Apple’s new strategy: Trickle-down innovation

September 11, 2013
applepitch
Phil Schiller unveils the less-expensive iPhone 5C. Previously, Apple only offered older models with older technology at the $99 entry price. The plastic body allows Apple to produce a phone more cheaply, allowing for the lower cost. (Justin Sullivan / Getty Images)

When it comes to smartphone innovation, Apple just changed its strategy in a fundamental way. Instead of releasing one new premium product each year, Apple has now adopted the approach favored by the world’s most successful consumer brands: creating a high-end premium line for the most affluent customers and a scaled-down product line at a lower price point for everyone else. In the case of Apple, it means offering the high-end Apple iPhone 5S in gold, silver and platinum (oops, space gray) to its most affluent customers, and a cheaper iPhone 5C in fun plastic colors for everyone else. In other words, people with the gold cards get the gold phones, and the creative types get the colorful phones.

Apple’s new approach has consequences for innovation in the smartphone market. The innovative new technologies that are included as part of the iPhone 5S – like the fingerprint sensor Touch ID, the upgraded camera functionality and the new motion sensor chip for fitness apps – were unveiled for the 5S, but not the 5C. That means one thing: consumer innovation will be a top-down, rather than bottoms-up, process.

Just as some economists believe that the economic benefits from cutting taxes for the wealthiest citizens of a nation will eventually “trickle down” to the broader population, Apple now believes that technological innovation will eventually “trickle down” to the broader population of smartphone users. The elite athletes and the elite photographers may gravitate to the new iPhone 5S to check out the motion sensor and the new camera features. And those innovations, once they’ve been picked up by a company like Nike (a partner mentioned by Apple in its presentation), may find their way into the broader consumer marketplace.

Not that there’s anything wrong with that.

That’s the way it works with the world’s top consumer brands. Consider, for example, the world’s top automakers – they introduce innovations like parking assist and satellite navigation into the high-end models first, before rolling them out to every car and every model. A company like Toyota segments its product lines so that there’s a Lexus for the most affluent customers, but also a high-quality Toyota for everyone else.

Contrast this approach, though, to the way that Apple has traditionally thought about innovation in the smartphone market. The strategy was always to introduce one premium phone at a time, and to ensure that the newest smartphone was always the best possible phone in the world. According to Apple, the iPhone 5S is “the most forward-thinking smartphone in the world,” but where does that leave the 5C? As the world’s second-most forward-thinking phone?

Part of what always made Apple so special and magical — at least, to the Apple fanboys and fangirls — was that the one premium product-per year strategy meant that a minimum-wage worker could have access to the same technology as a Wall Street hedge fund manager. There was never a sense that Apple users were viewed as “gold” and “silver” and “platinum” users – it was a sense that all Apple users were somehow superior to all the Android users out there. In an Apple retail store, there was never a VIP room or a special roped-off area for the top Apple users. Everyone was a genius. Innovation did not so much trickle down, as it seemed to swell up and emanate from everyday people in the crowd.

Now, Apple is back in the position of selling phones the way automakers sell cars, the way financial services companies market credit cards, and the way fashion brands launch new product lines for their customers. Maybe, as many people have already suggested, that’s just a reality of a mature smartphone market in which it’s harder than ever before to find new buyers.

The good news is that Apple seems to have deflected earlier criticism that it had somehow settled for “incremental innovation.” And, by pricing the iPhone 5C at a high enough price point, there’s no sense that the iPhone 5C will become a cheap, throwaway phone for the world’s lowest-income users. The bad news, though, is that Apple must now hope that all the high-end affluent users out there will use their smartphones in creative ways, and that this creativity and innovation will be passed down to other Apple users in the form of new functionality and new features. Just as we’ve seen people argue the various merits of trickle-down economics, we may soon be arguing the benefits of trickle-down innovation.

Dominic Basulto is a futurist and blogger based in New York City.
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