How to Prove your Don't Understand Economics

Posted by Matt Birchler
β€” 2 min read

I watched this review today from a reviewer I am not familiar with. He seems like a good guy, and while I didn't agree with everything in the video, he made his point intelligently. he lost me right at the end when he mentioned his biggest issue with the iPhone 6S (skip to 4:19 in the video).

The biggest negative of them all is the price. The baseline 16GB model 6S is still $650 off contract. That is just unacceptable in a market where you can get a powerful phone like the Nexus 6P for under $500. It just doesn't work.

That last line "it just doesn't work" stood out to me. I hate to break it to this guy, but it absolutely does work. Let's take a look at how each of these companies are doing:

Huawei, who makes many lower cost (but still solid) phones, including the Nexus 6P he references made $60.1 billion in revenue over all of fiscal year 2015. I couldn't get a breakdown of just phone sales, but a good portion of their revenue is likely phones.

Lenovo, who makes the Moto X and G phones that are also brought up as affordable alternatives to high end phones, made $22.9 billion in the first half of their fiscal 2015/16. Extrapolating that out (and assuming they have a spike over the holiday quarter they're in now) let's just say they'll make around $50-55 billion. Again, this is the entire company's revenue, not just their phones.

Apple, who has a phone pricing model that "just doesn't work" made $139 billion off the iPhone alone in their fiscal year 2015.

I don't want to be a jackass and suggest that Apple's products are better because they sell better, that's going to be based on your personal preference, but I do think that Apple seems to have a good idea of how to price their products. People who buy iPhones are fully aware that they could go with a less expensive option, but they refer the iPhone and are willing to pay what Apple sells them for. If their pricing model was broken or they were being beaten by the low end, they would change their strategy, but they'e simply not being beaten.

As someone who lived through the 1990s and 2000s and am more than a little familiar with the "Macs cost too much!" complaint, it's fun to see it cycle back around to the smartphone battle as well. Most Android phones will continue to compete on cost and get lower and lower until it's a terrible business to be in. Meanwhile Apple will continue to make phones that people want and are willing to pay for, bringing in basically the profits as they go.

You may not like that Apple's phones cost more, but saying that it doesn't work is laughably off base. It works great.