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Manny Pham
October 11, 2018
A new flaghsip launch from the Californian giant is always big news. But did it deliver this time?
So it’s announced and out. Some of you will have one now, some will have one later in the year. Regardless, we now know what the next 12 months of iPhone is going to look like.
But what does the industry think of the announcement? Is it enough to inspire people to upgrade? Why has the Californian giant introduced a less expensive version of its flagship? Is the price too much for some to stomach?
Let’s see what industry experts made of the newest iPhones.
What did you think of the launch event?
GfK director of technology Imran Choudhary: I suppose you could call it a typical ‘S’ launch from iPhone But even then, to me, it didn’t feel like much of a launch. The iPhone XS has obviously followed the traditional iterative cycle. But for the iPhone XS Max and the iPhone XR – those devices certainly will be adding more to the offering which I think means there is something in it for everyone. I feel it is going to have good resonance with consumers with so many consumers out of contract or still using an old device. I think that this breadth gives consumers something to really consider what is right for them which felt quite exciting.
Monotote chief revenue officer Thom Bryan: I think is a little bit of a mixed bag. Apple is now under pressure from people like Huawei to make more affordable devices that still perform well. This feels like it has put out some new products in the market in terms of the cheaper device.
Canalys senior analyst Ben Stanton: It was obviously not the most groundbreaking night for Apple. But I think that was to be expected. The industry isn’t at a point anymore where companies can innovate every year with this tick-tock approach when it comes to innovation. Some companies are now taking three years to innovate so the iPhone launch was not spectacular. But it wasn’t out of step with what we would expect.
What new features stand out to you?
Stanton: There were some extremely interesting new features what iPhones really. iPhone XR is an interesting new player for Apple. Bringing that design language down to new price points is absolutely critical. For businesses who are price conscious, it’s critical for selling into the subset of consumers who don’t reach up to the very top tier of phones but who still want that design language.
It goes to show how Apple is transforming its strategy in several ways. It is becoming far more services-oriented as a business and it used to be the case that hardware drove the services business and drove the agenda of what Apple did with App Store, Apple Music and iCloud. Now it’s the other way around and services is really having a major impact on the hardware strategy.
Do you expect the dual SIM and eSIM capability to attract more enterprise customers?
OpenSignal, vice president of analysis Ian Fogg: Apple has been pretty aggressive in trying to move into enterprise in recent years and what eSIM does for them is open different opportunities with mobile operators.
The operators obviously loved enterprise customers because of the volume but also potential margins they can gain now that Apple is able supply new services.
eSIM gives flexibility to other business related services using eSIM without having to ship SIM cards. For corporate there is something very powerful about the software positioning of the eSIM, to have new phone numbers, services, group voicemail access, whatever it happens to be.
eSim is very interesting and we’ll see over the next few days and weeks more and more examples of operators adding new features.
Stanton: The adoption of eSIM for markets outside China is the feature, I find, could be the most important in the XS and XS Max. Having a SIM small chip in the device, being able to use several carriers at the same time being able to use that eSIM to load different operator profiles is an interesting concept. To be able to use different tariffs is really important. Certainly in the B2B space it is something Apple has lacked for a long time. In Huawei it is almost a standard feature while Samsung is doing more and more dual SIM devices. It is an extremely important milestone for the industry that there is now an eSIM smartphone. I expect a lot of other smartphone companies will follow and apply eSIM within their phones.
Has the inclusion of OLED display and better cameras driven by the Android competition?
Choudhary: It’s fair to say Apple has a well-established launch cycle in bringing new products to market. There is very little evidence to suggest that it reacts to whatever others are doing. Apple has a historic focus on how it innovates and brings new products to market. While it will be aware of what is happening around it, I think there is little evidence to suggest that it will have made some changes and features because it takes a long time to factor in the supply chain. So I think Apple will really have already decided what it was doing with the features.
Apple was really feeling the heat from others. Some pundits speculated there might be a triple lens at the back of the devices to react to some of what the other competitors have been doing. But that is not the case. So I think Apple pretty much stuck to its guns and is going to carry on as had planned to.
Ben Stanton: I don’t think that the display or the cameras on the new iPhone is necessarily a reactive strategy to counteract what other companies are doing. That’s not really the way that the product teams work within Apple.
What do you make of the new device, the iPhone XR?
Simon-Kutcher London managing partner Mark Billige: I think it’s to do with the overall portfolio shape. The XR is still £749 still up on the iPhone 8. So if you want to come into the iPhone X technology the entry is £749 whereas the entry point used to be £999.
If you run the maths on this and look at what people will buy, the average price will still be around that £1,000 mark. So it allows Apple to open up that technology to a slightly wider audience. Maybe there’s a theory that if you get an XR then it’s easier to get you onto an XS when people upgrade. Obviously there’s a long cycle on that but I think it’s about creating this X world and saying let’s make your choice between Apple X not between Apple and Samsung. In some regards Apple has taken out some functionality. But I think it’s more just to do with creating an ecosystem that it can keep you within and get you to make choices within that ecosystem rather than against somebody else’s products.
Choudhary: With the iPhone XR, you get the trade off that it is cheaper but do you get to choose from a greater variety of colours than the XR rage. So the XR going to appeal to different demographics.
Between the three of them, Apple has provided an excellent range of devices and range of prices. There was something in it for everyone which is why I don’t think it’s a coincidence that Apple has purposely made sure that it is a different form factor to what we have seen before, with the physical home button now a thing of the past.
Last year it was kind of half in one area, one half in the new direction with the historical evolution with the home button. But now Apple has planted two feet into this new kind of design language. This means that Apple is slowly giving people the opportunity to try these new feature. Those who are buying the devices will be utilising things like Face iD. It is a quite clever strategy, making sure not to leave people behind but making new evolutions at the same time.
Does the positioning of the XR remind you of the 5C?
Bryan: Apple knows that it can compete in the premium area because that’s where the majority of the market is. But Apple relies on market dominance and I think it needed something to take a bit more of a grip because its market share is eroding and it needs to go somewhere else and create a new segment at a different price point.
Choudhary: The XR is performing the job that the SE did but also the 5C. I think it comes as no surprise really because if you are charging more than £1,000 for your flagships, that is not going to appeal to everyone and you can leave a lot of people that use the device behind because there is a significant amount that just are not ready for that at the moment.
Supercover senior operations manager Mark Sheppard: The XR seems to serve the same purpose as the 5C by giving Apple entry into the cheaper end of the market. However the 5C entry point has shifted vastly. The 5C launched at £469 in comparison to the XR which starts at £749. The whole line up seems like another release to push the upper and lower boundaries of pricing upwards to see how the market will react.
Stanton: The 5C is a correct parallel to draw because when the 5C came out a lot of the industry pegged it as the cheaper iPhone which actually it wasn’t.
It was basically an iPhone 5 in a plastic case and Apple launched it is because the iPhone 5S was far too similar to the iPhone 5.
To have them against each other in the portfolio with one that was $100 cheaper would draw a lot of volume away from the high end. That’s kind of what’s happening here. iPhone XS is so similar to iPhone X that they had to do something similar to shake up how different it’s could come in different shape.
So it is reminiscent to what happened with the iPhone 5C for sure, with the colouring on the back the way that is designed it is absolutely designed to make it look different than the actual premium offering which is the XS.
Has the XS Max filled a gap that Apple needed in its portfolio?
Choudhary: I think this feels a lot more like a strategic move rather than tactical one and historically we know when Apple lunches a new screen size there has always been a shortage of supply, the one that has outstripped supply at launch and in the next couple of months and there’s a possibility for this to happen again because the device offers a much bigger screen, more screen real estate whereas criticisms of previous ‘Plus’ devices was the size of the bezels.
Bryan: It is a competitor to the Note series from Samsung. The larger phones Apple has produced have not really been a competitor in terms of what people look for in the Note such as performance and a bigger screen whereas this is more of a performance player. This just shows that it has got to compete and it has got to fight a bit harder. I think this is one of the most reactive launches, usually Apple takes its own path and does what it needs to do but this feels like it has had to take a step back and look at the market and decided it doesn’t need to do something and have taken an aggressive step to fight back. It’s a real sign of intent.
Stanton: Apple did need a bigger phone. iPhone 10 was extremely competitive in terms of specs and features but it did lack the scale Samsung has in terms of the S9 Plus or the Galaxy Note 9. Other companies are starting to push above 6-inches in their display size so it was time for Apple to follow. Apple will make a really compelling phone with that screen experience for movies or for games or anything like that but it will be limited to people who can afford that kind of high-end device. I suspect that a lot of people in that bracket already have an iPhone X so it may be a difficult get them moving from an iPhone X to an iPhone XS.
Is the pricing structure ambitious? How do you expect the market to react to the price tag of over £1,000?
Choudhary: I think the £1,000 price tag is because of those consumer trends. We know from our research that the markets are getting tougher. People are hanging onto their devices for longer. The traditional repurchasing cycle is changing. For Apple, where volumes are harder to come by, it then becomes a game of increasing price because that’s how you drive margin. That thousand pound price point last year with the iPhone X has given consumers time to react to it the new price level so the prices should have come as no surprise.
Sheppard: We are at a technological point where software, AI and automation are the new feature points of devices over physical hardware features.
Consumers are reaching a point where a battery replacement can prolong the life of a device as long as Apple’s iOS chooses to support it.
From business perspective it makes sense for Apple to perfect the design and market the new devices as best as possible in an effort to continue to push the lower and upper price boundaries consumers will accept. At some point I think Apple will reach push back which will manifest itself in reduced sales, the prices for upper and lower end will begin to plateau. The £1,449 price point for the top end iPhone XS Max may be that point.
Billige: Huawei is doing really well at the moment. But it depends on what metric you measure your success on. I don’t think Apple particularly measures itself on unit volume. They want 20 to 25 per cent market share volume but 80 per cent of the profit. That is their metric – making money, not necessarily shifting units. So you don’t have to have cheap phones if that’s your strategy. If your goal is to sell more phones than everyone else then of course having devices priced is a terrible strategy, but I just don’t think it is.
Apple’s strategy is to drive the overall category value up and be the price leader in that sense, not be the cheapest but set the reference price for the whole category and I think it will want to take that up over time and it wants to take as much profit out of the market as it can. Obviously there’s a fine balance between the margin on devices. But Apple it clearly has a strategy to not focus on the volume, leave the volume to other people and to focus on the premium end. So I don’t think it’s as simple as it is doing well or badly I think it’s a case of asking what metric is doing outstandingly well – it sold that many and is not focused on conquering the world with units.
Stanton: It is bold from Apple to push pricing upwards. We found with iPhone X that the more influence the operators had in one country over the smartphone sales cycle, the more successful that device was. I expect iPhone XS to be centred on the UK, US, Eastern European countries and also several Chinese tier one cities and regions as well.
If iPhone X told us anything it’s that when you get to a certain price consumers become less pragmatic and more emotional when they buy a phone. It’s easier to convince people in that bracket to move from a £600 phone to a £1,000 phone.
Once you get into £600 and above, a smartphone is a luxury. Nobody really needs a smartphone above £600 – you can get excellent capabilities below that.