The Apple iPhone Event’s Biggest Story Wasn’t the New Products
The company served up a big reverse on its pricing strategy.
Apple introduced some cool new products at its event on Tuesday, like the iPhone 11 Pro with three cameras on the back and the Apple Watch Series 5 with an always-on display. But the biggest impact for consumers probably won’t come from any those devices. Instead, Apple is making waves with low prices, a tactic it usually avoids.
The first low price surprise came early in Tuesday’s keynote address at company headquarters in Cupertino. The new Apple+ video streaming service will debut in November at a price of just $5 per month–or free for a year with the purchase of any of Apple’s phones, computers, tablets, or set top boxes. That’s less than half what Netflix charges for its standard plan and also less than Disney announced for its upcoming Disney+ service. It’s also about half what analysts had forecast Apple would charge.
But the pricing makes sense given what Apple+ will offer at the start. Viewers will only be able to watch the dozen or so made-for-Apple+ shows Apple is producing. Some are already piquing the interest of TV critics, particularly the drama The Morning Show starring Reese Witherspoon, Steve Carell, and Jennifer Aniston. At $5 a month, or free for a year, Apple isn’t trying to tempt Netflix or Hulu viewers to drop those rival services. it’s just hoping those viewers will also tune in to Apple+.
The low price forgoes revenue in the short run, but “it allows Apple to effectively build a base of millions of free-trial users that can convert to paying users as Apple ramps up and rolls out new content,” Morgan Stanley analyst Katy Huberty noted after the event.
The second low price surprise was easy to overlook–it was almost a footnote in the presentation of the new Apple Watch Series 5. When product manager Stan Ng finally got around to talking about the prices of the new models (which mirror last year’s prices from $400 up), he also mentioned that Apple would also keep selling its well-reviewed Series 3 watch for only $200.
This time the low price isn’t due to any weakness on Apple’s part. It’s the market leader in smartwatches, in fact. Rather, it’s a cunning move to crush oncoming competition from the likes of Fitbit and Samsung. The new Fitbit Versa 2 was aimed squarely at first time and budget smartwatch buyers. Now it has to face the much more full-featured Series 3.
The $200 Series 3 was bigger news than the new features added to the Series 5, like the always-on screen and compass app, said analyst Patrick Moorhead, president of Moor Insights & Strategy. “While it doesn’t have all the bells and whistles as Watch 5, it will attract many first-time buyers,” he added.
The third low-price surprise came after a lengthy presentation about the 11’s camera upgrades. Prices for the new models mostly stayed the same as last year’s pricing on the iPhone X models. But the replacement for the iPhone X R, 2018’s lower-end model, got a $50 price cut. Apple will sell the new iPhone 11 for $700 instead of $750.
Deirdre O’Brien, Apple’s new SVP of retail and people, stepped onto the keynote stage for her first time to pitch the company’s trade-in deal. Apple started pushing the plan last year as iPhone sales drooped. Trade-ins gives current owners hundreds of dollars in credits for handing over their old phone when they buy a new one. A two-year old iPhone X is worth up to $400 in trade, while a four year old iPhone 7 nets up to $150.
Both the lower price for the iPhone 11 and the trade-in program come after a year of declines in iPhone sales. The pricing strategy is a 180-degree turn from prior years when Apple raised prices for many new iPhone models. The combination of higher prices and falling sales had Barclays analyst Tim Long talking about the economic concept of “price elasticity” after the event He said that “really kicked in for iPhones this year” and the price cut and trade-ins should boost sales at the expense of profit margins.
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