By Stephen Mears, Futuresource Consulting
Apple’s latest product releases saw the vendor refresh its three personal electronics products, with the iPhone, Apple Watch and iPad all receiving upgrades. Meanwhile, Apple continued its march towards expanding its services offering with the official release of Apple Arcade and Apple TV+.
As expected, the centrepiece of Apple’s new announcements was its iPhone 11 range, coming in 3 iterations; the iPhone 11, 11 Pro and 11 Pro Max. In line with broader trends within the smartphone industry, the new iPhone is positioned almost entirely around its camera capabilities, with ultra-wide angle and telephoto (in the Pro version) lenses supporting the main camera module; all 3 modules will be powered simultaneously by Apple’s new A13 bionic chip.
The ‘Pro’ version targets users of professional cameras (hence the name) including Mirrorless and DSL-R cameras and lenses costing upwards of $1,500 from the likes of Canon, Nikon, Sony and Fuji; a segment of the camera market which has remained largely resilient to the growth of smartphones, while the wider camera and camcorder market has seen volumes fall from a peak of 165 million in 2010 to 33 million last year as a direct result of smartphones growth. Connectivity, software and apps leveraging machine learning algorithms and computer vision should more than compensate for inferior hardware-based optics, when compared with ‘real’ high-end cameras.
One notable announcement related to the iPhone was less about its specifications, however, and all about its pricing. The iPhone 11 will start at $699, $50 below the iPhone XR’s release price last year, while the Pro and Pro Max retain a stable price point, starting with $999, in line with the premium XS models shipped last year. This pricing spread is likely due to two key factors: the contraction of the smartphone market as a whole in 2018, and the decline of iPhone sales at a global level. By bringing its pricing strategy more in line with its flagship rivals – though still at the premium end of the market – Apple will hope to improve the fortunes of its smartphone business.
Apple arguably experimented with its pricing model earlier this year with its decision to cut prices for the XR in China. This price cut saw it ship more units into a market where Apple took only 8% market share in 2018, far below its average in other markets. With significant room for growth in China, Apple’s new pricing model for iPhone 11 suggests that the company recognise the level of price sensitivity of the Chinese smartphone market, and points towards a willingness to sacrifice margin to drive overall shipments and ultimately overall revenues – in turn this points to the value for the China market opportunity for Apple. The lesson learnt in China is a lesson that has now been applied on a global level. Increasing the installed base of Apple devices is essential to Apple’s long-term strategy of upselling its services, such as Apple Arcade, TV+ and Apple News. This pricing model is designed to facilitate this expansion.
Away from smartphones, Apple also announced an upgrade to its smartwatch portfolio, with the Apple Watch Series 5 coming to market. Apple’s smartwatches are currently one of the major drivers of the category; in 2018, Apple took 58% market share and are on track to take a similar proportion of the market in 2019. The pricing of the product is again of interest, with the Series 5 starting at $399, replicating the Series 4 on release last year. In terms of the product, Apple are expanding the health functionality of its devices; the popular ECG functionality introduced in the Series 4 remains, and it is joined by a hearing health focus with the ‘Noise’ App – which alerts the user if the noise in their environment poses a threat to their hearing health – as well as women’s health tracking. Equally important in hardware terms is the always-on retina display and 18-hour battery life; the battery life matches the Series 4, but the ‘Always-On’ display marks a significant improvement over the previous watch and indicates a much-improved battery. Apple is also seeking to expand its addressable market for the watch, with a movement towards standalone functionality aided by the presence of the App Store directly on the device, meaning that the target market for the watch is now no longer exclusively restricted to iPhone users.
While AirPods did not get mentioned at all throughout the keynote, one promotional video demonstrated the Apple Watch working with Siri and the AirPods to create a fully standalone wearable (including Hearables) experience, absent of phones.
The iPad portfolio also got a new product launch, with the standard model getting a refresh. In order to remain distinct from a smartphone market with ever-larger screens, tablet sizes are growing, and the new iPad is in line with this trend with a 10.2-inch display as standard. Tablets are another category dominated by Apple, with 26% of the market in 2018 captured by the iPad. Apple’s updates to the device are driven by announcements made at its’ Worldwide Developer’s Conference, with the bespoke iPadOS supporting new features and functionality of the iPad. The device supports external USB’s, a Smart Keyboard, the Apple Pen and allows the user to use multiple apps at once, increasing the versatility of the device for productivity use-cases. Meanwhile, the media consumption experience is also improved. From a gaming perspective, with the release of Apple Arcade, users can pair a PlayStation, Xbox, or MFi game controller with the iPad. Equally, the 10.2 inch display and stereo speakers facilitates an improved audio-visual experience, and with new iPad purchases coming with a year of Apple TV+ for free, there is a clear media angle to the product. Finally, in line with Apple’s improved photography experience on its iPhones, the new iPad allows for a high degree of photo editing.
Overall, Apple’s new products are, in many ways, evolutions of their respective predecessors, and Apple is aiming to strengthen their ecosystem offering across Personal and Home electronics, and Entertainment as a whole, rather than rely on one or two key products. Individually, each product will face different trends, challenges and opportunities, in the context of their specific markets. As an example, AirPods complement a wider strategy encapsulating Watch, iPhone, Siri and entertainment, but as a standalone category have generated sales of $9.1 billion in revenues to date and have taken one in four dollars of headphones revenues so far this year. The product is clearly successful on its own but taken as part of an ecosystem enables an improved user experience across Apple’s other devices.
The iPhone is being released into an industry that declined for the first time in 2018, and 2019 has been equally challenging due to overarching macro trends and headwinds. Regionally, it is likely that the performance of the product will vary, with strength in Western markets potentially offset by difficulties in China. Equally, the decision to forego a 5G model this year will have raised eyebrows and opened Apple up to suggestions that they are no longer at the forefront of hardware development. The caveat to this is that 5G coverage is still limited to only a few major cities and so consumers are unlikely to enjoy significant benefits from the purchase of a 5G device until the network is more expansive. However, with iPhones typically enjoying a long lifecycle, Apple has done little to futureproof its new product range against ongoing 5G network expansion, a problem which could become more apparent a couple of years down the line.
The Apple Watch faces a more optimistic and favourable set of market conditions; smartwatches are a growing category dominated by Apple, and the expansion of use-cases and functions of the device means that there is a broad and compelling reason for consumers to purchase the device. In the June quarter of this year, Apple announced that 75% of its Watch sales were to new consumers, suggesting that the varied and well-rounded functionalities of the device is appealing to a range of consumers.
Finally, the iPad is the market-leading tablet, and Apple still gains significant value in this market. While the market is declining, Apple has done well to retain relatively flat shipment levels, and they will hope that their new service offerings entice consumers to purchase the iPad.
Ultimately, the event offers an insight into how Apple as a company plan on developing over the coming years. Beyond hardware, the pricing of Apple Arcade and TV+ have been well received and are broadly expected to perform well – the bundling of TV+ into new hardware sales will also facilitate this. While the hardware developments are therefore not necessarily as revolutionary as we’ve previously seen, the broader ecosystem of devices and services offered by Apple is improving and expanding into new, varied, and exciting verticals. Individually, these announcements are notable but not game changing. Taken together, these announcements highlight that Apple’s strength is the depth, breadth and versatility of its product offerings