Apple hits the proverbial ceiling with iPhone pricing

For a very long time, I have always exclaimed the benefit of buying a smartphone outright in lieu of signing a contract. The reason has always been freedom of movement and bargaining power with the carriers, who have no qualms about gouging consumers. Apple’s keynote was a four-product rollout lasting over two hours, but it’s the pricing of the new iPhone 6s and 6s Plus that has me thinking they’ve built a bridge too far.

My perspective, of course, comes from that of a Canadian, whose currency has been hit hard in the last 18 months against the U.S. dollar, thanks largely to falling oil prices. The result of a depreciating loonie and Apple’s huge profit margins is an exorbitant pricing structure (all figures Canadian) for the current lineup that looks like this:

iPhone 6s:    16GB   $900       iPhone 6s Plus:  16GB   $1,030

                     64GB   $1,030                                64GB   $1,160

                     128GB $1,160                              128GB   $1,290

Oh, and in case you were wondering, the iPhone 6 is still available, selling for $770 for the 16GB and $900 for the 64GB. The 6 Plus 16GB is $900 and the 64GB is $1,030. No more 128GB models for those two. It’s basically a $130 difference (before tax) between these and the equivalent 6s and 6s Plus models.

Now, to be fair, Apple did also announce a subscription-based iPhone upgrade program that allows consumers to use the latest model as it comes out every year. This will roll out first in the U.S. starting at USD$32/month, with other countries, including Canada, coming later. The phones will be provided unlocked and include AppleCare+, the company’s full warranty coverage.

That’s not a bad consolation for consumers who find these prices out of reach. Even the carriers will have no choice but to raise prices on their two-year contract subsidies. As they haven’t been announced yet, my estimate is around $400-$500 for the iPhone 6s and 6s Plus, respectively. And that’s at the low end for a 16GB model. Expect them to be higher for the others.

At these prices, installment plans and other payment structures are now entirely necessary. The old contract model is broken (has been for a long time), and should open the way to a straight-up monthly payment system without nonsensical terms and expensive rate plans. Why shouldn’t a phone be paid off like a car, or even a piece of furniture? These iPhones are more than some couches these days. If electronics retailers want to muscle in on the carriers, offering payment plans is one way to do it.

The fact a 16GB model still exists is absolutely baffling. No 16GB phone from any manufacturer should cost someone $1,000. It’s obscene, and the cynical element to it may be a deliberate attempt to fuel iCloud subscriptions. Surely, it’s no coincidence that Apple lowered pricing for that, too. Upgrading to 50GB now only costs $0.99/month. That’s a great deal, by any cloud storage standard, but it smacks of purely opportunistic greed.

It’s nigh time that 32GB (heck, why not 64GB?) becomes the storage floor for flagship smartphones. Even Samsung finally got the message this year with its lineup, though its Android competitors were already doing that long before. The cost of including a 32GB drive would have been negligible for Apple, who would bulk purchase them in such high numbers that the overall cost would probably be more than palatable.

Millions of iPhones will still be sold. I look forward to reviewing and using them personally as well. But as a tech journalist, I’m not an average consumer because of my access to electronics through my job. If I wasn’t, I would still never sign a contract with a carrier, only opting to buy the phone outright, so long as a payment plan was offered to pave an easier path to get there.

That said, there are a number of really good phones that cost nowhere near as much. A $500 phone outright and unlocked looks mighty appealing, especially considering mid-range handsets have closed the gap on the flagships above them. I’ve long suspected that most consumers aren’t always looking for the best, but rather the most dependable and reliable phone they can afford. If it was the opposite, then the mid-range would be dead, and there would only be really cheap models and expensive hero devices with little or nothing in between. Instead, the mid-range is seeing a resurgence, driven mainly by Motorola.

At one point, Phil Schiller, Apple’s senior vice-president of worldwide marketing, noted that many users were moving from Android to the iPhone — all without corroborating evidence to back up such a claim. What would be interesting to find out is if mid-range phone sales have increased, including what their trajectory will be after this latest rollout.

The iPhone is the lifeblood of Apple. It makes up two-thirds of the company’s profits, and represents the single largest install base of consumers. The brain trust in Cupertino certainly doesn’t want to mess with that, except pricing oneself further and further out into a bracket that is no longer affordable to the masses risks alienating the very consumers who bolstered you into that position.