The $199 iPhone

Apple is many things but a budget brand isn’t one of them. It might therefore seem that the idea of a $199 iPhone is ludicious at first glance. But when it comes to pricing, Apple is somewhat ‘misunderstood’. The company doesn’t design with a particular price point in mind in most cases. Instead, they focus on a particular feature set and making the best possible experience for customers that they know how to. And sometimes that results in products that cost a little less, like the iPhone 13. And some that cost more such as the iPhone 13 Pro Max. The two products target different audiences who demand a different set of features. And the products are priced accordingly.

If we look back at what Apple has done historically, they tend to drop the price of current models as new iPhone’s come out to replace their predecessors. The iPhone 12 for instance has stuck around alongside the iPhone 13. But every not and then, Apple does dial in on a particular price point. Enter the iPhone SE. The original SE was a combination of the outer casing of the iPhone 5/5S with the camera and internals of the iPhone 6S but at a much lower price point. And the second generation SE consisted of the outer casing of the iPhone 8 but with the camera of the iPhone XR and the processor of the then flagship iPhone 11 Pro. Both of these devices were offered for around half the price of the flagship iPhone of the time. Apple achieved this by combining parts across the supply chain and passing on the cost savings to consumers.

The iPhone SE sports a pleasing, if not recent design. Image: Omar Al-Ghosson via Unsplash

Operational Efficiency

Designing a brand new form factor is expensive. Research and development costs, tooling, materials, sourcing of parts, marketing and so forth all eat into the profit margin. With the SE line, Apple mitigates the lion’s share of those costs by recycling existing designs, parts and materials. And it seems that Apple may be about to make an even more radical move. The company is widely expected to release a third-generation iPhone SE in the coming weeks. But intriguingly, Apple may continue to sell the second-generation iPhone SE alongside it.

There are lots of good reasons for Apple to retain the second-generation SE. For starters the A13 bionic chip found inside it is still faster than many flagship Android phones. Even Google’s latest Pixel 6. And the camera is respectable. Best in class? No. But it offers a more than acceptable level of image quality. Not to mention that by now, the cost to manufacture this design and source the internal components must be relatively speaking, tiny. The design of the SE second generation debuted with 2014’s iPhone 6. More than enough time to aggressively drive down prices with suppliers. All of these factors make it very plausible that Apple might be about to sell a $199 iPhone.

The iPhone SE sporting a chip from 2019, handily beats the Pixel 6 Pro from 2021 in both single core and multi core perfomance.

Benchmarks don’t tell the full story when it comes to performance. But iOS scores are usually pretty consistent representations of real world performance.

Enter the $199 iPhone

The biggest reason why Apple could and likely should offer an iPhone for such a low price, is its services ecosystem. There are millions of people who would love to own an iPhone but either can’t or are unwilling to extend their budget to the high asking price of the latest model. And while their purchase won’t move the needle forward much for Apple’s bottom line at the point of sale, over time these buyers become a part of the Apple services ecosystem. Customers who join the Apple ecosystem spend more on apps and subscriptions than their Android counterparts. And even customers who might not actively pay for Apple services can still bring home the bacon. Apple Pay for example is a free service to use, but each time you pay for your shopping with Apple Pay, Apple takes a small cut of the payment processing fee from your card provider. Or Apple News which you can use for free with privacy preserving ads.

For years now Apple has marketed the iPod Touch as its cheap gateway into the iOS ecosystem. An iPhone without the phone. But the ageing £199 device is so long in the tooth that it shouldn’t be on sale at this point. With the 2nd generation SE, Apple has an opportunity to throw the phone in at no additional cost. And for yet to be Apple consumers, that would be a very attractive prospect.

But what do you think? Will Apple offer a $199 iPhone? Drop your thoughts in the comments.