Apple is (kinda) cutting iPhone XR’s price. And it might mean it is fighting back against longer upgrade cycles.

Apple released the iPhone XR in October. It was billed as the cheaper alternative to the XS and Max, scaling down on the screen and second back camera to make it an “affordable” alternative.

The problem is, nobody wants them – or at least not as many people as Apple projected (interestingly, somebody confirmed to Reuters that the XR has been the best-selling model since it went for sale in October. But still, not as much demand as expected).

Now, Apple is scaling down iPhone XR production, while scaling up iPhone X (last year’s flagship model) production.

That means there might be a giant stockpile of XRs sitting around. Basic economics says the price should fall so demand matches supply. However, Apple isn’t known to cut prices until the next year’s model comes out.

However, while the price remains $749, Apple has put in a few backdoor ways to cut the price.

First, in Japan, cutting the effective price by $100 through carrier contracts (9to5Mac).

Second, 9to5Mac pointed out that Apple is increasing its trade-in value

In the past, they have relied on carrier incentives, rather than outright price cuts, to clear out inventory (The Verge in 2014: Apple drops iPhone 5S price to $99, makes iPhone 5C its free option).

With this new trade-in promotion, not everyone can take advantage. If you have anything older than a 6, you’re out of luck, and you’re paying full sticker price. But if you have a new-ish phone, Apple is going to give you a nice chunk of money to upgrade.

Apple’s backdoor iPhone upgrade

While it remains to be seen whether this big recycling promo is a one-time thing or a test for a longer-term program, it is big shift for Apple – and it might be a sneaky way to speed up the upgrade cycle moving forward.

Read also: QUICK REVIEW: Last week’s Apple Q4 earnings

Apple is in the middle of a big shift in its business. The company isn’t reporting handset volumes anymore for a variety of reasons. One is that the upgrade cycle is getting longer and longer. That means the company has to rely less on outright iPhone sales, and lean more into services and recurring revenues from Music, apps, and all that other stuff you get billed for every month. Basically, it doesn’t matter how many iPhones it sells anymore, just how much money the company is making (or at least, it wants to train investors to think this way).

However, offering bigger “recycling” discounts for new-ish models might be a great way for the company to nudge iPhone users into buying new models. If you have a phone that is less than 3 years old, you get a big discount. If you wait longer to upgrade, you’re going to pay a lot more out of pocket. That’s sort of brilliant.

What analysts are seeing in retail ahead of December holiday season

Retail names have been one of the better performing groups so far in November, especially important that it is ahead of the critical December holiday season. The XRT retail ETF is up 8% year-to-date, more than double the S&P 500’s 3.7% return.

And while Amazon is up 41% YTD, the broader retail group has more momentum heading into the holiday season. Since the end of October, XRT is up 4.2% compared to Amazon’s +0.2%.

See also: Tearing down and building up: Amazon wants Deliveroo, opens 4-Star store

See, retail isn’t dead.

So what do Wall Street analysts think?

Analysts have pointed out a few things paying into the retail’s recent run:

  • Consumers: strong consumer spending heading into the holiday shopping season. Last quarter’s GDP growth was driven by consumer spending (outpacing income gains, which means people are pushing their purchases forward). That’s probably a positive for this upcoming holiday season
  • Weather: It’s cold. But not too cold, where people don’t want to or can’t go out in a Polar Vortex. So those fleece vests and Patagonia fleece pullovers are probably selling well.
  • Extra holiday shopping day: Christmas is on a Tuesday, which means there’s an extra shopping day between Thanksgiving and Christmas compared to last year. That’s a bigger deal than you think. An Adobe Analytics study (Reuters) said that extra day will provide a $284M sales boost. To just online retailers. And online retail is only about 10% of all transactions.

You would be bold to push all your chips toward Macy’s and away from Amazon over the long-run, but people are actually out buying stuff at physical stores. Retail has a little more life than it gets credit for.

Cover photo: Lukas Schlagenhauf, Flickr Commons

QUICK REVIEW: Last week’s Apple Q4 earnings

I just wanted to follow up with a few points from last week’s Apple Q4 earnings report.

See: FOUR THINGS to know ahead of Apple fiscal Q4 earnings: An EPS-less preview

I wrote that Apple would hinge on a few things. Let’s recap:

One) iPhones

While current quarter sales were decent, the outlook for the all important Q1 was decidedly weak. That was also compounded on reports yesterday that the company will scale back production of the Xr (WSJ). That’s bad. Like I said, almost everyone who wants an iPhone (at least in the US) has an iPhone. The company is at the mercy of the upgrade cycle now.
Luckily ASPs bounced back, buying Apple a little more cushion to soft iPhone sales.

As CNBC noted, “Apple’s average selling price was $793, crushing analyst estimates of $750.93.”

See also: Product review-less review of the Apple September 2018 launch

Two) Services

Again, Apple’s future is in services. That’s why the company is now going to start reporting margins instead of unit sales.

The lesson so far? Despite the fancy product rollout events, Apple is now a services company, not a hardware company.

Three) China

China sales held up relatively well, especially compared to other struggling emerging markets like Brazil and Turkey. If this says anything about the Chinese consumer, that’s good news not just for Apple, but for the global economy.

Now if Apple can start increasing market share in China, it’s a new ballgame.

Four) Tariffs and trade

Not much on this out of earnings. However, the company’s 10K (filed November 5th) said,

International trade disputes could result in tariffs and other protectionist measures that could adversely affect the Company’s business. Tariffs could increase the cost of the Company’s products and the components and raw materials that go into making them. These increased costs could adversely impact the gross margin that the Company earns on its products. Tariffs could also make the Company’s products more expensive for customers, which could make the Company’s products less competitive and reduce consumer demand. Countries may also adopt other protectionist measures that could limit the Company’s ability to offer its products and services. Political uncertainty surrounding international trade disputes and protectionist measures could also have a negative effect on consumer confidence and spending, which could adversely affect the Company’s business.

Emphasis mine. Apple investors have mostly shrugged off the tariff impact, but that has the potential to turn into a much bigger problem than softening iPhone sales.

So there it is, a quick recap on Apple earnings. Definitely an interesting story of a company in transition. Stay tuned for more…

Is Instagram listening to your through your phone? In our Echo/HomePod/Google Home world, does it matter?

There has been a big debate about whether apps like Facebook and Instagram are listening to you through your phone.

In a “things that make you go hmmm…” moment, The Verge recently wrote a story, Apple says its T2 chip can prevent hackers from eavesdropping through your MacBook mic. It said Apple’s hardware has “a rather clever hardware-specific defense against mic eavesdropping that can’t be tampered with using remote software controls.” Why do you need a security chip if apps say they aren’t listening to you?  This follows a  2016 article in The Independent, that cited a University of South Florida professor who believes Facebook picks up ambient conversation for ad targeting.

It’s clearly still an ongoing debate (Sam Sheffer recently discussed it on his podcast). But as NYU’s Scott Galloway said in his book The Four, “If you carry a cell phone and are on a social network, you’ve decided to have your privacy violated, because it’s worth it.”

Privacy is so passe

I agree with Galloway, but I’m also skeptical of the claims Facebook and Instagram is always listening to you.

You always hear the stories about some friends talking about a certain beer, then voila, they start getting ads for that beer in their Instagram feed.

First, Instagram has a massive treasure chest of data. It knows if you’re likely to buy some very specific product because. You’re just a nameless profile, but you’ve been put into a bucket with a lot of people just like you.

Second, we all suffer from recency bias. It’s like when you see an actor in once commercial. Then you start seeing her in a bunch of other commercials, television shows, and random movies.

If you talk about a relatively obscure beer with your friends, your eyes and ears are perked up at all sights and sounds of that beer for the next few months. That beer is more prevalent than you think.

The point of all this is, does it really matter?

 Should we get freaked out about whether apps are or aren’t listening to you? Because we are all more than happy to put an Amazon Go or Echo, or Google Home, or Apple HomePod into our homes – knowing damn well those devices are listening to us.

Many might be a bit too freaked out by smart devices to keep one in their home. Count me in that category. But the rest of us still use these apps and products on a daily basis, giving up SO MUCH MORE data and information about ourselves than anything Instagram can glean by listening to my inane conversations with my friends. “Did you see Derrick Rose put up 50 the other night?! Can’t get much from that.

Even worst, our ISPs are allowed to collect all data we send through their pipes and to turn around and use them for marketing purposes. Before 2017, this wasn’t permitted. (See: The Verge, Congress just cleared the way for internet providers to sell your web browsing history). That seems to me to be a much bigger deal than apps. It’s more invisible, but a lot more intrusive.

I’m not arguing whether it is right or wrong for apps to spy on us. We should all just recognize it is happening one way or the other. Cortana on your Windows devices? Bixby on your Samsung devices? Your Comcast voice-activated television remote? Your TV itself (The Intercept: Wikileaks Dump Shows CIA Could Turn Smart TVs Into Listening Devices)? It may or may not be happening on these devices.

But if that is true, then I don’t mind getting rosé vodka ads or thermostat ads served to me on Instagram because I talked about it recently. I’ve got other, bigger privacy things to worry about.

UPDATE: Is CBS starting to act like a digital-first operation?!

I recently wrote that CBS should somehow figure out how to hire YouTube’s Susan Wojcicki to lead the company. I still think that she – or somebody else who has 100% digital experience and 0% traditional media experience – is the right person for the job.

See: What makes YouTube’s Susan Wojcicki such a compelling name to lead CBS?

CBS reported earnings last week – the first of the post-Moonves era. It wasa pretty standard fare:

  • Revenue growth up 3%
  • EPS growth up 12%
  • More content creation, with 76 series in production, up from 65 last year.
  • NFL ratings up 3% after falling for two consecutive years

But the biggest news was the announcement of the launch of DNA (Data n’ Advertising. Ok…), which will help the company better target advertising (the company also launced ET Live last week, its third over-the-top offering. But what good is OTT if you haven’t put in the infrastructure to target ads?)

With DNA, the company will work to move toward a personalized ad targeting system, using data from set-top box providers and smart TVs.

The company’s SVP of investor relations, David Bank, said, “Advertisers can target people who like to eat out and drive SUVs rather than just buy the broad demographic of adults between the ages of 25 and 54.”

CBS gets it! The future of TV isn’t piping in content through your Comcast box, or grabbing over-the-air signals from your flat wall antenna. It’s over-the-top, and the company can make a lot more advertising dollars by serving up targeted ads.

There was no word on how long it will take to put the platform in the action, but at least we know CBS is channeling its inner-Wojcicki.