Apple Has Normalized the $1,000 iPhone

The world’s most valuable company had a problem. Exorbitantly priced devices solved it.

The new Apple iPhone Xs and iPhone Xs Max are displayed during an Apple special event at the Steve Jobs Theatre on September 12, 2018 in Cupertino, California.  Apple released three new versions of the iPhone and an update Apple Watch.
Pay up. Justin Sullivan/Getty Images

A year ago, word leaked that Apple was planning to unveil a thousand-dollar iPhone, and people gasped. “The new iPhone’s key feature is its price tag,” MarketWatch chided. “Will you need to take out a mortgage to afford your next smartphone?” USA Today quipped. “The iPhone X may go down in history as the ultimate example of a high-tech folly,” Mashable predicted.

On Wednesday, Apple unveiled an $1,100 iPhone, and people shrugged. And that’s just the base price for the new iPhone XS Max, which could run you as much as $1,500 fully loaded. The $1,000 XS—the successor to the original $1,000 model, the X—is now the midrange option among the three new iPhones Apple announced.

And the “budget” alternative? That would be the new iPhone XR, which starts at a cool $750. If you want an iPhone cheaper than that, you’ll have to dredge up an older model, such as the iPhone 7 or iPhone 8.

Apple’s new iPhones sport an array of technically impressive new features intended to justify those price tags, of course. These include edge-to-edge displays, dual 12-megapixel rear-facing cameras with telephoto lenses (in the XS and XS Max), and an A12 Bionic chip powered by something Apple calls a “Neural Engine.”

But the most impressive feat of this year’s iPhone launch is one Apple didn’t talk about onstage: It’s that the company has successfully normalized the $1,000 smartphone.

With its relentless touting of the new and improved, Apple makes it easy for consumers and the tech press to forget its products’ past. The pricing of the XS and XS Max might seem reasonable enough if you compare them only to last year’s X. But rewind a few years and the scope of Apple’s marketing coup becomes apparent.

Until 2016, the base price of Apple’s flagship iPhones topped out in the mid-$700s. The 16GB iPhone 6 Plus cost $750 in 2015, and that sure seemed like a lot at the time. The 32GB iPhone 7 Plus crept up to $770 in 2016, while the iPhone 7 took over the $750 price point.

No wonder the $999 iPhone X induced some sticker shock when Apple introduced it last year. That shock was mitigated somewhat by the excuse that it was the iPhone’s 10th anniversary, and the company was going over the top to celebrate with the finest phone it could build. But it also helped to mask the ratcheting of the price scale for the rest of the product line, as the nonflagship iPhone 8 and 8 Plus commanded a hefty $700 and $800, respectively. At that point, Apple’s second tier of iPhones cost more than its flagship phones ever had before. (Yes, they also came with more storage, but that should be par for the course.)

It looked for a time like maybe Apple had pushed things too far and frugality would prevail. The Wall Street Journal reported in January that the company had to cut production on the iPhone X due to weak demand—presumably the price tag was scaring people off. But Apple corrected the record on its next earnings call, hailing the X as its best-selling iPhone and noting that its average iPhone sale price had hit a record $728.

So when Apple announced on Wednesday that its new phones will start at $1,100, $1,000, and $750, the audience in Cupertino just nodded along. The company took a chance last year that people would pay exorbitant sums for the latest and greatest gadget, and consumers proved it right. Now, exorbitant is the new normal.

One of the long-term threats to Apple’s business has been the specter of smartphone commoditization. The gist is that, with components becoming cheaper by the year, competitors could copy the iPhone’s features at an ever-lower price, forcing Apple to gradually slash the fat profit margins that have made it the world’s most valuable company.

Instead, Apple has done just the opposite—and pulled it off. And in the process, it has warded off a second threat, which is the lengthening of phones’ useful life span as the technology advances. People may be keeping their phones longer—in part because their wireless carriers have stopped subsidizing the purchases—but Apple is making more money than ever on each new one it sells.

A $1,000 iPhone may have looked like a folly in 2017. But at this point, the real folly would be to bet against a company whose customers’ wallets are seemingly impervious to pain.