Apple Jacked (Premium)

You might have missed this, but the most surprising thing about this week’s Apple event was that the firm just quietly raised prices again.

And not just on the new versions of existing products like MacBook Air, Mac Mini, and iPad Pro. Apple also raised its prices on important peripherals like the Apple Pencil and Smart Keyboard.

Depending on your view of the company, this is either par for the course—Apple, maker of luxury products, continues to overcharge customers—or a bit of a surprise given its past pricing strategies. But I view this move through a slightly expanded lens. And I think it’s part of a broader new strategy to wring as much money as it can from its smaller but very faithful audience.

Indeed, this isn’t the first time this has happened in 2018. Just last month, Apple revealed new iPhone and Apple Watch models with much higher average selling prices (ASPs) than the products they replaced.

So what’s changed this year vs. previous years? Simple: From a market share perspective—which is to say, Apple product sales vs. those of the competition in both the PC and smartphone markets—Apple’s platforms are sliding downward. Yes, yes. The Mac and iPhone are highly profitable product lines. But Mac sales have fallen in the past few years. The iPad has only recovered from its own multi-year slide because of a new low-cost model. And iPhone sales are flat year-over-year.

To counter these market realities, Apple has engaged in an interesting strategy. It is raising prices across the board in an attempt to bump up the average selling price (ASP) of its products. And if you look at any of the announcements they’ve made this fall, you can see this strategy unfolding everywhere.

Consider the new iPhones.

Last year, Apple announced its first $1000 phone, the iPhone X. Despite its heady price-tag, this product was successful enough—Apple claims it was the best-selling iPhone model for its entire four quarters in the market—that the firm has expanded the X lineup this year to include three models, the XS, XS Max, and XR.

The iPhone XS picks up where the X left off: The base model, with a paltry 64 GB of storage, is $999. But instead of offering an affordable 128 GB upgrade, the next step up is 256 GB, which costs $1150. The iPhone XS pricing is unchanged, year-over-year, from that of its predecessor.

But the iPhone X launched alongside two less expensive iPhones in 2017, the iPhone 8 and 8 Plus. For 2018, Apple is offering an even more expensive iPhone, the XS Max. This handset starts at $1099, but since the 64 GB of storage it provides would be unacceptable to anyone shopping in that price range, most will choose the 256 GB version for $1250.

What’s $1250 between friends? Well, it’s $100 more than the most reasonable iPhone flagship from a year earlier (the 256 GB iPhone X). More to the point, it’s an incredible $381 more than the $869 the same buyer would have spent two years prior on a similarly upgraded iPhone 7 Plus. That’s how much iPhone pricing has escalated in just a short period of time.

But Paul, I can hear you complaining. What about the iPhone XR? You’ve described this as the sweet spot of the current iPhone lineup, and it is far more reasonably priced, and does offer the 128 GB upgrade you mention above. A reasonable iPhone XR—with 128 GB of storage—costs just $800.

Hold on a second, folks. You gotta view this price not just in context with the current lineup—which again, has seen an epic ASP jump in just two years—but in the context of the previous phones it replaces.

Two points here.

One, that $800 price tag is just $69 less than the cost of a mid-tier iPhone 7 Plus from two years ago. Meaning that two years ago, you would pay just $69 more to get the very best phone Apple sold. But today, you pay $69 less to get the very least (new) phone that Apple sells.

Two, let’s look at the pricing structures for the phones that used to occupy this slot in 2016 (the iPhone 7 Plus) and 2017 (the iPhone 8 Plus). Using again the first step upgrade version of each product (because the base model has never been acceptable, really, and because that’s what I did above), we see the following:

A 128 GB iPhone 7 Plus, as noted, was $869 at launch. For 2017, Apple raised prices so that a mid-level iPhone 8 Plus, which now included 256 GB of storage, was $899.

Now, $800 is less than both of those prices, for sure. But Apple no longer gives consumers a choice here, either. There’s only one size for the XR, and it’s big. The iPhone 7 and 8 lineups included non-Plus models that cost $749 and $799 respectively. So the XR really slots in at the same price as last year’s iPhone 8. This is the new entry-level.

So how does this represent a price increase? Simple: For the many iPhone users who find the plus-sized iPhones too large, there’s only one choice, the iPhone XS. And that, again, starts at an incredible $1150 for a device with a reasonable amount of storage. The SE is gone, and so are the smaller iPhones. They’ve been axed for what I feel are artificial reasons, to subtly cause customers to spend more on the phone they really want.

I spent way more time and space on the above comparisons, but let’s look very quickly at one of this week’s newly-announced products, too. I choose the MacBook Air because this is the product I was most interested in, and I had previously believed that I would buy this upgrade, whenever it arrived, almost sight unseen.

But then I saw the pricing.

That Apple desperately needed to update the MacBook Air years ago is obvious to anyone. Its previous design dates back to 2010, and while it is absolutely iconic, it’s also quite dated these days with its huge bezels, low-resolution display, and legacy ports.

I had my own ideas for what would constitute a great MacBook Air upgrade. (Just put a Retina display in the thing, for crying out loud.) But given Apple’s MacBook and MacBook Pro design moves over the past three years or so, we got mostly what we expected: A 13-inch MacBook/Pro hybrid with USB-C ports, a Retina display, an unreliable and loud keyboard, and a too-large force touch touchpad.

There were some unexpected and nice upgrades, too, like the Touch ID button sans the terrible Touch Bar that disgraces the MacBook Pro. But we also got some bad news; A disappointing Y-series Intel processor. And yes, a mammoth price increase.

I had high expectations for this laptop. And figured that the new MacBook Air would start at a reasonable $999, with $1299 being the end price for what I’d call an acceptable upgrade, with a Core i5 (U-series) processor, 16 GB of RAM, and 256 GB of storage.

But that configuration—albeit with a less powerful Y-series processor—costs a stunning $1599. And the starting price of this product, incredibly, is $1199, fully $200 more than I think the market can bear.

The technology choices here are interesting. Apple saddles its smaller MacBooks with Y-series (formerly Core-M class) processors as well, and if you read any reviews of these products, you’ll see the same phrase again and again: These machines are OK for “everyday tasks.” The Y-series processors we see today are roughly on par with the years-old U-series processor that ships in the previous MacBook Air.

Which is the problem. The previous-generation MacBook Air, which is still being sold today, ships with a 5th-generation Intel Core i5 processor. That chip was a “tick” (minor) upgrade over its predecessor, and it first shipped in 2014, four long years ago. The chip that ships in the new MacBook Air today shouldn’t just be modern, it should be a major improvement over the chip from the previous version.

But it’s not. It’s roughly on par with the aging Core i5 chip from the previous version. It’s probably fine for everyday tasks. But it should be markedly improved, with quad-core internals (not dual-core) and superior performance.

Put simply, Apple is charging $200 or more of a premium for a new MacBook Air whose internal architecture has been artificially limited to make it more like an ancient MacBook Pro with a four-year-old chipset.

So what’s the sweet spot for the new MacBook Air really? I’d say its Core i5 (Y-series) with 8 GB of RAM and 256 GB of storage. That will set you back $1399. Or you can still buy the old one, with a real (but ancient) Core i5, similarly configured, for $1199, or $200 less. But you won’t get the Retina display or Touch ID, both of which I will describe as necessary here in 2018.

$1399 for a reasonable MacBook Air. And that is “reasonable” with an asterisk. “Everyday computing” should cost a lot less than that, methinks.

But again, these price increases are everywhere.

When Apple Pencil debuted last year, it cost $99. That seemed like a lot of money at the time, but the new version is an even headier $129.

When the 10.5-inch iPad Pro debuted last year, the Smart Keyboard cost $159. But its replacement, for the 11-inch version, costs $179. And the 12.9-inch Smart Keyboard has jumped to $199.

The new iPad Pros are more expensive too, of course. My 10.5-inch iPad Pro (64 GB) cost $649 last year (and still does). But it’s replacement starts at $699, and the next-step upgrade, to 256 GB (there’s no 128 GB, again) is an incredible $949. Outfitted with Smart Keyboard and Apple Pencil, a reasonable 11-inch iPad Pro will set you back over $1250. Yikes.

Look, I know that it’s not news that Apple’s products are expensive. But as a consumer advocate, I find the way the firm is silently and sometimes sneakily—through unacceptable entry-level versions—raising prices over time to make up for lost volume disturbing. Apple’s products are becoming less and less attainable to a mainstream audience as a result. And it’s losing some of the appeal it gained as the iPhone rose to prominence.

Not that any of this matters to Apple: As the firm continues to cede market and usage share to less expensive Android- and Chrome OS-based competitors, it will also continue to reap the highest profits and revenues through these price hikes. This is a strategy that companies like Samsung and Google have tried, but cannot maintain. And it remains a big advantage for Apple, one that will help it weather its market share losses.

I just wish it didn’t come at our expense. Literally.