Is Apple’s iPhone pricing outrageous or sound business?

Sep 26, 2013
41
Is Apple’s iPhone pricing outrageous or sound business?

Earlier this week, a teardown by IHS revealed that Apple’s iPhone 5c costs the company $173 to produce, representing a 12 percent reduction compared to the iPhone 5. The entry-level iPhone 5s, meanwhile, sets customers back $199.

The news was not at all surprising. Apple has for years been building products for a relatively cheap sum. But as Apple continues to generate massive profits and carriers sell unlocked iPhones for several hundred dollars, I can’t help but wonder if the company is going a little far with its pricing.

The iPhone 5c, for example, will set customers back $549 without subsidies. The iPhone 5s is, depending on the model, hundreds of dollars more expensive. And because of Apple’s leverage and control over the mobile space, the company is able to generate $300 or $400 in profit on each device sold without even worrying about it.

Of course, Apple isn’t alone. Just about every company in the mobile space is selling products at dramatically higher prices than what they cost. It’s capitalism, after all. But I can’t help but wonder at what point the profit-seeking goes too far and customers are being hit hard on prices that don’t necessarily justify the product they’re buying.

Nowhere is that more apparent than with the iPhone 5c. Sure, it’s colorful, but it’s essentially the iPhone 5 with a different (and, ostensibly, cheaper) component offering. And yet Apple believes that its channel customers should be paying $549 just for the right of owning a product that’s at best a nominal upgrade.

iphone_5c_colors

I think the same argument can be made for the iPhone 5s.

[aquote]Apple gets away with this because of carriers[/aquote]

Oddly enough, Apple and all other handset makers get away with this because of carriers – the very entities that, in most cases, are buying the iPhone and Galaxy S 4 and countless other products at those exorbitant prices. Carriers subsidy products to force customers into a two-year contract. By doing so, they can bring down device pricing to where customers like it and there’s no complaining. All the while, the handset makers on down to the carriers are laughing their way to the bank.

For old-time technology fans, what I’m saying is nothing new. But it effectively highlights the profit-grabbing that has become such an important piece of our beloved industry. Innovation is still important, you see, but it’s only as important as the profits that can be generated.

There was a time when some young companies would abandon all desire for profits to deliver something groundbreaking. But nowadays, business processes and profits dictate the industry. And to not generate a profit on hardware is to see the end of your business entirely.

Unfortunately, all of that desire for profits comes at the expense of truly special innovation.

So, say what you’d like about the beauty of the new iPhones or how special Apple’s products are. But when it’s all said and done, we need to acknowledge that the devices might not justify the price tags Apple is putting out there.

Is the iPhone 5s innovation or iteration? Check out our full iPhone 5s review to find out!


Must Read Bits & Bytes