And today we're going to discuss why iPhones have been getting so expensive, especially

in the last few years.

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So if you've been following iPhones for a while, you may've noticed a trend.

Because back in 2012, the brand new iPhone 5 started at $200.

While today, the current flagship iPhone starts at $1,000.

So what happened in the last few years that made iPhones costs $800 more than they did

just six years ago?

Well we're going to dig into the numbers now and find out.

So for the sake of this video, we're going to be comparing the base model flagship iPhone

5 released back in 2012, and the 64GB iPhone X from 2017.

I chose last year's model just because it's close enough to this year's iPhone XS, but

there's more data on sales, materials, components, and a year's worth of insight on how the

phone is manufactured.

Now the iPhone 5 had an advertised price tag of $199 while the iPhone X had an advertised

price of $999.

Now why do I say “advertised”?

Well back in 2012, you might remember the most popular way people paid for phones were

through two year contracts offered by their carrier.

You put down, in the case of the iPhone 5, $200 at the time of purchase, and somewhere

between $25 to $30 a month for two years.

Nowadays, two year contracts are pretty rare.

Most people are on annual upgrade programs, where you pay something like fifty dollars

a month for as long as you keep the phone.

But there has always been another way to buy an iPhone.

And that is paying for it upfront, in full.

And that means you aren't tied to a carrier through a contract, and all you have to pay

for is your phones service, eliminating monthly phone payments.

Now this method of buying iPhones has become more popular in recent years since Apple stopped

advertising the two-year contract price in 2015 and instead displayed the phone's full

price when buying outright.

So in order to compare the cost of both iPhones in a fair way, we have to use their unsubsidized

price.

Which was $649 for the iPhone 5 in 2012 and $999 for the X in 2017.

Now that's still a big $350 price difference, so where is that extra cost coming from?

The easiest and most cut-and-dry answer is that the components include in the iPhone

X cost more, which raises its manufacturing price.

But it goes even further than just the internal components.

Because almost every single material used on the exterior of the iPhone X was inherently

more expensive than the materials used in the iPhone 5.

For example, the back of the iPhone X is made from super strong glass instead of aluminum,

the sides are stainless steel instead of aluminum, the display is a much larger, more advanced,

and more expensive OLED panel instead of the fairly standard LED LCD used in the 5, and

there's twice as many rear camera sensors.

But these materials account for just a fraction of what makes the iPhone X more expensive.

You see, it used to cost Apple $207 to manufacture each 16GB iPhone 5 according to a September

2012 report by IHS iSuppli.

Comparatively, the iPhone X cost Apple $370 per unit.

Which is an almost 80% increase in cost.

And that isn't even considering the research and development costs behind the iPhone X's

pioneering technology like the TrueDepth sensor.

So let me break down the cost of the iPhone X's components, from most to least expensive,

and it all begins with the $110 Samsung OLED display fused to a 3D Touch glass panel.

And this is by far the priciest component of the iPhone X.

Almost double the next most expensive, which is the glass and stainless steel chassis.

Next is the rear camera system coming in it $35 per unit, then the storage and RAM which

costs about $33, the A11 Bionic System on a Chip which is $27, and finally one of the

most affordable components on the iPhone X, which might come as a surprise, is the TrueDepth

sensor array at $17.

Now the remaining $87 goes to other small components like packaging, accessories, various

sensors, and power conductors.

And when you factor in everything else that it takes to get an iPhone from the drawing

board to a finished product, Apple collects a gross profit margin of 64 percent.

So now you may be thinking, why is Apple including higher priced components in iPhones if it

makes them so much more expensive?

Well a major reason why is because sales figures have proven that customers are willing to

pay premium prices for premium technology.

And before you accuse Apple of just trying to get as much money out of their customers

as possible, consider the iPhone SE.

Perhaps the best budget smartphone ever made.

And certainly a much better value than previous budget iPhone models like the 5C.

Because the iPhone SE had the latest processor, antennas, and camera system with a display

and design that was tried and true for customers and inexpensive for Apple to manufacture.

So with the iPhone SE, customers ended up with a modern smartphone with modern technology

at the time for just $349.

Probably the best dollar-for-dollar value of any smartphone ever.

But there was one problem, it just didn't sell well.

Compare that to the $999 iPhone X which sold extremely well.

Now what does this mean?

Well the obvious conclusion is that the vast majority customers are willing to pay premium

prices for a premium device.

And this market behavior still holds true today, since the more affordable iPhone XS

was outsold by the XS Max by up to four times according to Ming-Chi Kuo, suggesting that

consumers are far more interested in a device with a form factor that's dramatically improved

over its predecessor.

And another major reason why Apple is able to charge higher prices for iPhones is because

customers are able to hold on to their devices for longer.

I mean, the iPhone 6s is still a high performing device almost four years after its release

and it just received its third major iOS update, which actually made it even faster.

And considering iOS 12 supports iPhones from five years ago.

An iPhone X purchased in 2017 should last until 2022.

And I don't think that's something many people could say about their iPhone 4.

And Apple is actually trying to encourage users to keep their iPhones longer.

If you watch their iPhone XS event, you probably saw Lisa Jackson, the environmental director

of Apple, taking the stage and saying that if you're still satisfied with your iPhone,

you should keep it since it'll help reduce your environmental footprint.

This could also be why Apple invested so many resources into ensuring iOS 12 would actually

make older iPhones run faster, something that can't really be said about any other iOS

version.

But one of the most important points I want to make in this video is that Apple isn't

the only company creating premium-priced smartphones.

In 2017, the iPhone X received a huge amount of criticism for it's $999 price tag, but

at the same time the Samsung Galaxy Note 8 was being sold for $950.

So it actually wasn't even Apple who created the premium smartphone space, they simply

made their own model to compete.

And today, the Galaxy Note 9 costs more than any previous Samsung phone, starting at $1,000.

So if Apple had skimped out on any of the iPhone X's features in order to make its

price a little bit more affordable, they would have lost a competitive edge and lost customers

by not being competitive and creating the most powerful, feature-filled device technology

would allow.

And considering the iPhone X's sales success, it would appear that Apple definitely made

the right decision.

Now I should mention that the iPhone X wasn't the only model Apple offered.

It just happened to be the most expensive.

Along with the iPhone X, Apple sold the iPhone 8 for $699, 8 Plus for $799, iPhone 7 for

$549, iPhone 6s for $449, and iPhone SE for $349.

And the bestseller out of the entire 2017 iPhone lineup, was the $999 iPhone X.

Which proves the point that most customers are willing to pay more for a device that

adds extra value to their lives.

Now what can we expect iPhone pricing to look like in the future?

Well we can probably expect the price of components to decrease, since Apple recently invested

millions into LG, in order to accelerate development of their OLED production facility so Samsung

won't be the sole supplier of iPhone displays.

This'll give Samsung some competition and an incentive to lower their prices, which

will likely lower the production cost of future iPhones.

Also, if the iPhone XR is indicative of the future of cameras and 3D Touch for the iPhone

line, we might see the amount of rear cameras go back down from two to one, as well as the

addition of haptic touch in flagship iPhones to replace 3D Touch, which is a notoriously

expensive technology to manufacture, test, and repair if the fragile 3D touch component

breaks.

Now this next part may sound a bit crazy, but as Liquid Retina Display technology continues

to develop, it might become advanced enough to replace OLED displays in iPhones.

Since LCDs are theoretically less expensive technology to manufacture, plus it doesn't

cause eye strain like OLEDs do for some people due to its light flicker.

Also, if Apple achieves their goal of producing iPhones using 100% recycled materials, that'll

eliminate the need to purchase raw mineral materials.

This'll not only reduce Apple's carbon footprint, but further reduce the price of

Apple devices since the product lifecycle would become a closed loop.

So all together, if you're willing to pay a higher price tag for a much nicer device

every three or four years, Apple's ready to charge you for three to four years of value

and usage, which I think ultimately is a better deal for both Apple, and you, the customer.

So that is why iPhones are getting more expensive, and if you want to vote for the next video

topic, don't forget to subscribe.

Thanks for watching, and I'll see you next time.