Apple yesterday launched its new version of the iPhone SE at a price point of just $399. It’s not the first time the company more associated with its flagship iPhone models now starting at over $1000 has launched a cheaper option. The original iPhone SE was launched in 2016 at the same price. But 4 years on, and with a price gap between the SE and flagship premium model having grown to $700 from $400 in 2016, it feels like this release is much more significant. Does it represent a major shift in strategy by Apple?

The iPhone SE is a budget alternative to the top end iPhone models. It comes with just a single camera, a 4.7 inch screen and features ‘touch ID’ security instead of facial recognition. But the model is still powered by Apple’s A13 Bionic chip, which the tech giant claims is “the fastest chip in a smartphone”. Sales start tomorrow.

But what does the launch tell us about how Apple might be evolving as a company? It has grown into one of the most valuable handful of companies in the world on a strategy of not compromising on its approach that any product representing its brand falls at the ‘premium’ extreme of consumer tech price points. With quality to match. Why is that strategy now shifting with alternatives to suit lower budgets?

With total iPhone sales figures topping 2.2 billion as of February this year, Apple has clearly succeeded in the delicate balancing act of creating products that are both premium and aspirational, as well as mass market. No brand of smartphones has achieved more unit sales than Apple’s iPhones have. So why drop into a lower price band of the same market when you’re already the best seller despite being the most expensive option?

Is the risk not a temporary bump in revenues from selling cheaper models coming at the cost of the high profit margin flagship iPhone models losing something of their aspirational status? Is Apple not sabotaging the very essence of what the company’s success has been built on?

It will be a number of years before there is any real answer to whether the change of strategy introducing budget iPhone models was a good one or not. But the thinking behind the change of direction is clearly influenced by Apple attempting to navigate the presumption that ‘peak iPhone’ has already been reached.

It’s been an extraordinarily successful run – one which propelled Apple to the status of most valuable public company in the world before the Saudi state oil company Saudi Aramco recently listed a small percentage of its stock on Riyadh’s exchange a few months ago. But the company realises consumer trends are changing.

With new smartphone models no longer the tech leap forward on the previous year’s they once were, now generally representing more of an iterative progression, consumers are losing their appetite for upgrading with the same regularity. The fact the technology is no longer exciting and new probably also has an influence on the urge consumers feel to always be up-to-date with the latest model.

Revenue and profit growth rates of public companies cornered on their smartphone models were always going to slow at some point. Most believe that point has been reached. Companies who hope to maintain growth need it to come from elsewhere and the main bet is on services. Apple’s focus is on maintaining growth through the repeat revenue generation of selling services. App Store downloads, music streaming, Apple TV+ etc.

Apple’s strategy now appears to be getting iPhones into even more hands to boost spend on services. The economic blow of the Covid-19 pandemic may also have allayed concerns around how much cheaper models might cannibalise revenue generated by more expensive flagship models. The assumption might be that $1000 for a smartphone will now be out of the reach of enough people for it to make sense to offer them an alternative that keeps them tied into the Apple ecosystem.

Chris Locke, CEO of innovation consultancy Rainmaking is quoted in the Financial Times as commenting on how the move is an example of Apple sacrificing profit margins on its hardware to reap recurring, higher-margin on associated services:

“If you look at core markets, we are looking at 2022 when the recovery comes, so how do you keep revenue coming in and stay relevant? It’s a smart move.”