San Francisco/New Delhi: Apple’s biggest surprise at its keynote address on Tuesday was not a new feature, device or service, but an aggressive pricing strategy that’s a departure for the premium electronics maker.
The iPhone 11 starts at $699, down from the iPhone XR’s price of $749 last year. The XR stays in the line-up for $599, a $150 decrease for a phone that’s only a year old. That’s one of the biggest year-on-year reductions in iPhone history.
“The biggest news from the Apple launch was the price cut for iPhone 11,” Chris Caso, an analyst at Raymond James and Associates, wrote in a note to investors. “We view this as an admission that Apple stretched too far with the price points at last year’s launch.”
The iPhone 8 from 2017 now costs $449, also down $150, while the Apple Watch Series 3 from the same year saw its price drop to $199 from $279. That should help Apple better compete with Fitbit.
Lowering prices may encourage more people to upgrade iPhones sooner, while drawing new users for a growing digital subscriptions business.
“Many of the users, who purchase lower-priced devices, will eventually become customers of Apple services,” said Jitesh Ubrani, a research manager at IDC. “They’ve shown they can do this in the past with hardware: If you bought an iPhone you were likely to buy an iPad or AirPods.”
It will likely be harder for Apple to make this type of connection between its devices and new services. That’s partly because there are so many digital service providers and their offerings already work well on iPhones and other Apple devices, Ubrani said.
Apple is tackling this challenge with aggressive pricing, too. It has announced a new video streaming service, Apple TV+, priced at ₹99 per month in India, making it ₹100 cheaper than the cheapest plan offered by Netflix.
At this price Apple even undercuts local rival Hotstar, which leads the streaming market in India. Competitors in India not only include global players such as Netflix, but also local service providers such as ALTBalaji and Voot.
“Apple revenues are approximately ₹13,000 crore in India; even if 1% of the base of active users signs up at ₹99 per month, it comes to around ₹130 crore a year, hence 1% of the total revenues,” said Faisal Kawoosa, founder of techARC. “This would be over $1.8 million in just the first year, which is not bad. And these are very conservative numbers in terms of adoption of services. $2 million may not be a big number in the game, but not bad at all to begin with.”
Apple will launch AppleTV+ with eight original shows, and the company is expected to add more content over time. While Apple TV+ has a seven-day trial period for existing Apple customers in India, those who buy a new iPhone, iPad, Apple TV, Mac or iPod after 10 September will get a year’s free subscription.
The company added a third subscription-based service, alongside Apple Music and AppleTV+—the gaming service Apple Arcade, which is available on iPhones, iPads, Mac, iPod Touch and AppleTV.
This, too, is priced at ₹99 per month and allows access to more than 100 exclusive games. With a growing mobile gaming market in India, this might be important for Apple. According to Nasscom, the Indian mobile gaming market is expected to reach 628 million users by 2020 and with a worth of $1.1 billion.
With the two new subscription-based services, the Cupertino, US-based company is sharpening its focus on the service side of its business, which brought in over $11 billion in the quarter ended June. This was a record for Apple, according to chief executive Tim Cook. Apple’s services business also includes Apple Music, iCloud and Apple News+.