Apple, where’s… oh wait you just won
Since the launch of the launch of the iPhone 4s announce just yesterday, I have already heard more complaints about Apple in the last 24 hours than I have in many months. While I never was a fan of Apple product, I always admired how well their business philosophy worked. Every Apple product I’ve ever seen has had prices through the roof for the hardware specs, yet sales reflect that buys are willing to pay. In short, Apple seems to know too well how to earn the hearts of customers: with the sacrifice of performance normally wasted by the majority consumers, most Apple products appeal with their robustness in architecture, simplicity in style, and style (even fashion). I hear of friends switch to Macs every so often, but never the reverse. To achieve this immense marketing success, Apple had probably put more effort into analyzing their customers more than any competitor, and all these complaints about iPhone4s should not be unanticipated. Then why did they release it?
The roots of the complaints are not entirely unfounded. The hardware had limited change beyond a new processor, new camera, and an antenna. The long existent 4G capability has not been added, and no changes have been made to any other component. The main changes instead focused on software, something seemingly doable with firmware updates. The source for this information, along with more details, can be finding at the bottom of this post.
So then comes the question: if people don’t seem to like it, why release it? From the perspective of game theory, we will attempt at arriving at a justification. The two parties involved here are not difficult to identify: Apple and consumers. At its simplest, the strategies seem to be pretty simple. For Apple, it is to release the iPhone 4s, or wait and release a 5. For consumers, it is whether to upgrade to iPhone 4s, or not. For these strategies, however, payoffs are not easy to estimate. First, there are categories of consumers: those waiting for an upgrade, those not yet eligible for upgrade, each of which having different payoffs. Second, the consumers can further be split by whether they prefer iPhones, Androids, any smartphone, or cheap no data required phones. Payoffs are further influenced by the anticipated release date of the next generation iPhone, a piece of information hidden from the consumers. While we do not have the data necessary to compute any payoff values for such a diverse population, we can still speculate the sign and relative payoffs between the choices and attempt to find a Nash Equilibrium. First consider the case if Apple chose not to release the iPhone 4S, which we may assume can bring the release of the iPhone 5 earlier by a small amount, then consumers cannot buy it, end of story. In reality, these phones will are announced, and a significant portion of consumers, especially those waiting for an upgrade, will choose to buy because they will otherwise have even longer wait and no new phone, which gives even less payoff. Here, note that if an upgrading consumer believe the iPhone 5 will be released soon, they may also choose to not buy, but people have agreed version upgrades are genuinely slow. For Apple, if (enough) buyers choose to buy, its payoffs are higher if they release, otherwise, higher to not release, pretty simple. The Nash equilibriums are (release, buy), (not release, not buy).
So why is it that Apple moved toward the former equilibrium? Apple holds the initiative to release or not, if they release, then they know enough consumer will buy. Why? They have no reason to risk lower payoffs. While the many qualifiers in the argument limit the validity of the equilibria, I will here forth announce my absolute confidence in Apple’s market decisions. Missing information prevents us from figuring out what equilibriums are, but it cannot stop Apple. They have tremendous quantity of market data that can probably within margin predict what the profit will be. Apple has chosen to release the iPhone 4S as is, so it must be intent on making profits. With the information unbalance, it’s not surprising we will only win if it is in Apples best interest. For those holding out for the 5, I wish you best of luck, as Apple has confidence that it won’t be available until it’s made fair profits in the iPhone 4S.