The significance of the iPhone Xr in a maturing smartphone market

Typically, the ‘one more thing’ tag line served as a segue to unveiling a show-stopping Apple product, which usually highlights the latest design or technology, but this year it was different. The ‘one more thing’ turned out to be the more modest, and lower cost, iPhone Xr.

So why is that significant, aside from the apparent reversal of product introduction order? What Apple has done with the iPhone Xr design is to implicitly acknowledge that after a decade of launching new iPhone designs, their high-end smartphone models have reached a point where their performance and feature sets have exceeded the market demand for them.

While the iPhone Xs Max is equipped with the best 6.5” OLED display, and the largest memory available on the market (while pushing the limits of consumer price elasticity), the iPhone Xr takes a much more modest approach. The goal of the iPhone Xr is to hit all the right design notes that appeal to the mainstream consumer, such as large displays, fast processors, long battery life and, most importantly, relative affordability.

In his book, ‘The Innovators Dilemma’, Harvard Business School Professor, Clayton Christiansen, laid out his theory of disruptive innovation. Drawing from this business theory, we can see that the iPhone product line has progressed so far in the marketplace that it has over-shot the performance level demanded of it at the high end of the market. In the diagram below, Apple is the ‘sustaining technologist’ and the iPhone Xs and Xs Max represent the progress above the market demand line. 

While there is still strong demand for premium smartphone products, the marketers at Apple understand that most consumers will not follow Apple into the high-end pricing territory of the new iPhone Xs. The iPhone Xr design reflects this fact, exposing Apple’s attempt to disrupt itself, before others can disrupt it.

With its design compromises, the iPhone Xr speaks to the stark truth that the global smartphone market has matured and, in some parts of the world, has become quite saturated. For Apple to continue to be a mass producer and marketer of iPhones, it needed to take a different tack than in years past. The result was the six inch LCD iPhone Xr, designed with a decade’s worth of market feedback and insight to hit the ‘sweet spot’ of smartphone consumer market demand.

Implications

What is most interesting about iPhone Xr are the features that Apple has left out, as follows:

• Display size over quality: The design compromise made for cost reasons was the selection of an LCD-based six inch full-screen display, which is less costly than the premium OLED display on the iPhone Xs. However, Apple expended a great amount of effort to create an LCD display that can be pushed to the edges of the phone and provide the colour gamut that rivals the best LCD displays on the market. This design choice indicates that consumers can’t really tell the difference between various high-end display resolutions and colour reproduction qualities, and that a large six inch design pretty much trumps all other design considerations.
• Better camera via computational photography: The iPhone Xr is equipped with a single camera, instead of the dual set-up of the iPhone Xs. While two cameras are clearly better than one, Apple has leaned heavily on computation photography to make the best out of this single-camera system. At the core is the use of the A12 Bionic processor, which is the same as the one found in the iPhone Xs models, which demonstrates that any feature can be enhanced with enough computational power.
• Missing 3D touch, but we hardly knew you: Another design compromise Apple made was excluding 3D touch. This new touch interaction mode feature came into the Apple ecosystem with the iPhone 6S, but after analysing four years of consumer behaviour data, it’s clear this feature has been woefully underused. Apple’s answer to that insight was to remove the expensive 3D-touch overlay in the display (which added nearly $10 to the bill-of-materials cost) and to leverage the haptic motor to mimic 3D-touch interactions in software.
• LTE speed improvements negligible to consumers: While the iPhone Xr has the same internals as the more premium iPhone Xs series, the LTE radio in the iPhone Xr is still CAT-12, instead of the improved gigabit-per-second-capable CAT-16 in the iPhone Xs. Of course, designing a CAT-12 RF front end is more affordable than the CAT-16 versions (primarily extra receive chains and 4x4 MIMO); this difference in LTE technology has simply been lost on consumers.
• Pricing sweet spot: Apple has always relied on last year’s iPhone models to make up for the lower-cost models of the current year models, but that strategy changed this year. The iPhone Xr brings in the best of the iPhone X and iPhone Xs series designs, while giving up features that consumers are not concerned with. The result of this market positioning is a new reference price for smartphones: $750 is now the premium price point of ‘good enough’ smartphone designs. Although the market is now chasing more capable flagship designs with prices topping $1,000, the iPhone Xr will serve the consumer masses at this presumably stable price point.