Selling loyalty is more valuable for Apple than selling more iPhones

There’s a common misunderstanding that if a company doesn’t sell more of something, it means the product is a failure.

Case in point: iPhone sales fell year-over-year, and because of it, people trotted back out the same old tired narrative that Apple is doomed…again. But for real this time! They claim the iPhone X is a failure because $1,000 is simply too expensive for a phone!

But this narrative couldn’t be further from the truth. Apple doesn’t need to sell a higher number of iPhones at lower prices in order to continue smashing revenue records and stomp out all the competition.

Fixating on a tiny drop in iPhone sales misses the bigger picture: Apple wants to sell additional hardware and services — Apple Watch, AirPods, iCloud, HomePod, Apple Music, etc. — so that people are locked into the ecosystem that only works with the iPhone. Apple’s long-term strategy isn’t eternally selling more iPhones, but rather locking users into its growing ecosystem.

There are so many ways Apple could have sold more iPhones last quarter. For one, it could have offered fewer options. One of the best things about buying an iPhone used to be that it was so easy to choose the right model. There used to be one new iPhone released a year, and you either bought it or didn’t.

But last fall, Apple did something unusual: It released three new iPhones (8, 8 Plus, and X) and made choosing one more complicated than it should have been. 

The 8 and 8 Plus are excellent phones — they have the same A11 Bionic chip and 12-megapixel camera as the iPhone X — but Apple missed a big opportunity to unapologetically ditch the past and kickstart a “super cycle” that could’ve pushed more people to buy the iPhone X and all of its futuristic offerings (edge-to-edge display, Face ID, Animoji, etc.)

I’m sure there were good reasons why Apple released the 8 and 8 Plus — to hit a lower price, stave off potential OLED shortages for the iPhone X, and prevent a bigger drop in sales from users waiting until November for the iPhone X. But had Apple only offered the iPhone X, it’s highly likely that a good chunk of an estimated 350 million existing iPhone users who are “in the window of opportunity to upgrade,” according to GBH Insights, would have felt more compelled to because it’s so clearly the only iPhone that matters.

Another obvious way Apple could have sold more iPhones would have been to sell the iPhone X at a lower price. I’ve defended why spending $1,000 on a phone isn’t as ridiculous as it seems, but for many budget-strapped customers, it’s just not within their means, even with a monthly payment plan.

Image: SAEED KHAN/AFP/Getty Images

I don’t have a crystal ball into the future — maybe Apple will sell more iPhones this year if it lowers prices or releases a cheaper iPhone X,  or maybe it won’t — but I can tell you one thing: It doesn’t really matter if Apple doesn’t sell more iPhones every quarter.

The smartphone market is extremely saturated with great choices across the entire price spectrum. You can buy a great smartphone for $150-200 (the Motorola G-series is great for if you’re on a budget) or pick up the OnePlus 5T for $500. 

With saturation comes natural decline. Global smartphone shipments declined 6.3 percent in Q4 2017 according to IDC. Everyone who needs a phone probably already has one. And with phone build quality getting better and better all the time, people are holding onto their phones longer (or getting battery replacements).

That said, none of these phones come with the kind of extended ecosystem that comes close to what Apple offers. This is an important advantage Apple has because it means it can offset iPhone sales with revenue from complementary devices and services.

It all comes down to: In Apple We Trust. This is what Apple’s really selling.

“For us, it’s not the numbers. It’s customers satisfaction,” Apple CEO Tim Cook said on the company’s Q1 2018 earnings call. “Customer satisfaction is off the charts for iPhone X.”

It’s your typical halo effect. Think about it: Happy iPhone X customers are more likely to “drink the Kool-Aid” and purchase more Apple products that work with their phones, even when those products have shortcomings because they’re expecting the same level of satisfaction from them.

It all comes down to: In Apple We Trust. This is what Apple’s really selling.

Customer satisfaction is what drives iPhone users to buy AirPods for their iPhones and Apple Watches to slap onto their wrists. It also sells people on iCloud and Apple music subscriptions.

I know, because I’m one of the many very satisfied customers. Year after year, I surprise myself whenever I pay for Apple stuff that I felt were non-essential at first.

I got AirPods and love using them because they’re truly a joy to use. I bought an Apple Watch just to get notifications on my wrist. I paid $50-something for Apple’s official leather iPhone X case. I caved a few weeks ago and finally forked over money for iCloud to backup my iPhone X. 

I had plenty of alternatives for these extra purchases, but for every single one of them, they were largely driven by my iPhone. It’s my most used device and it’s the one I love using the most. I trust Apple’s quality control (even when it messes up sometimes).

Instead of netting $1,150 from me on just my iPhone X, Apple roped me in for some $1,750 for all the aforementioned accessories and services. That’s an extra $600 of revenue they made off me — nearly as much as an iPhone 8, which starts at $700.

Apple may not get everyone to buy an Apple Watch or AirPods with their iPhones immediately, but make no mistake, the idea’s already been planted and it’s just waiting to blossom. And there’s a good chance it will.

Rather than sell more iPhones, Apple’s playing the whole field, and squeezing more out of each customer through other products, and it seems to be working. On the earnings call, Cook said Apple Watch Series 3 were double that of Series 2 from a year ago. Though Apple doesn’t break down how many units that is, it’s still impressive.

It’s hard to imagine Apple Watch would be doing as well if people weren’t so happy with their iPhone purchases. After all, you need an iPhone in order to use Apple Watch. And if people hate their iPhones, why the heck would they like the Apple Watch?

Same goes for AirPods, Apple TV, Beats headphones, and all the other stuff that’s lumped with Apple Watch in Apple’s “Other” category. This category grew 36 percent year-over-year, raking in $5.5 billion.

And ditto for Services, which includes iCloud and App Store purchases, which was up 18 percent year-over-year.

Image: Dustin Drankoski/Mashable

Apple will continue to sell a lot of iPhones. Maybe not as many iPhones as it used to sell, but people will upgrade. Android owners may want to switch. There’s still a lot of runway to grow iPhone sales.

But the future isn’t a singular product. It’s Apple’s whole family of products. Building out reliable, trustworthy ecosystems that keep users deeply entrenched within the Apple sphere will be the gift that keeps on giving, so to speak. 

Samsung’s employing a similar strategy with its Galaxy phones, Gear VR, Gear 360, Gear smartwatches, and Gear IconX wireless earbuds. And Google’s also trying to do the same with its Pixel phones and Pixel Buds. But neither company’s phones have the same kind of satisfaction ratings that would make you want to buy more of their other stuff.