I’ve discovered that few people outside the electronics purchasing community take the time to analyze the cost of a product versus its price. Nor do they care. The Apple iPhone 5s is a classic example: the components in the device cost Apple roughly $200, but the 5s retails for up to $849 for the 64GB version.
I think we’ve reached an inflection point where Apple has become more of a marketing company than a hardware and design innovator.
A teardown of the 5s by IHS iSuppli reveals there is very little new under the hood. Many of the features are new to a phone, but technology-wise, they are hardly groundbreaking. Fingerprint sensing, for example, has been around for a long time – it just didn’t work very well. Apple improved the experience, but cost-wise, the hardware is priced at about $7. The user-interface segment of the 5s, which includes the fingerprint scanner, costs $15, according to IHS. This compares to just $8 for the user interface for the 5c, which has no fingerprint scanner. (For a full analysis see: Who’s in the iPhone 5s?)
The other non-event in the 5s is the 64-bit processor: Other smartphones have used them, but this is Apple’s first, IHS says: “The 5s is the first model with a 64-bit applications processor, an innovation that has major implications for the iPhone and for Apple’s other product lines.”
I’d probably be less sensitive to the hype if my family of iPhone users hadn’t started an all-out “my-phone-is-better” war. I just bought a Windows phone – the Nokia Lumia – for one reason only: it offers a scaled-down version of Office. I’m a writer and my life is all about the documents. The Lumia has a lot of nice features, but when it came down to the buying decision, it was all about utility.
Don’t get me wrong – Apple is a brilliant company and you can’t blame a corporation for doing what it is supposed to do: create value for shareholders. The familiar image of people waiting in line at the Apple Store accompanied the release of the 5s and only abated when the inventory was sold out. This is one thing I can – and do -- blame Apple for: its shortages are Apple-made.
Apple has been recognized for its supply chain prowess as often as its hardware and there is no reason why Apple consistently underestimates demand for its products. It is purely a marketing ploy, and clearly one that works. The iPhone 5s is the latest must-have item regardless of cost.
Another flaw in Apple’s strategy – my perspective, not the market’s – is something my family is going through right now. Apple’s products are not as user-friendly as Apple says they are. Both my Apple users have upgraded to Apple iOS 7 and are complaining about a variety of things. More specifically, all of my son’s music (featuring Drake, Eminem and Ludacris) has been mixed with my husband’s (Hootie and the Blowfish, Bill Joel and The Eagles) and neither one can figure out how to delete undesired songs.
My husband called Siri to ask how this can be done. Siri’s answer: “I’m sorry, I can’t do that.” (I’m sure it can be done, but neither user has bothered to use Apple’s other “help” resources.)
Apple has been able to dominate the digital content market by keeping much of the functionality of the iProducts locked within Apple’s own ecosystem. Again, brilliant strategy. It’s just not one I literally subscribe to.
In the cost vs. price equation, it has become clear that consumers don’t really care how much an Apple product costs. They are willing to pay a premium. This makes Apple a masterful marketing organization. As a hardware innovator, though, I’m not so sure. Apple takes existing technology and makes the user experience better. Whether that’s worth a mark-up of $600 is up to the consumer.
For me -- to quote Siri -- “I’m sorry, but I can’t do that.”
Barbara Jorgensen is managing editor at Electronics Purchasing Strategies. She can be reached at firstname.lastname@example.org.