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Lasts Longer

I think Lisa Jackson’s presentation at the September 2018 iPhone launch event was perhaps the most interesting and most profound.

Lisa Jackson is Apple’s vice president of Environment, Policy and Social Initiatives. Previously, Ms. Jackson served as Administrator of the U.S. Environmental Protection Agency (EPA). In her role at Apple she has been responsible for the transition to 100% renewable energy use by Apple across all its facilities.

This goal has been achieved and it’s a remarkable achievement deserving congratulations. But her presentation was noteworthy for setting a new goal.

She laid out a goal for Apple to eliminate the need to mine new materials from the Earth.

She said that to reach that goal Apple will have to do three things:

  1. Sourcing recycled or renewable materials for all products.
  2. Ensure that Apple products last as long as possible.
  3. After a long life of use, ensure that they are recycled properly.

It’s this second point that I thought would bring the house down.

To emphasize the second point she said Apple now strives to design and build durable products that last as long as possible. That means long-lasting hardware coupled with long-lasting software. She pointed out that iOS 12 runs even on iPhone 5S, now five years old. Because iPhones last longer, you can keep using them or pass them on to someone who will continue to use them after you upgrade.

She said that “keeping iPhones in use” is the best thing for the planet.

At this point in the presentation I wondered if everyone would rush out of the room and call their broker to sell Apple shares. One premise of investing in durable goods hardware companies is that value depends on frequency of upgrades. If products are not replaced frequently they do not generate revenues and the company selling them ends up growing very slowly if at all after markets saturate. The smartphone business is certainly approaching saturation and the implication of making Apple products more durable would imply lower revenues from replacements. This anxiety around replacement rates and extended lives is used by analysts to discount future cash flows and if those lifespans are extended price targets come down.

So why would Apple want to do this?  What is the logic of this durability focus as a business model? It may be good for the environment but is it good for the bottom line?

Of course, there would be not much business without an environment and we should all strive for sustainability.  But this is an existential observation, and it’s defensive. The important call to make is that Apple is making a bet that sustainability is a growth business.

Fundamentally, Apple is betting on having customers not selling them products.

The purpose of Apple as a firm is to create and preserve customers and to create and preserve products. This is fundamental and not fully recognized.

To understand how this works, if you look at the pricing graph below, you can read it as a story of increasing prices for a decreasing market share. But if you understand that each advance in products increases absorbable[1] utility then the cost per use remains steady or declines.

An iPhone at $1200 may be less expensive than an iPhone at $600 if the $1200 version lasts twice as long as is used twice as much each day. The $1200 phone delivers 4x the utility at twice the price, making it half the price. By making more durable products, both in terms of hardware and software, the customer base is satisfied and preserved.

Practically, the initial buyer may resell the iPhone and that 2nd hand devices may be sold yet again. This means an iPhone could have three users over its life and thus it could end up expanding the audience for Apple by a factor of 2 or even 3.

The expanded audience is offered accessories, additional products such as wearables and, of course, services. These residual business models are certainly profitable, perhaps even more so than the iPhone.

Overall Apple has 1.3 billion devices in use and perhaps as many as 1 billion users. This base is certain to expand and it will expand more rapidly with durable devices and software.

This is a hardware-as-platform and hardware-as-subscription model that no other hardware company can match. It is not only highly responsible but it’s highly defensible and therefore a great business. Planned obsolescence is a bad business and is not defensible.

Therefore the statement that Apple now prioritizes device and software longevity is very important and I consider it one of the most important statements made during the 2018 iPhone launch event.

Notes:
  1. Insoluble  utility is very dangerous and it’s important to qualify e.g. higher storage capacity that people hunger for or better cameras that increase picture taking from features that are neat but don’t get utilized []
  • Accent_Sweden

    “call their broker”. How quaint.

  • Accent_Sweden

    The number of jaded comments about this very claim of wanting their products to last as long as possible during the keynote, even from my own family, shocked me. Even in the face of a decade of the iPhone, I think the prevailing attitude is still that Apple’s business model is the same as Samsung’s. It’s as if there is a disconnect between what they actually experience and what they think they experience. I think many people are spoiled by the quality of Apple’s products and assume every other company takes the same approach and it isn’t anything unusual or it is just empty marketing.

    • Ultimately, at least with my family, it boils down to their real-life experiences with Apple products. Buy a phone, within 2 years the phone is randomly rebooting or otherwise having major problems because (IMO) the battery cant handle the cycles people put them through. No matter how good iOS 12 is, it cant make the 500-cycle Li-Ion batteries in every iPhone to date last longer.

      If Apple was serious about point #2 described above in the article, the batteries they ship in the iPhones would last two full years without issue, maybe needing a replacement at end of year 3 to last for the rest of the lifetime of the device.

      A 500-cycle battery might work well in many e-Bikes or in a Tesla where you don’t fully discharge and recharge the battery every day, but mobile phones need high-cycle life batteries to handle the types of workload most people put them through, and then adding the difficulty of having the power delivery from that small battery meet the needs of the entire device (cellular modem/RF, SOC, display screen) as the power delivery rate declines.

      • Walt French

        I use my iPhoneX heavily—I usually use more than 80% capacity a day; when traveling—using nav, camera, Yelp, etc—I need to charge more than once a day. Its monitor guesses its battery holds 94% of its original capacity.

        If instead I went to ebay and paid $72—7% of its price—I could have a brand new, official replacement. Replacing a battery in previous iPhones took me or a guy on Telegraph Avenue all of 15 minutes.

        I don’t understand the notion that Apple “needs” to invent battery tech that similar products don’t have, that isn’t much of an expense or hassle. Many more important issues, such as better functionality, that ARE worth spending more on.

      • klahanas

        They don’t necessarily need to invent technology others don’t have to achieve product longevity. How about what other priducts have had forever, such as sd storage. What can obsolete or limit a product faster than used up storage?

      • NetMage

        Apple prefers expensive, high speed NVMe storage to SD cards.

      • klahanas

        Absolutely unnecessary for storing music, offline maps, or movies. NVMe speeds offers zero benefit. Songs and movies play at a fixed duration, once loaded, map databases are not speed bound once loaded.

        Currently I keep all the US, Canada, and most the EU on SD as well as my entire 6,000 song music library.

    • Sacto_Joe

      VERY good point! And “jaded” is exactly the right term.

      Human nature; you gotta love it….

  • tmay

    Apple has warmly embraced the long life cycle of the iPhone, and iOS 12 support of all 64 bit capable iPhones is proof of that, effectively bolstering the refurb and secondary markets for the iPhone, an added value for all users

  • Glaurung-Quena

    “The expanded audience is offered accessories, additional products such as wearables and, of course, services.”

    Or more simply: people (eg, students) who can’t afford a new phone today will not always be unable to afford a new phone. Give them access to one of your secondhand phones today and that can turn them into a loyal customer who will be able to buy new phones from you a few years down the road.

  • Price per wear realization in the Garment Industry would be even more beneficial to the planet.

  • Elliot Z

    Thanks so much Horace. Increasing price = decreasing cost! I look forward to the next Apple Salon. Here is a link to the Apple September Event so that you can listen to Lisa and everyone else: https://www.youtube.com/watch?v=wFTmQ27S7OQ.

  • Luis Alejandro Masanti

    Great insight! Apple will have to hire you so to keep your mouth close of their ‘business plans’! 😉

    In the hardware side, I think that ‘longevity’ will help to increase market share. People, as you correctly said, will buy a new iPhone and sell the previous. But with longevity, the second and the third owner will still be able to use and sell it. (And that means services for Apple!)
    I think that the big problem for Apple is to keep software supported, meaning that it is ‘almost’ up to dat, ‘almost’ meaning ‘less the most new features.’
    When I bought my iPad at launch, they tell me that the device will work for 2 new OS upgrades. I knew that and I knew that I was going to have a brick in 2 or 3 years. Well, not a brick but a working device with not new software. (Except for the fact that I sat over it and broke the glass… I still could be playing Solitaire!)
    So, maybe Apple should keep a ‘second class level of OS.’

    iOS 12 works down to 5s (if I’m not wrong). So, maybe, an iOS 12- will work on iPhone 4.
    Of course, that’s not easy, but it could increase heavily the third or four owner.

    • tjwolf

      Who told you that your iPad would last for 2 OS upgrades only? I expected 5 years (like Macs) – and that many OS upgrades – when I bought mine (of course I ended up upgrading much sooner).

      • Luis Alejandro Masanti

        I do remember that. Maybe it was ‘2 free updates.’
        But I remember it clearly because I live outside the US and buying that new device would include a trip from Argentina. (We have very long products delays.)

      • tjwolf

        Maybe they meant “at least 2” instead of “at most 2” 🙂

      • HenkPoley

        The iPhone/iPad license says that they will give (at least) 2 major updates.

  • Additional points:

    (1) iPhones that last longer are more likely to have higher trade-in value, which means they’re more likely to be recycled at end-of-life, which helps Apple in sourcing recycled materials. (A virtuous cycle.)

    (2) Apple knows that many of their customers are going to upgrade even when it’s not “necessary,” so they can worry much less about their market being saturated due to a lack of need for replacement. This benefit of Apple’s high-income customer base is invariably discounted by Wall St.

  • I’d just like to point that sustainability should apply, as Lisa Jackson says, to all “Apple products”, even if the article is a bit more focused on the iPhone. This will definitely impact all the future Apple hardware. And let’s say you will keep your iPhone for 3-5 years instead of just 2. Apple will make sure to push the same new software and features for as many devices as possible. If your old iPhone camera does not get some feature you like, then you will go out there and buy a new phone. But if you keep using your current phone because you keep receiving the same software (including same features if possible), then your focus changes from hardware to software (and here Apple will have to find new or additional ways to monetize). This is why, following this lasts longer goal we will see some changes on the software side (including pricing for various services).

  • ksec

    The most important matrix is Active Apple / iPhone Users. And that number is still growing. I would love to see 1.25B iPhone Users, 500M iPad Users, and 250M Mac users.

  • Sacto_Joe

    My ears pricked up at that too, Horace.

    At bottom, this is the philosophy of W. Edwards Deming writ large.
    https://en.m.wikipedia.org/wiki/W._Edwards_Deming

    Perhaps that’s why Americans have so much trouble understanding Apple….

  • Berg

    I wonder if American Manganese will partner with them to recycle their battery metals.

    • HenkPoley

      Yeah, apparently at the moment almost none of the lithium batteries are recycles, because there are so many chemistries, that need to be separated slightly differently.

      That should certainly improve.

  • lei5ure

    This is really about growing children: Apple wants you to reason that you can give your old iPhone to your kid and buy a new one yourself. Rather than buy them a cheap Android phone (and probably hang on to your iPhone a bit longer), which is a long term disaster for Apple, the hand-me-down serves to bring them up on Apple. Its a win-win for Apple.

  • splamco

    Android users will always prefer a second hand, previous gen iPhone. #switcher

  • Kishore Kumblekere

    The other aspect is the support system for apps/ecosystem of iOS – score another sticky for platform to continue to be supported for *new* SW apps/features -this will be critical for growth in emerging markets for years to come (India/SEA now Africa next).

  • Dee

    Is this a joke? After 4-5 years Apple stops doing upgrades for their devices. I don’t trust Apple and after my laptop said updates were no longer available, I have never gone back to using Apple ever since.

    • Ben

      Genuinely curious, but does anyone else in the industry keep doing upgrades 5+ years later?

      • NetMage

        Or even over two years later?

      • Kizedek

        And what is the starting point: don’t many OEM’s ship new phones without the latest version Android to start with?

        And doesn’t the user have to take on much of the responsibility since the OEM, the carrier and Google will pass the buck among themselves?

      • Shameer Mulji

        Hell, even one year.

    • Shameer Mulji

      Show me one Android device that gets software updates for 4 to 5 years. The vast majority, if not all Android devices, will not get an update beyond 2 years.

  • L

    Don’t buy this jacket

  • pragma

    If this was anything but marketing speech then the first thing apple would do is switch their product line to replaceable batteries.

    • NetMage

      Or offer an inexpensive battery replacement service?

  • Pankaj Doharey

    “An iPhone at $1200 may be less expensive than an iPhone at $600 if the $1200 version lasts twice as long as is used twice as much each day. The $1200 phone delivers 4x the utility at twice the price, making it half the price.” Is not a testament to Apples Build quality or recognition to produce products that last long but the marvel of mass production and justification for exhorbitant pricing.

  • I accept to pay expensive stuff, if I own them after. I DO NOT ACCEPT to buy black-boxes. I do not accept a sort of leasing (that’s is if you read the EULA’s) in which the vendor keep the right to manage “my” device, adding software, deleting it, adding contents, deleting it etc.

    If someone produce a phone with FOSS design and NO lock-in I can really own I can accept to pay it even 2000 euros, otherwise missing other options I just buy the cheaper I can find and use it the least that I can. This if same valid for any device, printers, keyboards, mice included, washing-machines and cars included.

    • klahanas

      And some have the audacity to spin it as a PC!

  • I wonder if this “lasts longer” attitude – by consumers and companies, is a by-product of the uptake of SD / Flash drives which started 5-10 years ago?

    Used to be something with a spinning drive was literally a ticking time bomb, when you booted and the computer make a few weird ticks and noises, you knew it was time to backup ASAP and plan an upgrade or replacement.

    But now my 2013 MacBook Pro behaves exactly the same way as when I purchased it, and I’m hoping it will last another 5+ years when I pass it on to the kids soon.

    It’s great to see Apple and others embracing older phones and continuing support for them – making them even better it seems. Looking forward to updating to iOS12 today on my 6 to see how it goes. Still buying an XR for a bunch of new features, but god to know the 6 will continue to be useful for someone else. (not the kids)

  • HenkPoley

    Yeah, I’ve been keeping a spreadsheet with a simple linear depreciation model (subsidies/phone-loans distort that depreciation in the USA). And it’s quite absurd how much cheaper iPhones are per year than Android phones that also get security updates.

    https://docs.google.com/spreadsheets/d/1Kax5xleqCi2ckWWjTzkHUy7i3aZq52rLh5R_d-DL9DA/edit?usp=sharing

    An iPhone XS 64GB is about as expensive per year as the cheapest Google phone was, the Nexus 5X. Even the iPhone XS Max 512GB does not climb past any western flagship Android phone with 64GB or more.

    If you were okay with putting down €151/year for a Nexus 5X, you can also just get and use the base model iPhone XR 64GB for its supported years, and use the €344 difference to replace the battery 4 times.

    • klahanas

      Your depreciation model fails because I charge an exorbitant amount of money to sell….

      I won’t hire myself to do it!
      🙂