Apple's iPhones are arguably the most popular smartphones on the planet since their introduction a few years ago. There have been a number of comments on the positives and negatives of the iPhone with each side feverishly advocating their stand.
While the pros and cons of this device can be debated endlessly, the fact that the iPhone is the best selling smartphone brand in the world is beyond question. So, what makes an iPhone so high-priced? The reasons are simple yet hidden from plain view.
iPhones are Not Built On a Penny
When Apple launched the iPhone, it set out to create a premium smartphone that did not compromise in quality. Having positioned the product in this manner, Apple cannot afford to not use premium components within an iPhone. Setting aside Apple’s huge profit margins, the components inside iPhone still cost a lot more than most Android competitors.
Analyst firm IHS iSuppli has calculated the price of components used in smartphones in a detailed manner. To consider a simple example, if a Moto G and an iPhone are compared then aside from the battery, almost every other component of the former costs less than the ones present in the latter. These include the NAND flash, the display, the memory, the interface and the sensors. In fact, some of Moto G’s components cost about half of that of the iPhone. The box contents provided with Moto G also cost much less than those provided with the iPhone. Rough estimates by iSuppli put the components and assembly cost of a Moto G at around $110 while that of an iPhone at around $200. This shows that Apple does have a high manufacturing cost for an iPhone, but it certainly does not explain the final retail cost of it which exceeds $600.
The Apple Ecosystem
When you purchase the iPhone, you actually buy into the Apple ecosystem that allows access to more than a million apps and features like iMessage, FaceTime and iCloud services that are bundled free. Above everything, there is the proprietary iOS platform and periodic updates and upgrades included with it. The development costs for all these ecosystem elements, especially for the iOS, are woven into the retail price of the device. Such a uniform ecosystem helps in avoiding compatibility conflicts throughout the iPhone and iOS universe. The actual price calculation for this premium ecosystem is difficult to arrive at, but it’s safe to say that the wages of Apple’s software developers, designers and other technical personnel definitely makes its way into the cost of every iPhone.
The Apple-nomics Factor
Another important factor that adds to the price of the iPhone is the unique economics in play when compared to the Android smartphones. As discussed above, Apple does pay more than the competition to have the iPhones built. Due to this lofty base cost, the supply of iPhones is comparatively lesser than the premium Android competitors. Since the iPhones enjoy an incredible popularity, the demand is tremendously high with respect to the supply quantity. As any economics rookie would understand, low supply plus huge demand equals premium pricing. This is exactly the case with iPhones as the need for these devices compared to their availability is quite steep, leading to an inflated price influenced by this economics.
The iBuzz Wave
Apple spends a ton of dough on advertising and creating a near persistent buzz around its products. Nowhere is this more prominent than its iOS based devices. It almost always outspends its competition on a yearly basis. Apple has been splendidly successful in creating a rabid following for its products and this following is subject constantly to its iBuzz. The company has been extremely effective in getting its pre-existing customers on board to buy any of its new product launches. This results in a massive sellout as soon as a new product hits the stores. The primary appeal that causes this kind of wildfire is that it’s a one brand product and therefore there is just one release of a new iteration every year. The expense needed to create this near constant buzz to ‘maintain the herd’, so to speak, gets added into the iPhone’s retail cost.
To add it all up, Apple’s business is based on a increased profit margin model that is in direct contrast to most of its Android competitors who work on a high volume business model. Apple can sustain such a high pricing for iPhone due to the supply-demand economics and its enviable brand following. These reasons give a clear idea of how and why iPhones are pricey. About whether the device justifies its elevated price is entirely another debate however.