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Apple Event

Apple Invites Millions More Into Its Ecosystems By Dropping Device Prices

The company Monday announced lowered price points in the phone, tablet, and smartwatch categories.

Apple Invites Millions More Into Its Ecosystems By Dropping Device Prices
[Photo: Flickr user Robert Scoble]

At Apple's "let us loop you in" press event in Cupertino Monday, the company sent the message that it's willing to lower device prices to get people using its various ecosystems.

At the (rather low-key, business-as-usual) event, Apple announced a new 4-inch phone and a new tablet, as well as a new health app development framework called CareKit.

With the new iPhone SE, Apple hit within the $300 to $400 price range that Android phone makers like OnePlus, Xiaomi, and Nextbit, have been targeting with near-premium-grade phones for the past two years. The base model iPhone SE, at $399, gives Apple a chance to compete for some of those phone buyers. Especially in emerging markets like India, that price point may put the cache of the Apple brand within the grasp of many smartphone users for the first time.

"Nobody expected Apple to compete with entry-level Android devices, but the iPhone SE represents a more attractive lower-cost option than Apple has previously offered that keeps the ecosystem close to its leading edge . . ." said App Annie analyst Ross Rubin after the event.

And many Apple observers were surprised by the low $599 entry price of the new 9.7-inch iPad Pro. Rubin points out that the smaller iPad Pro "offers a more affordable approach than the larger iPad Pro and pushes down the price of the same-sized iPad Air 2."

Apple also brought the Apple Watch within reach for more people. The company announced that it's dropping the price of the baseline Watch (aluminum body, plastic watchband) to $299 from $349.

It may be that in the face of slowing iPhone sales growth, chronically declining iPad sales, and not-yet-impressive Watch sales, Apple is simply lowering prices to push up sales numbers.

Apple earns two-thirds of its income from iPhone sales, but after several years of massive sales growth starting in 2013 with the iPhone 6, the company reported year-over-year growth of less than a percent in the last quarter of 2015. Apple's share of U.S. smartphone users grew from 42.3% in 2014 to 43.3% in 2015.

iPad sales have been slowing for two years. Apple's share of the U.S. tablet market is expected to drop to 48% this year after falling below 50% for the first time in 2015.

Analyst estimates show that Apple probably sold around 10 million Watches during its debut year of 2015; not bad, but lots of room for growth.

In the longer view, Apple may look at its devices not just as one-time sales, but as ongoing entry points into its various ecosystems like Apple Pay, Apple Music, CarPlay, and HomeKit. There’s lots of room for growth in these platforms, and money to be made from incremental sales.

Apple Music, for example, reportedly has grown to about 10 million paying subscribers after its launch last year, but that’s still less than half the subscriber base of Spotify. The more iPhones Apple gets into the marketplace, the more likely people will choose Apple Music over Spotify on their phones.

Apple has rapidly increased the number of banks and retailers that accept Apple Pay payments, but people close to the mobile payments industry don’t believe the sheer number of Apple Pay-using iPhone owners is growing rapidly. One late 2015 survey found that only about 1 in 5 people in the U.S. who have a phone that works with Apple Pay (at the time, the iPhone 6 and 6S) had actually tried using the service.

Still, mobile payments will eventually take off, and Apple needs to be positioned for the change. Emarketer says there were 23.2 million mobile payments users in the U.S. in 2015, and expects that number to grow to 37.5 million this year, and reach 69.8 billion by 2019.

With the iconic company's 40th birthday coming up on April 1st, Tim Cook reminded us Monday that more than a billion Apple devices are now in use around the world. It may be the time in Apple’s history to start letting more people under the big tent, and lowering prices may be the best way to do it.

Related: Apple Event Recap: From The iPhone SE To The New CareKit

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