The Real Reason Apple Made the iPhone SE So Cheap
Apple is all about services now
Over the past few years, Apple has methodically pivoted its business strategy away from getting you to replace your iPhone as frequently as possible. Instead, it’s maximizing the money it makes in a different way: selling you subscription services and accessories that work with the iPhone.
The recently updated iPhone SE is a prime example of that new strategy in action.
Released earlier this month, the iPhone SE starts at $399 for the 64 GB model. Compared to the iPhone XR and XS, which start at $749 and $999, respectively, that’s extremely affordable. But the services you’ll want to access through the phone are not.
Apple has slowly devised new ways to lock people into its ecosystem. In the past year alone, the company launched Apple Arcade, a game subscription service, for $4.99 per month; Apple TV+, its premium TV streaming service, also $4.99 per month; and News+, at $9.99 per month.
That’s on top of the services the company already offered, like iCloud storage, which ranges from $0.99 to $9.99 per month for an additional 1 TB of cloud storage; Apple Music, at $9.99 per month; and AppleCare insurance, which comes in at $7.99 per month for the iPhone SE.
Those smaller costs amount to one fairly substantial monthly bill — subscribe to all of them and you’ll pay at least $39. Apple has also encouraged people to use its iPhone Upgrade Program, which promises the latest and greatest iPhone every year in exchange for a monthly fee, starting at an oddly specific $35.33 per month. The SE isn’t offered in the upgrade program, but it is part of the same plan of building in extra spending opportunities around the iPhone rather than in it.
Selling a cheap phone like the iPhone SE gives more people the opportunity to spend their money every month on these services. It is the engine that prints more money: Apple gets you in the door to its ecosystem and has guaranteed, unfettered access to your attention (and wallet) until you buy your next device. In that time, it’s likely that you’ll subscribe to at least one of these services, if not more.
And if Apple doesn’t hook you on subscriptions, the company will likely upsell you on an accessory. Like Apple’s other new iPhones, the new iPhone SE has no headphone jack, which means buyers will at least consider buying a pair of AirPods ($159) or AirPods Pro ($250) to listen to music and take calls. Or perhaps they’ll buy an Apple Watch instead, which only works with iOS and starts at $499 for the latest model.
Apple’s new focus on subscription services is good for customers in some ways. Phones are more affordable, and there’s less pressure to constantly upgrade.
But Apple’s change in strategy has also put some seams in the formerly almost seamless iOS experience. Sometimes the upsell tactics are subtle, like putting Apple TV and Music icons front and center on new iPhone home screens. But other upsell tactics are more aggressive. In the settings of a new device, for instance, you’ll find a countdown warning you of how many days are left to buy AppleCare. Apple Music sends push notifications offering free trials. After a few days, you’ll notice that the free iCloud storage — a measly 5 GB — has already run out. When you use Apple Wallet, a giant advertisement for Apple Card hovers at the bottom of your screen.
But Apple’s focus on services is in part a reaction to people waiting longer to upgrade their phones. And so far, it seems to be working: Last year, the iPhone made up less than half of the company’s revenue for the first time in years, and that was before Apple’s TV, games, and news subscription services were even available. With an estimated 1.5 billion iPhone users today, Apple has the power to reach more eyeballs with a single software update or push notification than any other company.
The iPhone SE, at such a low price, is the perfect lure: Compared to the iPhone XS, it’s cheap enough to tempt anyone who’s looking to replace their phone and locks in years of potential cash for Apple, even if you buy just a single service or accessory after purchasing the phone. But the bet is simple: You’re all but certain to spend more money, and Apple wins regardless of what that is.
