Earlier today Apple made a significant change to the iPod touch lineup. Aside from a few small hardware improvements to the lowest-end model, the company has—for the first time—started to close the price gap between storage tiers.
When the iPod touch first launched, there was a $70 gap between the 8 GB and 16 GB models. Jumping from 16 GB to 32 GB would cost an extra $100. However, with the launch of the second-generation iPod touch, the gap between the lowest two tiers increased to $100, and it’s stayed there ever since.
Until today, that is. Now, for the first time since the debut of the first iPhone in 2007, there is a mere $50 gap between all three capacities of an iOS device. Is this a sign that Apple is ready to give in and drop the ridiculous $100 pricing tiers on future big ticket premium devices when the actual Flash storage and controllers only cost Apple a few bucks? Or will we continue to see a $100 price gap between iPhones when the next-gen model is revealed this fall?
The first and most obvious point that comes to mind in this debate is that Apple has now admitted that there is no real need for the $100 gap other than to pad profits. There’s no technical reason that doubling the storage capacity of an iPhone should cost $100, and Apple, one could argue, is now willing to concede the issue.
That’s a fair point, to an extent, but let’s be realistic. No one has ever truly believed that the additional capacity costs $100. If the extra storage cost that much, wouldn’t the jump from 32 GB to 64 GB cost twice as much as the jump from 16 to 32? In fact, the additional storage costs Apple somewhere in the range of $5-10.
Apple has never shied away from charging a premium price for its products—what some call the “Apple tax” and others call healthy margins. No one at Apple has ever attempted to justify the $100 price gap, nor should you expect anyone to ever do so. Aside from increasing profit margins, there is no justification, and we all know it. We always have, and Apple understands that.
So today’s “admission” is more or less irrelevant to the future of iPhone and iPad pricing. Let’s consider for a moment why Apple decided to cut the price gap in the iPod line.
The current iPod touch is not a fantastic device by today’s standards. With its now-outdated A5 processor (as found in the iPad 2 and iPhone 4s) and limited RAM, users can expect to see a few hiccups when running the latest software.
As if the limited hardware capability wasn’t enough, the whole iPod lineup is being overtaken by the smartphone industry. The iPod touch just isn’t as popular as it once was. Pair that with lagging hardware specs and you can probably understand why cutting the price was necessary to keep moving units.
It’s the same reason we’re now seeing a camera added to the 16 GB model. An iPod with only a front-facing camera isn’t going to sell nearly as well as the same device with a rear-facing camera, and Apple needs to keep these things moving.
So if the iPod price change is less about no longer being able to justify the price gap and more about trying to keep a dying product category breathing a little longer, what does this mean for the iPhone 6 pricing scheme?
Unfortunately, it may not mean much at all.
It’s possible that Apple will keep the $100 gap on the iPhone line for several reasons. The hardware is brand new and people are going to be lining up to buy this thing no matter how much it costs. It would be much easier to justify a “premium” price for a next-generation smartphone than to justify such a price for a two-year old music player.
It’s not all bad news though. Apple might find that people will more willingly go along with the $199/$299/$399 pricing if the $199 gets users more than a measly 16 GB of storage. With the iPad having recently been bumped up to 128 GB, it’s not hard to imagine that the iPhone 6 could get the same treatment. A 32/64/128 setup could help stem consumer complaints about the $100 gap between tiers while protecting Apple’s profit margins.
There’s also a second party to consider where the iPhone is involved. Apple has to account to cellular carriers when pricing the iPhone. Those companies are going to want some say in the on-contract price, and it would be a bit of a surprise if they were willing to go along with $50 pricing tiers.
Of course, Apple will always want to keep a cheaper, low-end iPhone around for those who aren’t willing to hit the $199 price point. Usually this is a lower-capacity version of the previous model. In this case, it could be a 16 GB iPhone 5s for $99.
What about the iPhone 5c? Couldn’t that maintain its position as the low end of the iPhone lineup? As has previously been rumored, the iPhone 5c is expected to disappear with the next upgrade cycle. It’s no secret that the device has not been embraced nearly as enthusiastically as Apple had hoped. While it’s been marketed as a new device, it’s actually nothing more than a slightly modified iPhone 5 with a plastic back.
It’s not likely, then, that Apple will keep around a phone that’s technically two generations old over what is currently the latest model.
So let’s go over all of this one more time. Apple has finally admitted what we all knew from the beginning: the $100 gap between iOS device capacities is artificial and serves only to inflate profits. Eliminating that gap on the iPod touch line will help keep sales moving despite that outdated hardware’s obvious impending expiration date.
Given that the apparent reasons for the iPod price reduction don’t necessarily apply to the iPhone 6, it seems logical to conclude that upcoming smartphone will retain the $100 price gap we’ve all come to know and hate. However, to offset potential public dissatisfaction with the idea of still getting only 16 GB of storage for $199, Apple could give the whole iPhone 6 lineup a capacity bump to 32, 64, and 128 GB.
Finally, to appeal to the low end of the market, a 16 GB iPhone 5s could replace the 16 GB iPhone 5c at the same $99 price point.
Or maybe nothing will change and we’ll all go spend $399 on a 64 GB iPhone. Again.
FTC: We use income earning auto affiliate links. More.