Samsung and the iPhone Edition Price- A Different Take

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I came close to writing what would have been a “me too” article yesterday on the report by KGI covering Samsung’s dominance of the OLED display market and the resulting higher iPhone display prices. I even started typing before I ultimately decided to delete it. There’s nothing wrong with being one of many to report on the same news, and anytime KGI and/or Ming Chi-Quo have something to say, it is definitely notable Apple news.

The issue I had wasn’t with the “me too” part. It was with the natural assumption that the iPhone Edition’s price is Samsung’s “fault.” I even put that in my original headline at first, before backtracking and thinking about it. Then, after thinking a little more, I just backed away from the keyboard for the night. While it seemed natural to blame Samsung for the Edition’s price increase, based on what I believe about politics and economics, I don’t actually believe it’s true. And I STILL almost fell for buying into it.

Nobody’s Fault But Mine

Robert Plant and Led Zeppelin said it well. Apple has no one to blame but themselves for the pricing of their new phone. Not Samsung. Not anyone else. This is all on Apple. There are a few reasons, but it mainly comes down to planning and responding to the free market. This is usually an area where Apple excels, and is actually Tim Cook’s main specialty. However, this time out, it seems possible that Apple didn’t adequately prepare for the move to using OLED displays on new iPhones, and they are quite literally paying the price. And now we as consumers will, as well.

Free market economics are no mystery to large corporations, Apple included. If you find an area in the market that is either underserved or where you can stand out and you can design and execute on delivering a solid or better product to market, then well-deserved profits await. This is why I can’t join the crowd and sit back and assign blame to Samsung for setting a market price for a technology that they basically own at the moment. This is exactly how Apple became so profitable over the past 15 years- by finding areas of the computer, portable electronics, and smartphone markets where they could excel, and then developing devices to fit them. They are just getting a dose of their own medicine here.

So, Samsung doesn’t deserve blame for legally making money on a good product that has become very popular in the latest smartphones. They are simply reaping the rewards of smart planning, good engineering and solid design. In my opinion, assigning them any blame is both intellectually lazy and ignorant of reality. They are quite literally fulfilling their fiduciary responsibility to their shareholders to maximize profits. And it’s not like they are being accused of something legitimately horrible like using child labor, mass deforestation or displacing indigenous peoples. That stinging feeling we are all anticipating will only be affecting Apple’s bottom line, and in turn, our wallets. It may suck to cough up some extra money for Apple’s latest and greatest, but it isn’t a crime.

Isn’t It Ironic

Another bit of irony in all this is why some many media outlets and tech bloggers decided to assign blame to Samsung in their headlines. It’s because Apple and Samsung are bitter rivals and the fiercest competitors, right? Apple must be furious that Samsung is raking them over the coals on these displays. That makes for a great, eyeball catching headline that is mistakenly aimed in the wrong direction.

Unfortunately, most of these writers are failing to recognize an important fact- this Samsung isn’t THAT Samsung. Samsung Display is completely separate from the Samsung Mobile that makes smartphones and competes directly with Apple. The headlines aren’t as catchy if you are aware of that little tidbit. It’s easy to forget just how massive a company Samsung is, especially throughout South Korea and Southeast Asia, but a little research goes a long way. Hot takes and research usually don’t go hand in hand.

Should’ve Known Better

Back to the blame game, where Apple should have heeded the words of Richard Marx. They started the pixel density craze with the iPhone 4 and its Retina Display back in 2010 and have rode that LCD screen technology to its logical conclusion, at least when it comes to flagship devices. OLED screens aren’t anything new, either, but over time they have surpassed LCDs in several ways and Apple is finally moving on.

This is a move that has been coming for a few years now, with the first evidence being that Apple decided on OLED displays for the Apple Watch from the outset of its release. Since then, its just been a matter of time until OLED made the jump from there to the iPhone.

Here’s the rub for Apple- the original Apple Watch was announced over two years ago. That means that the planning and design phases for the Watch were going on three years ago. Apple always starts off small when introducing new technologies, and OLED has been no different. However, knowing that there would be a next step in the future, and that the most likely next step was the iPhone, why did they leave themselves at the mercy of a single display supplier?

It’s Too Late

Carole King said it best: “It’s too late, baby.” Unfortunately, it’s far too late now for Apple to do anything about this. They don’t have any leverage on Samsung Display, and there aren’t any other suppliers in the market for smartphone-sized displays to partner with to get the prices down. Apple gets most of their smaller OLED displays for Apple Watches from LG, and they have been trying to ramp up production of larger displays. However, according to AppleInsider, they were beaten to orders on a key piece of manufacturing equipment that is hard to make by Samsung Display, and are suffering major delays because of it.

Apple is now investing $2.7 billion dollars of their own money into LG’s OLED manufacturing efforts to help get them up and running and both create competition in the market, and curb their reliance on a single manufacturer. However, according to the same AppleInsider report from yesterday, these displays won’t start showing up in Apple devices until 2019. Ouch. Apple was two years too late.

For the Love of Money

Or maybe Apple really wasn’t late at all. Maybe this was the plan, and Samsung Display is just a convenient scapegoat for the media to latch onto. John Gruber wrote a post back in July describing Apple’s potential motives for releasing a new, higher priced model of iPhone, and he touches on some really interesting points. It’s a really good read now, in hindsight.

In this post, Gruber says (without claiming any inside knowledge) that Apple is likely pursuing this higher price approach because it makes it easier to release a device with more cutting edge (or at least close to cutting edge) components. The problem for Apple is usually scale, and the fact that their phones are already a bit more difficult than average to produce because of the materials and exterior design. The larger the scale a company has to be able to produce devices at, the more reliability of components and their yield rates in production becomes an issue.

This has always been a hinderance when Apple released new hardware features in the past. Retina Display yield rates were low early in production of the iPhone 4. TouchID held back early production of the iPhone 5S. The larger displays of the iPhone 6 Plus made it extremely hard to get at first. A slow ramp up of the dual camera module in the 7 Plus put it in short supply early. This happens all the time.

One thing to note is that all of these phones were delayed by one key component, rather than many. The implication from Gruber is that the scale of production for each new iPhone has been a limiting factor in the amount of enhancements Apple adds to the typical new iPhone. He goes on to say that by using price to limit the scale of production, Apple can focus more on new features without running the risk of, say, a multi-billion dollar product recall of exploding phones because the design was too ambitions to produce at the necessary scale. It’s good to have a real world example of this biting a major player in the backside to refer to as an object lesson.

For what it’s worth, John Gruber isn’t alone in saying this publicly. Rene Ritchie of iMore has also talked about this potential strategy during episodes on the MacBreak Weekly Podcast on the TWiT Network and on some of iMore’s own shows. Both he and Gruber are known to be very well connected at Apple, so I think there could be more here than just conjecture on their parts.

The Gambler

Assuming that Mr Gruber and Rene Ritchie are correct, this move wouldn’t be without risk. The last time that Apple pursued the multiple new devices approach, it was with the iPhones 5S and 5C. The 5C was supposed to be the more colorful, more affordable model for the masses, while the 5S remained the flagship. However, things didn’t pan out the way Apple expected. The masses flocked to the 5S and largely ignored the 5C. It was too expensive to be an “affordable” model, and wasn’t the technical equal to the 5S. The 5C was quietly retired a couple of years later, and its plastic design abandoned.

Apple has retuned to the concept of a “secondary” phone with the iPhone SE. However, they have handled this device much differently than the 5C. It was released at a different time than the iPhone 6S and 6S Plus. Also, thanks to the change in device sizes, they were able to make it stand out as a smaller, but technically equal model. Also, it copied the former flagship design of the iPhones 5 and 5S, so it wasn’t seen as inferior in terms of design and materials. It has also been largely labeled and thought of as a successful device.

However, now it seems that Apple will be going back to less familiar territory in releasing three new devices at one time. While I applaud them for not making the same design decisions that hurt the 5C, the iPhones 8 and 8 Plus will share what is now a four year old industrial design. Even with their new features, and updated specs, will consumers see them as worthwhile upgrades? Despite the likely new features, they still have the same basic look, and looks go a long way when it comes to smartphones.

While I may understand what Apple is possibly doing here, I also understand that they run the risk of alienating consumers in the process. The difference between now and 2013 is that the iPhone 5S didn’t get a price hike because of the iPhone 5C. The 5C’s price and design may not have gone over well, but it was more ignored than anger-inducing. Buyers just continued on to the iPhone 5S and weren’t put off by the new model.

By driving up the price of the new flagship iPhone Edition/X, Apple runs a different kind of risk here. Longtime iPhone users who either can’t or won’t pay for this new model may be unhappy with the idea of upgrading to new phones that look very familiar, but will still cost the same as the last generation models.

I think this will likely work out in Apple’s favor in the end. They have a lot of branding and financial experts that specialize in strategizing for these kinds of situations. They probably have a great idea of what consumers are willing to pay, and which types of consumers will upgrade to different devices. However, as we come full circle back to the origin of the article, you can definitely be sure of one thing. Whatever the price of the iPhone Edition or X turns out to be, it won’t be Samsung’s fault. Whether through poor planning or intentional strategy, this is all on Apple.

What do you think of the potential $900-$1000 starting price of the iPhone Edition/X? Do you think it is Samsung’s fault that the price is so high, or do you agree with me that this is all on Apple? Is anyone put off with the idea that Apple may be driving up the price of the Edition/X to artificially alter sales and therefore, the scale they have to produce them at? Let me know in the Comments section below, on Flipboard, on our Facebook page, or on Twitter @iPadInsightBlog.


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