Apple Needs to Hire an Economist

Blog Post - Apple Needs to Hire an Economist

On Wednesday, Apple introduced their iPhone 7 and 7 Plus. As Moore's law suggests, and as we probably could have gleaned from dozens of cell phone releases, the phone will be faster, have more memory, and a better camera. Good for them.

However, they also made improvements to the iPhone's "thin-ness." This "improvement" offered up the traditional, 3.5mm headphone jack on the sacrificial alter of technological innovation; it is this feature in which I claim that they blundered.Apple, like many cell phone companies of the mid-2000’s, seems to have lost sight of reason behind the preference.

Yes I know, they are including an adaptor in the box for “free”* and I know that Apple is offering wireless headphones (AirPods- "AirBuds" was taken by the classic 1997 film about a dog who plays basketball). Here are the problems: Apple headphones are just terrible for most people. There’s a reason that most pairs of earbuds include 2-3 alternative pairs of silicon earbud tips. PEOPLE’S EARS ARE UNIQUE (perhaps even more so the fingerprints). This means that people who value using the iPhone to listen to things** need to have the ability to comfortably customize their listening experience and not be relegated to one pair of hard-plastic headphones.

So why did Apple do this? It was an economic tradeoff. They wanted to give the consumer the added benefit of “more thin-ness” rather than an option for headphones. We’ve seen this before. Many laptops no longer have a CD disk drive in order to make it thinner. However, by the time this feature began, most consumers had already switched to the easier, space-saving, and sustainable flash drive.

Do we really need or want thinner phones? iPhones are already amazingly thin; the iPhone 6 thickness is just over ¼ of an inch (.27” technically). And what do we really gain by shaving off another 1-2 hundredths of an inch? I posit that we’ve already surpassed the usefulness of thin phones. As a result, we are also forced to buy thick cell phone cases (see Otterbox) in order to protect these flimsy phones which sort of negates the gains. iPhones have gotten so thin that we actually need to artificially thicken them to make them more durable!

Here is where an economist would have come in handy. An economist could have explained “the law of diminishing marginal returns.” The Law of Diminishing Returns states that as one input variable is increased, there is a point at which the marginal increase in output begins to decrease, holding all other inputs constant. At the point where the law sets in, the effectiveness of each additional unit of input decreases. Imagine eating a delicious Chick-Fil-A sandwich for example. After your first sandwich, you are pretty happy. After your second, you may still be happy, but by the time you are eating your fourth, fifth, or sixth sandwich, you are losing utility with every bite you take.

You can have too much of a good thing but no one seems to have told Apple. They have continued to make phones thinner and thinner to the point that we are now losing other, and more useful, features. Apple is actually getting worse in their attempt to be better and this is further exacerbated by the loss of a crucial consumer feature. The rest of the cell phone industry realized something similar years ago, that there’s a point where making cell phones smaller just wasn’t helpful and started making them diagonally bigger.

I think we have surpassed the “thickness to features” equilibrium but of course, I am only one of their millions of customers. Apple certainly has a cult-like following that could help them withstand this move or perhaps I am simply wrong and customers really do still value having as thin a phone as possible, even at the expense. The next phone I get, for the first time in 8 years, will likely not be an iPhone and a good economist could have warned Apple that they are likely to see diminished returns on their “improvement.”

This is why economics and economic-thinking is so important today. A relatively simple economic idea could have helped Apple make a wiser choice but they opted for the much more expensive “huge quarterly losses.”***

 

*Included in the amazingly high starting price of $650 for the cheapest model.

** Since the iPhone is based on the iPod- an MP3 player, we can assume that most people are included in this demographic
*** I assume. We’ll know in late January.

 

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