Apple Needs an iPhone Classic (Premium)

Apple’s corporate culture can be nicely summed up by the term parentalism, which is the (mistaken) belief, on Apple’s part, that only it can decide what’s best for its users. You see this control throughout Apple’s products and services, in ways both big and small.

As is the case with so much at Apple, this stupidity can be traced back to Steve Jobs, the ultimate micro-manager.

“Some people say, ‘Give customers what they want’,” Jobs infamously said during an interview. “But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, ‘A faster horse!’ People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”

The problems with this quote are many. But looking past the obvious, I’ll just raise two.

First, there is no one like Steve Jobs. His uncanny if temporary ability to correctly read the market and green-light successful products like the iPod, iPhone, and iPad back-to-back is a success we’ll never see repeated. Not by Tim Cook, whose about as imaginative as a stack of bricks. And not by any self-styled Jobs-alike at any other company either.

Second, even Jobs’s supposed approach to customers can only work when you’re moving on to new markets. With Apple in empire maintenance mode now with the iPhone, which remains responsible for approximately 75 percent of Apple’s revenues when you correctly factor in its services revenues, the stakes are quite a bit different. Apple very much needs to listen to its customers now. Its existing user base has peaked: From here on out, the goal is to monetize customers in new ways as their iPhone purchase timeframes lengthen.

But there’s an additional issue. With customers rejecting the latest iPhone designs, Apple risks losing customers who just aren’t interested in the larger new designs and their reliance on FaceID. And many of these customers are not going to be satisfied by buying a one- or two-year-old iPhone instead.

So let’s use another Jobs quote to understand what Apple should be doing. Which is listening to its customers and delivering the iPhone that they want.

“What I love about the consumer market … is that we come up with a product, we try to tell everybody about it, and every person votes for themselves,” Jobs said in 2010. “They go ‘yes’ [gives a thumbs up] or ‘no’ [gives a thumbs down]. And if enough of them say yes, we get to come to work tomorrow. That’s how it works. It’s really simple.”

He was right. It really is simple.

And yet since Jobs’s death in 2011, Apple has twice delivered iPhones that its customers didn’t want—the iPhone 5C in 2013 and the iPhone XR in 2018—and it has continued trying to make bigger and bigger phones despite very clear evidence that there is a healthy market for smaller handsets.

In 2014, Apple tried to obsolete the smaller 4-inch iPhone design when it introduced the iPhone 6 and 6 Plus, the latter of which was the firm’s first phablet-sized device. But consumers rejected the 4.7-inch design, especially with 2015’s iPhone 6S, then the nadir of the iPhone growth curve. So Apple answered those complaints with the iPhone SE, which brought back the smaller 4-inch iPhone design.

But we’re seeing an even bigger problem with the 2018 iPhone lineup.

Now, the SE is gone, and the smallest iPhone that Apple sells is the two-year-old iPhone 7, with its 4.7-inch display. But the smallest new iPhone that Apple sells, the iPhone XS, has a 5.8-inch display. And it relies on the slow and awkward FaceID facial recognition, which requires an extra step—a swipe up on the screen—meaning that it’s not really hands-free.

As bad, Apple’s “low-cost” offering this year, the iPhone XR—which is correctly seen as the iPhone 5C of the 2018 lineup—has an even bigger 6.1-inch display. Plus the same terrible FaceID issues. So fans of smaller phones that actually work—Touch ID is wonderful and fast—can now only choose between one- or two-year-old designs. (Because Apple still sells the iPhone 7 and 8.)

This problem isn’t imaginary. Apple knew early on that the iPhone XR, in particular, was not going to meet sales expectations so it revealed in early November that it would no longer provide unit sales for iPhones (and iPads and Macs). And then the reports started coming in. Nikkei reported that iPhone XR sales were much lower than expected and that Apple had contacted component suppliers to tell them to halt plans for additional production lines dedicated to the handset. Lumentum, which makes the components used by FaceID, reduced its profit and revenue forecasts thanks to lowered orders from Apple. And then Apple finally lowered its sales estimates for all three new iPhones by 30 percent. Apple even cut the price of the iPhone XR by $100 in Japan, as had been previously reported by The Wall Street Journal.

So it looks like enough customers have said “no” [thumbs down] to the new iPhones, in particular, the iPhone XR. And this isn’t about the pricing, given that the cheapest new iPhone, the XR, is apparently the big problem from a unit sales perspective. What customers are rejecting is the design, not the pricing.

What this all tells me is that it’s time for Apple to think differently. (Ahem.) And the solution is, as Jobs once observed, “simple.”

Apple needs is a modern iPhone SE. This should be a 4.7-inch device, because it is 2018, or will be 2019 before the company can adequately respond. It should have the same form factor as the iPhone 6/6S/7/8 and the same internals as the iPhone XR, including the cameras. And it should use TouchID, not FaceID. Apple should price this new phone—let’s call it iPhone Classic—at $650 or $700.

Let me explain the pricing.

Today, Apple sells three new iPhones, the iPhone XR ($750 and up), the iPhone XS ($1000+) and the iPhone XS Max ($1050+). Below that, we see the 2017-era iPhone 8 and 8 Plus, which are priced at $600 and $700 respectively. Since the iPhone Classic would be physically identical to the iPhone 8, it should be priced more expensively thanks to its updated innards. But it should also cost less than the larger iPhone 8 Plus, or perhaps be the same price (this is Apple, after all). It should likewise cost less than the iPhone XR as well. After all, the display is smaller.

The iPhone SE isn’t the only precedent for this additional product. When Apple overhauled its MacBook Pro lineup in 2016, it added the reviled Touch Bar whose only saving grace is its integrated Touch ID fingerprint reader. Customers hate this thing so much that the new MacBook Air features only the Touch ID sensor, and I’m guessing that a future MacBook Pro revision will make Touch Bar optional or even remove it all together. Apple may be slow, but it really does listen to its customers, contrary to that Steve Jobs bunk.

The iPhone Classic could play the same role in Apple’s handset lineup: Please the many fans of a now-classic design but give them just enough of Apple’s modern technologies to make the device seem fresh and new. MacBook Pro, MacBook Air, and MacBook all exist side-by-side. There’s no reason why Apple can’t have two different new iPhone designs.

That said, iPhone Classic is a stop-gap measure and it might only make sense for Apple to keep it in the market for a year or two, as it did with the iPhone SE. But this will give Apple the breathing room it needs to improve Face ID and otherwise evolve its iPhone X-style designs into something that its entire user base can embrace.

You know, let them vote “yes” or “no.” See what sticks. It’s what Steve Jobs would have done.