How Apple Controls Huawei's Smartphone Pricing, And Why That's A Good Thing

I don’t remember the last time I wrote something positive about Apple. It was probably around the time of the Newton launch, but today I started thinking how great the company is.

For one thing: The price of the Huawei Mate 20 Pro.

At £800 it’s priced against a £1,000 iPhone. These are both very expensive and that’s A Good Thing.

The first thing to understand is how Apple controls the price of the market.

When my dad had a shop selling kites we’d rock up at kite festivals, in a windy (hopefully) field somewhere like Blackheath or Swindon and set out a stall selling kites. At the start of the day I’d wander over to stall-holders and have a quiet chat about discounting. We’d agree not to get into a price war and might even talk about particular kites and what our price would be. This is illegal.

It’s so illegal that one of the phone companies I worked for – which didn’t price fix – issued internal instructions of how to react if we were raided with the accusation that we were. The government has such draconian powers if they suspect price-fixing they can paralyse a company before checking to find that there was nothing to worry about.

But there is another route, and that’s not illegal. When I launched What Mobile magazine in 1994 we were the first title and I set the price at £1.99. Two other magazines launched and also sold at £1.99. We were in a pitched battle for readers and traditional economics would say that dropping to, say, £1.79, would have helped us sell more copies. But we were the market leader and I was confident. I put the price up to £2.99. The other two followed. We competed on the quality but we all had more money to spend longer on writing each article, pay photographers and designers.

This is what Apple has done, it’s not called up Samsung, Huawei and Nokia and said, “let’s charge more”. All Apple has done is set a marker and the others have followed.

And this is important because handset manufacturers have been under huge margin pressure. Some of that comes from the operators who are by far and away the biggest customers, and some from the no-name brands – you can buy a pretty decent smartphone for £200. So you would have thought the big handset manufacturers would be under a lot of pressure to lower their prices to stop everyone running off and buying an Oppo, Vivo or Xiaomi.

But Apple’s boldness has saved Samsung, Huawei and Nokia from that. Apple has reset expectations, and now paying £1,000 for a phone isn’t deemed outrageous.

So why is it a good thing that mobile phones have got so expensive? In a word Research. Most mobile companies have research and development departments, but mostly what they are doing is development. ARM will come up with a new processor design and the phone companies will either take the design and buy chips or fiddle with the design to make it a little different, and then commission the but all the work is based on having a direction with a known outcome.

Research is about trying things where you are not sure where it is going to go. Investigating radio properties of strange materials, playing with odd bits of spectrum. It’s why IBM wrote its name in individual atoms or Kodak had its own nuclear reactor. That kind of research is high risk, the vast majority of work yields no more than a few scientific papers and patents. The occasional one might give a huge head-start over rivals and market dominance. Today handset manufacturers don’t do research because they don’t have the budgets.

While Apple mostly does development, it has the margin to do some research and indeed it does do some. Hopefully the headspace the £1,000 iPhone has given the whole industry will fund more, interesting proper research.

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