology in their least expensive models. If they can only manufacture 20 million units of some new part each quarter, they only have three options:

  1. Not put the technology into their device until it can be manufactured at scale.
  2. Put the new technology in and sell it at the same price as the current iPhones.
  3. Raise the price of that model to a point where the demand shrinks and they can manufacture enough of the devices.

Nobody wants option one because we all want technology to continue improving. Option two would be a catastrophe because Apple would be sold out of these new iPhones instantly and customers would be stuck waiting months for their new device to arrive.

Option three is the only sensible solution. Some customers will be pissed about not being able to afford the best iPhone and I’ll be right there with them, but Apple needs to manufacture new parts at a smaller scale to perfect the process. Eventually those new technologies will find their way into the entry-level product, but sometimes that just isn’t possible right out of the gate.