In 2007, Apple founder Steve Jobs famously introduced the iPhone at the Macworld 2007 convention as a revolutionary device that “would change everything.” Its initial selling price was a hefty $499, but 270 thousand units sold its first weekend and 6 million units in its first year of production.
Apple’s iPhone ushered in the era of the smartphone, the world of mobile-first and constant connection, leading the way for mobile technology to dominate and reform day-to-day existence. Apple’s iPhone has consistently been more expensive than competing devices. However, Apple continually packs new features and technology into its iPhone in order to keep its products from seeming like a commodity.
Despite high prices, Apple maintains a high degree of control over production costs in its supply chain. This combination of controlled costs, high-end positioning, and continuous technology innovation have resulted in gross margins of 60 to 70% in the last 10 years.
Delight and Surprise the High End of the Market
Apple positions the iPhone at the high end of the spectrum, knowing that the price will put it out of reach for the majority of the market. The phone combines an aspiration feel with design, technology, and simplicity, and capitalizes on its love-mark brand.
Apple does not manufacture the iPhone, but keeps its production costs low by controlling its supply chain. Due to the popularity of the device, Apple forces its suppliers to keep costs low as well as maintain privacy and secrecy over their devices.
Maximize Margins and Profits from High End Market Share
The iPhone’s profit margins have remained between 60 to 70% over the past 10 years. At its peak, Apple captured 94% of the smartphone industry’s profits, despite only accounting for 14.5% of sales.
Continuously Reinvent and Surprise the High End of the Market
Since 2007, Apple has released 12 generations of iPhones. While Apple isn’t always the first to develop many of the iPhone’s technological innovations, it often delivers the best: multi-touch screen, dual cameras, Apple Pay, Siri, iMessage, FaceTime, facial recognition.
The App Store
The iPhone initially launched without the App Store, which was opened in 2008 with 500 applications. As of 2019, the store featured over 1.8 million apps. The available applications and number of developers provide Apple with an additional competitive advantage as described in the Resource Castle Platform.