Where's the $100k iPhone?

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I’m not quite sure how unequal the world used to be, but I’m fairly certain the world is more equal (in terms of financial means) than the world was, say, in the 1600s.

There are many things that enormous wealth allows you to buy that’s out of reach for middle-class American consumers, like yachts, personal assistants, private jets, multiple homes, etc. You can frame these things in terms of the problems they solve e.g. private jets solve the problem of travelling long distances, multiple homes solves the “problem” of wanting to go on vacation more often. Note that the problems persist across wealth brackets, it’s just that the ultra-wealthy have different methods of solving those problems. While the ultra-wealthy might solve the problem of “vacation travel” using a private jet, those without extreme wealth might travel using commercial airlines. The ultra wealthy introduce novelty into their lives by purchasing multiple homes, while everyone else goes on vacation and stay in a hotel or similar.

If you cluster goods and services based on the problem they solve, most seem to be available at wide range of prices, with the higher end being around 2 or maybe 3 orders-of-magnitude greater than the lower end. For example:

• Food: Higher end would look like full-time personal chef and regular fine-dining, lower end would look like grocery store pre-packaged meals and cheap fast-food.
• Short-distance travel: Higher end would look like a full-time chauffeur in a custom Bentley, lower end would be public transport or an old car.
• Long-distance travel: Higher end would frequent private jet flights, lower end would be infrequent commercial airline travel
• Time-telling: ~$10 Casio through to a ~$100k Rolex
• Education: free public school vs ~$50k/year elite schools + private tuition
• Politics: In a democracy, voting is free. But if you have $100k+, you can lobby for areas of your choosing or sponsor political candidates.
• Healthcare: regulation makes this less clear than other cases, but you and I certainly can’t afford to fund medtech startups looking to cure aging.

I have low confidence that the difference between the lower- and the higher-end of goods/services to solve a problem is precisely 100x to 1000x, but I’m very certain that it’s orders of magnitude greater and not 1.01x to 2x greater.

However, you do get some products/services which do not exhibit this behaviour: Even the wealthiest man in the world will use the same iPhone, play the same video games, read the same books¹, and watch the same movies¹ as a middle-class American. What gives? What is the underlying factor that means some goods and services have 1000x range in value, and others have basically no difference? Put plainly: Why are there no incentives to build a $100k iPhone²? I have some hypotheses about the constraints:

1. Innovation-constrained: the modern iPhone is just at the limit of what’s technically feasible, and Apple wouldn’t know what to do with the money if you gave it to them. You could pay every Apple engineer and designer 100x their current salary, and they wouldn’t be able to innovate more than they currently are because they’re already at the limit of human innovation.
2. Economics-constrained: producing large numbers of $1000 iPhones is just much more profitable than fewer numbers of $100k iPhones, so there’s no incentive to make a more expensive iPhone.

Option 1 seems a little fishy to me. I’m not sure, but I doubt there’s nothing Apple could do to put more high-end features in a $5k iPhone. $100k does start to push the limits, but $1k seems low considering the frequent critique of iPhones. And there’s a very wide range of non-technical features (different colours, different sizes, various customisations) that are present in other high-end luxury goods (cars, watches, jewellery, etc) but aren’t present in iPhones.

Option 2 also doesn’t quite sit right with me. It seems okay on its own, but I don’t see why iPhones would have this dynamic but not watches, furniture, cars, etc.

One third option that I think is closer to the truth:

3. Things improve too frequently, so nobody’s willing to drop $100k on a hyper-specialised luxury iPhone that’ll be out-of-date in a year. If there’s a technical innovation in batteries or screens or cameras, then next year’s consumer iPhone will have the brilliant innovation but your luxury iPhone won’t.

Consumer technology regularly experiences game-changing innovations, much more so than cars/furniture/housing/etc. So under option 3 we’d expect to see that goods or services with a very small financial range (like iPhones) to be things that are undergoing rapid innovation and change (including but not limited to tech products).

This hypothesis seems to hold up: laptops, smartphones, internet services (like YouTube, Netflix, Gmail, etc), Starlink, all have a very small financial range, some of them you can’t buy a more expensive variant even if you wanted to.

Our hypothesis also predicts that goods/services which experience little innovation should have a wider range of prices. One example of this would be gas-powered cars, which have been stagnant for several decades³. There have been improvements in comfort, efficiency, and safety, but I’d argue that these improvements stem more from increased demand for these features rather than previous inability to innovate in these features. Most recent innovation in cars have come from changing preferences, rather than static preferences which undergo more thorough innovation.

I suspect there’s something deeper here which might be empirically useful. If hypothesis 3 is true, then we could use the range of prices for a given product/service as a measure of the innovation in that field: A narrower range of prices means that there’s much more innovation. And this could be impactful, as it gives a way to measure how much the economic market expects a field to be innovating. It would be foolhardy to try sell a $100k iPhone if you suspect a competing product might be released that has significantly better features but with a lower price tag.

The large price associated with luxury goods effectively serves as a bounty for someone to come along and innovate.

We can also make some empirical predictions from this. Smartphones during the 2000s and 2010s underwent a lot of innovation, but they have become stale in recent years: every black slab of glass is nearly identical. I suspect the luxury smartphone businesses take a while to boot up, and it’s possible that new battery technology could cause a resurgence in smartphone innovation. So I’d predict, in the next ~10 years or so, we’ll either see a luxury smartphone business start up⁴ and stays in business, or we’ll see significant innovation in smartphones (something like 10x better batteries or other components).

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Thanks to Jasmine Li, Jo Jiao, Desiree J, Jay Chooi, and the MATS 9 blogging and writing channel for reviewing drafts of this essay.

Footnotes

1. I’ll note that books and movies might be a slight outlier here: centi-millionaires absolutely can pay or sponsor creative professionals to produce work that they specifically wish to exist. This might be explicit (contracting a director to make a specific film), but more likely this is implicit (funding a film studio, sponsoring an artwork, organising meet-and-greets with powerful donors). ↩ ↩²

2. If you google, you can find example 100k iPhones 1, 2 ↩

3. You might debate the precise duration of the stagnation, but the past 20 years of gas-powered car innovation is certainly less impressive than the last 20 years of mobile phone innovation. ↩

4. one that produces a smartphone ~10x more expensive than the most popular iPhone ↩