Banking on iPhone X: Apple's new phones are the razors, services are the blades

Apple's likely iPhone lineup may reflect a slow-growth reality and reliance on services. Apple's spin is that it can still sell you premium iPhones as well as bank the recurring revenue.
Written by Larry Dignan, Contributor

Think of it as razors and blades. Apple's latest lineup of iPhones, which reportedly will adopt the iPhone X design, are the razors that cost you anywhere from $800 to $1,300. The recurring revenue -- the razor blade -- is going to be made on Apple services going forward.

Simply put, the iPhone is going to be one expensive razor. The big question is whether razors for more than $1,000 will work in the long run.

Bloomberg reported that Apple will adopt the iPhone X design when it launches its new lineup. For good measure, there is a new iPad Pro and Apple Watch on deck. The trio of iPhones -- two with OLED screens and one LCD -- revamps Apple's smartphone lineup but largely eradicates the home button. FaceID will be the norm on the iPhone.

While Bloomberg's report rhymes with what TrendForce predicted earlier this month, with the exception of Apple Pencil support.

Also: New 2018 iPhone, iPhone X Plus, iPhone 9: Rumors and leaks

But the biggest takeaway from the Bloomberg story was analysts noting that Apple is positioning its iPhone portfolio for 5 percent growth or less. Apple isn't necessarily trying to win more customers, but raise the average selling prices on its base and keep them buying services. Apple may be acknowledging that smartphone growth is done, and now it's about the installed base and longer upgrade cycles.

What's more interesting is that Apple isn't exactly going bargain bin with the iPhone. The smartphone will still be premium yet offer value at lower price points with various color options. The plan is to make margin on devices and use services for the ongoing profit win.

Also: Here's what you want -- and don't want -- from the next iPhone

From a business model perspective, Apple's iPhone strategy is interesting because it still goes premium. The razor-razor blade model is typically based on inexpensive razors. Amazon has its Echo franchise -- all designed to get you to consume services and shop. And Android devices are inexpensive, but they get you to consume Google services.

Apple's spin is to make money on the hardware, software, and services. But the pivot to services is already underway. June quarter revenue for Apple services was $9.55 billion. In other words, Apple's services unit is going to be on a $40 billion annual run rate real soon.

Also: Photos: Apple iPhone models through the years TechRepublic

Samsung is hoping to monetize its services, but for now, it's trying to wow you -- and charge you -- for premium hardware.

Also: Samsung Galaxy Note 9: Should you upgrade for 512GB at $1,249.99?

Apple's portfolio strategy with the iPhone makes sense because its brand can support it. But don't get carried away with the business school case studies. Apple may be the only company that can make a nice profit on the razor and the razor blades too.

Also: New 2018 iPhone: All the rumors on specs, price, release date CNET

What features would a $2,000 iPhone need to make it irresistible?

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