Apple's atypical innovation: making money from user loyalty

The industry knows that Apple has always used so-called innovation to obtain higher premiums than its competitors' products (such as smartphones and tablets) to obtain more revenue and profits. However, the release of Apple's new iPhone 6 this year, especially the retention of the 16GB version and the cancellation of the 32GB version, has begun to attract the industry's attention to Apple's profit-making methods other than innovation.

Recently, the latest report released by market research company Above Avalon shows that if Apple retains the 16GB entry-level iPhone 6, it will make Apple an extra $3 billion in 2015. The report suggests that the reason why Apple retains the 16GB version of the iPhone 6 is to get more iOS users to choose the 64GB version of the iPhone when they buy a new phone next time, and the iPhone with higher storage capacity will make Apple more money. It seems that the key to the problem lies in the difference in flash memory capacity.

In fact, as early as 2012 when the iPhone 4S was released, market research firm Bernstein Research found that the NAND flash memory of the iPhone 4S could make Apple a lot of money. The research firm said that Apple purchased NAND flash memory at a price of about $0.67 per GB at the time, and calculated that the purchase cost of 16GB flash memory was only $10.72. The 32GB version of the iPhone 4S only has 16GB more flash memory than the 16GB version, and Apple only paid an extra $10.72 for this. When users buy the 32GB version of the iPhone 45S, they need to pay $100 more than the 16GB version of the iPhone 4S.

Today, this cost gap is bound to narrow further, that is, the cost difference between Apple's flash memory capacities has further narrowed, even approaching zero. This is why the industry has concluded that for Apple, the cost of 64GB and 128GB flash memory is not higher than the cost of 32GB and 64GB flash memory a year ago, and the cost of 32GB flash memory in 2014 should be the same as the cost of 16GB flash memory last year. It is worth noting that this cost difference is not reflected in the actual iPhone purchased by users, that is, the current price of iPhone6 ​​is still sold at an increase of $100 according to the difference in 16GB, 64GB and 128GB flash memory.

At this point, if the industry simply believes that Apple only makes profits through the price difference between the different capacity flash memories used in the iPhone with no cost difference (or the cost difference is extremely small), it would be too violent and simplistic for users, because for Apple, from the user's perspective, what it needs is to do things in a natural and logical way.

Here we have to quote some recent research on Apple iPhone published by Harvard economics professor Sendhil Mullainathan. He used data from Google Trends to create charts for Apple iPhone and Samsung Galaxy respectively, and found that whenever Apple released a new phone, the frequency of users searching for "iPhone slow" reached a peak, and it would decrease at other times; while the situation of Samsung was completely different, although the frequency of users searching for "Galaxy slow" also showed an upward trend year by year, it had nothing to do with whether a new phone was released.

Although Mullainathan did not talk about the differences between iOS and Android in terms of new phone releases, OS fragmentation, and other issues that may affect the performance of older phones, he pointed out that Apple has the motivation (to increase smartphone sales) and the means (to control the OS) to reduce the performance of iOS on older models, which Google and Samsung do not have. Because the former lacks motivation and the latter lacks means. At the same time, Mullainathan said that when users complain about slow device speeds, fragmentation does not produce a symmetrical result. That is, only 18% of Android users are using the latest operating system, while this number has reached 90% among iPhone users, but the problem of slow new system running is the most encountered by iPhone users.

I wonder what the industry thinks of Mullainathan’s research? Although Mullainathan did not conclude that Apple is using its closed ecosystem to deliberately reduce the performance and experience of older iPhones to indirectly stimulate users to replace their iPhones, it is associated with the release pattern of Apple’s iPhone, that is, before the release of a new iPhone, the new iOS system is usually updated and launched first, and then the performance and experience of old iPhone users will decline.

This situation is particularly evident in the release of iOS8 this year, and the most typical manifestation is that it occupies too much mobile phone storage space, especially for iPhone users with low flash memory versions. After upgrading to iOS8, the remaining space is even tighter. More importantly, Apple iPhone users are more willing to buy and download applications than Android users. According to the latest report from US market research company Net Applications, although Android's share of smartphone market shipments is as high as 85%, iOS is only 11.9%, but the two platforms have basically the same share in terms of usage, and it also shows that the average phone usage of Android users is only 1/7 of that of iOS.

Here, can we think that Apple is intentionally or unintentionally taking advantage of Apple users' stickiness and enthusiasm for the Apple ecosystem (including timely operating system upgrades and application usage), and is also using the upgrade of the ecosystem to stimulate users to willingly buy new or larger iPhones? Here we might as well look at a set of statistics. Within 18 days of the launch of Apple's new iPhone 6, the total sales of iPhone 6 and 6 Plus exceeded 5% of the total iPhone usage, which is twice the sales of iPhone 5S and 5C in the same period. The official iOS penetration rate data released by Apple on September 21 showed that 46% of users had upgraded to iOS 8 at that time. Comparing these two sets of data before and after, although we cannot be sure how many original iPhone users directly replaced their old iPhones with new iPhone 6 or iPhone 6 Plus after upgrading to iOS 8 because they found that the performance and application experience declined. But it is too far-fetched to describe it as just a coincidence.

It should be added that in the relevant analysis on why iPhone users are more enthusiastic about buying apps, one of the important reasons is that the ASP (average price) of iPhone phones is basically above $650, while the ASP of Android phones is only $276. As Google has been promoting the development of low-end entry-level models in recent years, the average price will continue to decline in the future. Although the price reduction of mobile phones has stimulated consumers' enthusiasm for purchasing mobile phones, it is difficult for users in this price range to pay extra fees for apps. They prefer free versions with ads or very cheap paid apps. In fact, this phenomenon can be easily understood by a Chinese saying: If you can afford a horse, can you not afford ammonium? This is exactly the inertial perception that Apple hopes users will form. And the formation of this inertial perception has formed a positive cycle that users think is in line with consumption logic by allowing users to continue to buy new iPhones and apps for the future upgrade of its ecosystem and applications.

Speaking of system and application upgrades, Apple recently announced through its developer website that starting from February 2015, all iOS software must be compiled with the latest iOS 8 SDK and support 64-bit technology. It seems that Apple is putting pressure on users to replace their iPhones with new ones in terms of both system and application. After all, after upgrading to 64-bit applications, except for iPhone 5S and the recently released iPhone 6 and iPhone 6 Plus, previous iPhone users may be confused about the decline in performance and experience. The only thorough solution is to buy a new iPhone.

At this point, do we think that, in addition to the so-called innovation, Apple's atypical innovative profit logic (accepted by users) has been formed and profitable, which is to take advantage of user stickiness and loyalty to its brand, and to make users willingly buy new iPhones through tacit cooperation such as closed ecosystem upgrades and no (or very little) cost difference in hardware (such as flash memory)?

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.