The Economist - UK - 09.14.2019

66 Business The EconomistSeptember 14th 2019

1

A

pple’s productlaunches are not

what they used to be. A decade ago

the unveiling of a new iPhone would

inspire quasi-religious ecstasy; devotees

would camp on pavements outside shops

as the release date drew near. At the

firm’s latest event, on September 10th,

the format was the same: Apple’s boss

stood on stage, clad in a regulation black

jumper, and spoke of the world-changing

power of the company’s latest wares. But

the fizz was gone. The iPhone 11 looks like

a merely incremental improvement on

the models that have gone before it.

Smartphones have become boring.

Consumers around the world are up-

grading less frequently. Sales have stag-

nated (see chart). That poses a problem

for Apple, which has built its success on

charging eye-watering prices for aspira-

tional, frequently replaced devices. Its

response—to focus more on selling

services and less on selling hardware—

has been widely trailed. Those services

comprise everything from extended

warranties to the creation of an Apple-

exclusive store for video games, and for

streaming video, on which it plans to

spend $6bn and which is designed to

undercut rivals like Disney and Netflix.

The iPhone 11’s launch shows what

that strategy means for the hardware

side. Apple has been raising its prices for

years, but that trend has slowed. The

cheapest model of the iPhone 11 is the

lowest-priced phone the company has

launched in two years. That makes sense:

a service-focused company needs a

broad user-base. But it is a delicate bal-

ancing act. If prices fall too low, the firm

will lose its aspirational glow (the top-of-

the-range iPhone 11 Pro Max will cost you

$1,449). At the same time, Apple benefits

from a captive audience. Users of Goo-

gle’s rival Android phones have many

hardware-sellers to choose from, leading

to fierce price competition. Those who

prefer Apple’s ecosystem must buy

iPhones. That should keep margins

plump for the time being.

Are you being served?

Smartphones

Apple is relying less on pricey devices and more on services

Apple’s cart

Sources: Company reports; news reports; Canalys; IDC *Nominal †Excluding sales tax ‡To Q2

United States, Apple iPhone price* at launch, $ Revenue† per smartphone, worldwide, $

0 500 1,000 1,500

Storage capacity: Smallest Mid Biggest

iPhone (2007)

3G (2008)

3GS (2009)

4 (2010)

4S (2011)

5 (2012)

5C (2013)

5S (2013)

6 (2014)

6 Plus (2014)

6S (2015)

6S Plus (2015)

SE (2016)

7 (2016)

7 Plus (2016)

8 (2017)

8 Plus (2017)

X (2017)

XS (2018)

XS Max (2018)

XR (2018)

11 (2019)

11 Pro (2019)

11 Pro Max (2019)

0

200

400

600

800

1,000

2007 09 11 13 15 17 19‡

Apple

Huawei

Samsung

Smartphone shipments, worldwide, bn

0

0.3

0.6

0.9

1.2

1.5

2007 09 11 13 15 17 19‡

Samsung

Apple

Huawei

Others

F

rom theair, the mine in Nakyn looks as

if a giant took an ice-cream scoop to the

Earth’s crust. Inside the pits, in Russia’s far-

eastern region of Yakutia, trucks with

wheels taller than their drivers rumble

along narrow dirt roads carved into the

mine’s walls, carrying loads of ore. The pur-

pose of this gargantuan enterprise is some-

thing altogether more discreet. For Nakyn

harbours one of the world’s richest depos-

its of diamonds.

As incongruous, at least on the face of it,

is the selling point Yakutian diamonds

have for the carat-crazy. “Provenance is our

competitive advantage,” says Sergei Iva-

nov, chief executive of Alrosa, the company

which owns the mine. Never mind that Al-

rosa’s own roots look questionable in some

eyes. The diamond-miner is controlled by

the Russian state, viewed with suspicion in

many countries for its annexation of Cri-

mea, its backing of Bashar al-Assad’s mur-

derous regime in Syria and election-med-

dling in America. Mr Ivanov’s father was

once chief of staff to Russia’s president,

Vladimir Putin. But the company’s gems

are not directly bloodied by strife, as some

of Africa’s conflict diamonds are. For many

bling-seekers, that is enough.

Mr Ivanov’s emphasis on provenance is

a response to changing consumer prefer-

ences, especially among younger buyers.

This year the Gemological Institute of

America has supplemented its “4c” grad-

ing scheme—colour, clarity, cut and car-

ats—with a fifth: country of origin. De

Beers, a diamond-industry stalwart

(owned by Anglo American, a British min-

ing giant), has a system for tracking dia-

monds from its mines to the jeweller’s dis-

play cabinet. Tiffany’s, an illustrious

American jeweller, has rolled one out, too.

In order not to fall behind, this summer Al-

rosa launched “electronic passports” for

each gem, which tell buyers which crafts-

men cut and polished it, as well as when

and, crucially, where it was extracted.

That is not the only big recent change to

Alrosa’s business. The company is also try-

ing to sell more of its own stones. It digs up

around 10m carats a quarter, which trans-

lates to two tonnes, or about one bathtub-

full. That is more than anyone else—and a

quarter of global production (see chart on

next page). But for most of its history it re-

lied on intermediaries to get its gems to the

market. In 1957, after the discovery of dia-

mond-rich kimberlite fields in Yakutia,

NAKYN

Natural diamonds are forever—or so

Russia’s state-owned gem-miner hopes

Russian diamonds

Romancing the

stones