The iPhone has been around for over a decade
and experienced some dramatic changes. From an almost doubling in screen size, to
a major reduction in thickness. But perhaps the most undesirable change has
been its increase in price. The original iPhone, released in 2007, retailed
for $500. But that number has fluctuated quite a bit
since then. Reaching its lowest point in 2008 with the
$200 iPhone 3G, and reaching a record high of $1,100 in 2018 with the iPhone XS Max.
So in this video we’re going to explore
the history of the iPhone’s price and find out why it’s fluctuated so dramatically. This is Greg with Apple Explained, and I want
to thank Anker for sponsoring this video. If you want to help decide which topics I
cover, make sure you’re subscribed, and voting polls like this one will show up in
your mobile activity feed. So as I mentioned earlier, the original iPhone’s
retail price was $500. But this is actually misleading, since that
amount only accounts for the device’s upfront cost. There was actually an additional fee smartphone
users had to pay after the initial purchase.
And it was due to something called carrier
subsides, which is an important concept to understand when calculating the full cost
of an iPhone. And it worked like this: A carrier like AT&T
would offer smartphones for hundreds of dollars less than what they actually cost in order
to attract new customers. Then, they’d recoup their loss by tying
those customers to a contract and charging an additional fee to their monthly bill that
went toward paying back the full price of the phone. For example, you’d buy an iPhone at an Apple
Store for $500, then pay AT&T a $20 fee each month which would go toward paying off the
phone, on top of your monthly plan. And because the iPhone came with a two year
contract, you’d end up paying a total of $480 in monthly fees in addition to the $500
you paid upfront. Bringing the total cost of your iPhone to
$980. Now let’s say once your two year contract
was over, you upgraded to the newest model. Well, you’d pay another upfront price for
the phone, and a new two year contract would begin. But let’s say you didn’t upgrade to the
newest model, and continued using your iPhone which was no longer under contract.
You might expect to stop paying that $20 monthly
fee to AT&T, but that wasn’t the case. Customers were obligated to continue paying
that fee even though their contracts had expired and AT&T had recouped the full price of the
phone. That meant the total cost of your iPhone would
be $1,220 after three years, and $1,460 after four years. Now that may sound like a crazy concept today,
but two year contracts and carrier subsidies were standard business practice at the time. And that’s exactly why it isn’t fair to
compare the full $700 price of an iPhone 11 to the $200 retail price of the iPhone 3G. But there’s more to the iPhone’s price
than carrier subsidies. Because although Apple stopped selling subsidized
iPhones in 2015 with the the 6S and 6S Plus, there has still been a substantial increase
in the iPhone’s price since then.
In fact, the iPhone 7 was the last flagship
model to have a $650 price tag. In 2017, the iPhone 8 started at $700, while
the iPhone X, the true flagship model of that year, started at $1,000. So what happened to cause the price of an
iPhone to jump from $650 in 2016, to $1,000 in 2017? Well, it was due to a couple factors. First, Apple needed to make more money from
each iPhone they sold. Because in 2015 the company began experiencing
slowing hardware sales across almost every product category. And while you could say, well slowing sales
isn’t a big deal since they’re still making a ton of money. You’d be forgetting the primary goal of
any private company: To achieve revenue growth each and every year. Because if Apple isn’t making more money
than they did last year, then shareholders, people who invest in the company, won’t
see any returns on their investment.
That means people stop buying Apple stock,
their share price drops, and they become less valuable. So in the face of slowing hardware sales,
Apple was forced to charge more for their products so that they could still achieve
revenue growth, even if they weren’t achieving growth in units sold. But they couldn’t simply increase the iPhone’s
price by $350 dollars in a year. So instead, Apple introduced several new iPhone
models that ranged in price. First, was the iPhone 8 at $700, then the
8 Plus as $800, and finally the X at $1,000. But every single model was more expensive
than $650, and the iPhone 8 was suspiciously similar to the 7. Which was similar to the 6s, which was similar
to the 6. Apple had used virtually the same iPhone design
for four generations, and ended up charging a premium for it with the 8 in order to generate
more revenue. This also gave customers an incentive to spend
the extra $300 for the more dramatically improved iPhone X. So considering how expensive iPhones have
become, it’s caused many people to find other ways to save money.
Like for example, lowering the cost of their
monthly phone bill with Ting. They charge you based on how much data you
use instead of one flat rate. You can calculate how much you’d save by
entering the amount of texts, call minutes, and data you typically use per month into
Ting’s bill estimator. Most people end up saving almost 20% which
really adds up over the lifetime of your device. Ting’s service is powered by Sprint, T-Mobile,
and Verizon’s 4G LTE networks, so you’ll always have a fast, reliable connection.
What’s also great is how easy it is to switch. 80% of phones are already compatible with
Ting so all you’d need to do is switch out your SIM card, and you can start enjoying
a lower monthly phone bill! So whether you’re buying the new iPhone
SE, or you’re not planning on upgrading anytime soon, you can bring your phone to
Ting and get a $25 service credit by going to ae.ting.com. You can find that link in the description. Now, Tim Cook was confronted with a question
about the iPhone X’s premium price in an interview with ABC. When asked, “Don’t you find the price
tag for the iPhone X out of reach for the average American?” Cook replied, “Well, it’s a value price
actually, for the technology that you’re getting.” Which, in layman terms, means he thinks customers
are going to want the iPhone X’s new features so badly that they’ll pay a lot more for
them.
Cook went on to say, “Most people are now
paying for phones over long periods of time, and so very few people will pay the price
tag of the phone initially.” Which still doesn’t answer the question
of why Apple needed to increase the flagship iPhone’s price by more than 50% in one year. He was simply explaining why he thinks customers
will still buy it despite the $1,000 price. And he was right. The iPhone X went on to become the world’s
bestselling smartphone in 2018, and helped Apple achieve their most profitable quarter
in history, generating $88.3 billion in the first quarter of 2018. Their risky pricing strategy paid off, and
competitors took note. With the following iPhone release in fall
2018, Apple pushed the envelope even further.
They were successful in raising the average
iPhone selling price from $618 in 2017 to $793 in 2018, but wouldn’t it be great to
break that $800 threshold? Well, Apple gave it their best shot with the
release of the iPhone XR, XS, and XS Max. The entry level XR started at $750, which
was a $50 increase over the iPhone 8 a year earlier. The XS had the same $1,000 price as the X,
but Apple decided to introduce a new model called the XS Max which had a larger display
and sold for $1,100. Breaking the record set by the X of being
the most expensive iPhone ever, and helping to raise the average selling price of the
iPhone to well over $800 in 2019. So up to this point in the iPhone’s history,
we’ve only seen its price tag increase. But in 2019, Apple took a dramatically different
approach to their iPhone pricing strategy.
For the first time ever, they decreased the
iPhone’s price from $750 to $700 with the iPhone 11. While the premium 11 Pro and 11 Pro Max retained
the same price tags as the XS and XS Max. But the $50 discount wasn’t the only thing
that made the iPhone 11 so appealing. It was also its impressive feature set. You see, when Apple released the iPhone 8
and X in 2017, there were dramatic differences between the two models. The iPhone 8 didn’t have an edge-to-edge
OLED display, it didn’t have Face ID, it didn’t have the dual camera system, and
it didn’t even have the same amount of RAM as the X. So for the $300 savings, iPhone 8 customers
were giving up a lot of features. Now, this dramatic disparity between models
was narrowed with the iPhone XR’s release since it did feature an edge-to-edge display
with Face ID, but it’s price was $50 more than the 8. And it still didn’t have a dual camera system
or the same amount of RAM as the XS.
But consider the iPhone 11, it not only received
a $50 decrease which put its price on par with the iPhone 8 from two years earlier,
but it also received almost all of the features of the premium 11 Pro models. It has a dual camera system with an ultra-wide
angle lens, it has spacial audio, it has the same 4GB of RAM as the 11 Pro models with
the same durable ion-strengthened glass. The only compromises you’re making with
the 11 is the LCD display rather than OLED, an aluminum frame rather than stainless steel,
and no telephoto camera lens which means no 2x optical zoom. But most customers are happy to make these
minor tradeoffs considering the $300 savings over the 11 Pro. And despite analysts predicting a decline
in iPhone sales due to customers waiting for a 5G model. Sales actually jumped 8% compared to the first
quarter of 2019 and helped Apple grow their overall revenue 9% to $91.8 billion. Outperforming even the most optimistic analyst
expectations.
And that growth was largely fueled by the
sales success of the iPhone 11, proving that Apple had struck a perfect balance between
price and premium features. Now as we look forward to a new iPhone models
this fall, it’s likely that Apple will stick with their current pricing strategy and continue
to offer as many features as possible in their entry level model since it’s proven to be
such a success. Alright guys don’t forget to like and subscribe,
and I’ll see you in the next video..
