$1000 for iPhone 8? Here’s why you shouldn’t freak out

Rumors that the new high-end 2017 iPhone would cost upwards of $1,000 have persisted for so long that I can’t even remember where or when they first started. But with the recent New York Times report from Brian X. Chen that the Apple lineup will include “a premium model priced at around $999,” that price tag has been elevated from “rumor” to “as reported by the paper of record.”


Chen cites his sources as “people briefed on the product, who asked to remain anonymous because they were not authorized to speak publicly.” And while an Apple spokesperson declined to comment to CNET on the Times story, everything about it makes sense. In fact, the only real question is whether $999 is the starting price, or maybe the middle model. (I hope Apple will at least have mercy and start the storage capacity on the baseline model at 64GB instead of just 32GB.)

So: The $1,000 iPhone price point, give or take a dollar, appears to finally be here. (That translates to about £775 and AU$1,265, but because international costs aren’t based on direct currency conversions, pricing in the UK and Australia will likely be higher.) However you slice it, it’s a lot of money — and it puts your phone on the same price plateau as, say, a nice laptop or a big-screen TV. Is it a financial bridge too far for overextended consumers? In a “peak smartphone” world awash with good-enough $250 handsets, will consumers throw up their arms and harrumph at Apple’s hubris, likening the $1,000 iPhone to the now-extinct $10,000 Apple Watch Edition?

I don’t think so. I think the iPhone 8 — or whatever it’s called — priced at $1,000 will sell briskly, and probably be hard to find for months. Far from hurting Apple and the iPhone brand, I think a new “luxury” iPhone will only enhance it. Here’s why.

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$1,000 is a lot of money — if you pay it all at once. “Wireless carriers help obscure the full cost of the device by offering a monthly financing plan,” according to Wayne Lam, principal analyst at IHS Markit. 

Indeed, while two-year contracts have largely disappeared from the US wireless market, 24- and 30-month zero percent financing options are their successors. The carrier locks in a customer for the better part of two or three years, while that customer gets to spread out his or her payments. For a new 32GB iPhone 7 Plus with a retail price of $769, a 24-month plan is about $32.04 per month (above and beyond the wireless charges, of course). For a theoretical $999 iPhone 8, it would be $41.63. Hardly cheap, but the difference is less than $10 a month. Skip a few coffees — or just two lattes — and you’ve paid for your iPhone upgrade. Go on a 30-month plan at ATT, and the monthly payment would be even less — about $1.10 a day.

The 5.5-inch iPhone 7 Plus starts at $769 (a $20 bump from the 2015 model of the same size, by the way), and maxes out at $969 for the 256GB model. Following the long-established iPhone/iPad Apple pricing model, the step-up iPhone 8 model would cost $100 to $150 more at each storage capacity. So even if the new iPhone costs, say, $899 to $1099, it’s actually right in line with the current pricing model, which is already within spitting distance of $1,000 anyway.

iphone-8-rendering-armend.png

Samsung is offering some nice discounts (for customers who suffered through the Note 7 fiasco) and freebie accessories (to goose preorders) with its new flagship Galaxy Note 8 phone. But the base price for the jumbo-screen, cutting-edge phone is $930 — again, scraping its head right on the $1,000 ceiling. In the UK it’s £869 and for Australia it’s AU$1,499. 

For the manufacturers, the attraction to higher prices is obvious: better margins. Samsung and Apple “make more absolute profit from each high-end model. So it’s in their interest to push the market and test the price elasticity of the high end,” says IHS’ Lam.

And they’re not alone. The specialty Hydrogen phone from Red, the maker of high-end Hollywood digital cameras, will cost between $1,200 and $1,600 when it hits in 2018. To be fair, the company is promising a groundbreaking first-ever “holographic” display. But, like the presumed iPhone 8, these phones are the exotic sports cars in the market. 

In fact, the iPhone 8’s development codename is said to have been Ferrari. And no one expects a Ferrari to be price-competitive with a Corolla, let alone a BMW or a Lexus.  

red-hydrogen-boosted

The Red Hydrogen phone left the $1,000 price in the rear view mirror.


PetaPixel

The high-end iPhone 8 will have all the bells and whistles Apple can cram into it — an all-new design with everything from (according to the rumors) a big OLED screen, facial recognition and next-gen depth-sensing augmented reality. And you’ll pay a premium for that. 

But if a grand is too rich for your blood, no problem! Apple is also expected to have two other new phones — the iPhone 7S and 7S Plus that you’d expect in an odd-numbered year — with more modest upgrades such as faster CPUs, better cameras and maybe wireless charging. Those would likely maintain the same basic design — but also the same basic price points — as current 4.7-inch and 5.5-inch models. And if Apple follows tradition, the previous year’s models would stay in the line with a $100 price cut, with the entry-level iPhone SE bringing up the rear.

In other words — as Apple watcher John Gruber suggested last month — the starting US prices of the 2017-2018 line could look like this (new models in italics):

  • iPhone 8: $999, 5.8-inch (?) screen
  • iPhone 7S Plus: $769, 5.5-inch screen
  • iPhone 7 Plus: $669, 5.5-inch screen
  • iPhone 7S: $649, 4.7-inch screen
  • iPhone 7: $549, 4.7-inch screen
  • iPhone SE: $399, 4-inch screen

That’s a pretty nice portfolio across a wide array of price points, while still charging a premium for the newest, coolest models.

Apple produces devices at such scale that the company needs to plan months — even years — ahead to ensure that its suppliers can offer enough components to meet demand at the levels of tens of millions per year. To that end, everyone seems to agree that the iPhone 8 will be “supply constrained” because there just aren’t enough parts — from OLED screens to camera modules to memory chips — to meet the traditional output level of a new iPhone. So why not put a natural brake on expected high demand — and inevitable backorders — by jacking up the price?

Think about it: What good is an “affordable” retail price for an unobtainable product? The Nintendo Switch is still difficult to find, and SNES Classic preorders are already being scalped on eBay for more than four times their modest retail price, even as the preorder system remains an absolute mess. Even Apple’s own AirPod headphones still have a four-week backorder, eight months after they first went on sale. Call me a capitalist pig, but I’d say that’s the market telling you that all of those products are underpriced.   

Yes, the iPhone 8 will still flood eBay at huge markups. But a higher starting price could help temper demand. If some customers are “scared off” by the rich price tag and a multiweek backorder, they might instead opt for the aforementioned 7S models instead, which should be more easily obtainable. The customer gets a new phone instead of an IOU, Apple still makes a tidy profit — and the iPhone 8 retains a lustworthy status as a specialty item.

If that’s the “worst” case scenario for Apple, it’s still a win/win.

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