The iPhone is getting cheaper because Apple's getting more services revenue

$700 is a lot of money. but for an iPhone, it's pretty darn cheap.

You can buy an iPhone 11 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.

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