Commodification and Luxury in the Smartphone Market

Kirk McElhearn:

But after ten years, it’s fair to say that the smartphone has become commoditized. The feature set of this device is essentially limited, and there aren’t many new bells and whistles that can be added. So smartphone manufacturers focus on two areas: the camera, since many smartphone owners buy a phone in part to have a good or better camera, and details, including things like security features (Touch ID and Face ID), displays, water resistance, and more. None of these latter features are “killer” features, they are all incremental enhancements. Gone is the day when a new device added, say, the ability to play videos, or faster network access. All the essential features are there. (To be fair, the new iPhone adds augmented reality, but this technology is still too young for this to be a killer feature.)


Since the announcement of the iPhone X, as a “second” iPhone line, I have been thinking that Apple would keep the “number” iPhone for another generation – iPhone 9 and 9 plus – and release the iPhone X2, before moving all iPhones to the “X” line. They would be able to refine the new interface used to control the iPhone (see the Daring Fireball article linked above for more on the difference in iOS of the iPhone X), and slowly phase it in. But at $200-$300 more than the “number” iPhone, plus a steeper cost for AppleCare, this is a luxury item.

The pricing of the iPhone X is interesting — and I’ll get back to that — but I’m not sure McElhearn is right about the features common to pretty much any smartphone commodifying the market. There are still basic features implemented poorly, even on expensive devices. The $699 Essential Phone shipped with a terrible camera app and the $799 Pixel 2 XL has an abysmal display, so there’s still plenty of growth that can happen in the market. Yes, it’s a far more mature market with a higher level of base expectations than, say, five years ago, but it isn’t like we’re swimming in a sea of inexpensive smartphones with excellent screens, cameras, battery life, and apps.

There are also network improvements right around the corner that could mean faster speeds and lower latency. These sorts of improvements could unlock as-yet-unforeseen capabilities that may comfortably qualify as “killer” features — we just don’t know yet.

From a pricing standpoint, though, the iPhone X can be compared to the rest of the iPhone lineup in a similar way to the first Retina MacBook Pro and the rest of Apple’s laptop lineup. A standard 15-inch MacBook Pro started at $1,799 in the United States before and after the introduction of the Retina model; the Retina model started at $400 more, but came with an SSD, twice the RAM, and a double-resolution display. A few months after the 15-inch model was released, a 13-inch Retina MacBook Pro was launched at a price premium of $500 over the standard 13-inch model, at $1,699.

Over time, the Retina MacBook Pro eventually became the only model, but still at a price premium over the outgoing models. For example, the 13-inch Retina MacBook Pro model has started at $1,299 for several years, $200 more than the standard 13-inch model when it was most recently available. The Retina model is, of course, a much better computer, but there’s now a higher barrier to entry. The 15-inch model, meanwhile, now starts at $2,399 — $200 more than the previous starting price for the 15-inch Retina model, and a huge $600 more than the starting price for the non-Retina 15-inch MacBook Pro. Again, aside from the foibles of the most recent MacBook Pro models, I can’t imagine anyone would choose a non-Retina model over anything in the current lineup; but, all of the new MacBook Pros cost a lot more money.

I made a similar argument as McElhearn in July, when rumours of the thousand-dollar iPhone price point were brewing, and I wonder where pricing goes from here across Apple’s lineup. Perhaps the introduction of higher pricing tiers with next-generation features gives Apple room to introduce lower-cost products.1 Apple has long been a company that offers accessible premium goods, and I hope that more luxurious products aren’t the new standard.

  1. For example, I think the more-expensive iPad Pro lineup helped make way for the $329 iPad. ↥︎