Apple is subsidizing the lower-cost iPhone 11 through its growing services division

By Jerry Hildenbrand
published

You can buy an iPhone 11 (opens in new tab) for just $699. I recognize the irony of saying "just" and "$699" in the same sentence, but for a new iPhone, that's cheap and Apple will sell a gazillion of them. The rest of the lineup is also a lot less expensive than most people were thinking and you can even buy an iPhone 8 for just $449. That means with financing a new iPhone is going to be affordable to anyone who wants one.

Making revenue through services isn't a new idea — it's just new for Apple.

Apple, like every other company selling anything, always wants to sell as many products as it can. This year I think it is trying a different approach and is counting on people signing up for the new services as a way to bolster recurring revenue and profits. If Apple can make $500 million from Apple Arcade or Apple TV+, it can afford to make $500 million less from iPhone sales. And I think it's going to work just that way — and Android itself is a great example of why.

Android is free. Anyone can download the source code and all the tools required to turn it into an operating system and Google doesn't profit a single penny from it. in turn, Android is not free to make or maintain and Google spends millions on its development. Yet Google still makes a ton of money from Android and is willing to give it away to companies like Samsung or LG.

That's because of services. Google apps like Gmail and Chrome and Google Docs are all very good make a lot of money through ads. These services and others that Google provides are part of the way Google can collect data about what interests you and then show you ads for products you might be interested in. Google has other services that aren't free and apps like Play Music or YouTube Premium also work really well on an Android phone. Google makes enough money through all these free and paid services to maintain Android and give it away at a loss. (It also makes a lot of money from Apple and iPhone users.)

Apple knows what its customers like and it's giving a little extra for a few dollars each month.

Apple is instead focusing on its user base and has a great deal on a game subscription as well as a premium package for entertainment. At $5 per month for each, consumers aren't going to balk at the cost and when you add up $5 times the number of iPhone users who are willing to pay you'll come up with a really juicy number to drop into the ledger at the end of the quarter. Apple is even giving some of it away for people who buy a new phone because it knows most people will enjoy it enough to continue after the trial period is over.

This makes a lot of sense. People just aren't buying new phones every year as they have in the past, numbers are down for every company making them, and there has to be a creative way to make up for the lost income potential. Providing a service that it knows customers will like — Apple knows exactly what you do on your phone though it likes to downplay it all — at a price that customers will like equals money in the bank. The only question is if it can make enough money to make up for less volume and lower priced hardware.

I bet it can.

Jerry Hildenbrand
Jerry Hildenbrand
Senior Editor — Google Ecosystem

Jerry is an amateur woodworker and struggling shade tree mechanic. There's nothing he can't take apart, but many things he can't reassemble. You'll find him writing and speaking his loud opinion on Android Central and occasionally on Twitter.

14 Comments
  • Apple central? Has a ring..
  • Come on Apple, 64gb's of storage on all three models in late 2019? It's a little ridiculous, don't you think!
  • They care about as much as 90% of the planet, which is not at all. Cause it's not a big deal. Ever heard the saying "Much ado about nothing?" That's basically what your comment is. Even at $850 with upgraded storage, it's a far better option than a $750 Galaxy S10e, for example. The only phone that co cares favorably, IMHO, is the OnePlus 7 Pro, and the iPhone 11 will still curb stomp it in the camera department.
  • I can't wait for this to force Android phones to be cheaper!
  • Android phones are cheaper. Heard of One Plus?
  • This isn't 2014 anymore
  • They had to drop the prices, like it or lump it iphone sales are down by a massive margin this year and last year. I still think they will keep falling.
  • You say $699 subsidizing? Ok. Doesn't look to me like that, it's more of pressure from competition and lack of innovative features that drove the price down on the lower end model.
  • You Apple's A13 SoC, fantastic cameras, good battery life, the best mobile/desktop integration, the best app and accessory ecosystem, and the best support and update track record in the industry. Spec sheet isn't the only place where users derive value.
  • Yeah, it makes sense. Lower the price point to make it seem more attractive so people will upgrade or purchase, give the content away for a little while for free and then bank on the percentages that they will like and keep the content. As much as it is touted about lack of innovation and features driving the price down, that's never been a compelling argument to make in the case of Apple (even if they aren't as innovative). They keep revenues at crazy levels through programs like these. They aren't shaking in their boots, they are trying to engage more people to their true revenue generators. The XR is the most popular model because of price. They profit heavily on any XS or XS Max sales. But phones like XR or the upcoming 11 give them a wider user base to pull from. It's revenue, plain and simple.
  • People will be able to reliably use this iPhone 11 in 2024, heck maybe 2025.
  • What ever , lowering pries will help them , because their are many people who were willing to buy iPhone but could't buy due to its pries.
    Many people jumps to one plus only due to its god pries as compare to previous iPhone model.
    You likes its appearance / back side / fetchers or not, its not the question.
    But the name is famous already .
    APPLE DO'T NEED TO BUILD ITS MARKET, its all ready having a huge fan following.
    And off course it will do best .
  • Apple doesn't need to build it's market (share?) (ing?) iOS is down to just 13% of all phones sold and consistently dropping since android came along. That means 86% of cell phone buyers now aren't buying iPhones. Looks to me like they have a very large untapped market of people who are already buying phones. It's huge fan following looks rather dismal compared to total phones sold, so yes,
    I think Apple has plenty of room to build their market(share).
  • « Apple knows exactly what you do on your phone though it likes to downplay it all«  Itbis besides the point. It doesn’t say they don’t know what you’re doing on your phone (and not all, as implied) but that they don’t sell it or make money from it