In an unexpected move, Apple recently announced that prices for the now-available iPhone 11 will start at just $700 in comparison to last year’s $750 base model. But what could be behind this unusual price cut? The answer is two-fold.

1. Smartphone sales are slowing.

iPhone sales have been stagnant since 2016. With ever-more expensive releases each year until now, it has become clear that consumers’ willingness to spend has its limits: Sales of last year’s iPhone 11 Pro ($1,000) and Pro Max ($1,100) lagged far behind sales of the $750 entry-level iPhone 11, forcing the company to lower revenue estimates and slash prices in China to increase demand.

Apple isn’t the only one feeling the heat: IDC reported that users are simply holding onto their smartphones for longer, causing a 6.6% drop in shipments year over year in the first quarter of 2019. Samsung confirmed a 30% drop in profits at the beginning of the year, and Google is seeing a decrease in interest in Pixels, as well.

2. Services revenue is exploding. 

At least for Apple, though, a decline in hardware sales is being somewhat offset by an increase in services revenue. Apple’s services division — which includes Apple Music, iTunes, Apple Pay and iCloud — saw sales reach an all-time high of $11.46 billion last quarter. This is in part thanks, no doubt, to Apple’s strategy of doubling down on services, with plans to release the highly anticipated Apple Arcade and Apple TV+ by the end of the year. 

While Apple’s steady transformation into a service-forward company makes its stagnant hardware revenue sting a bit less, it also makes it all that much more important to get iPhones into the hands of consumers. (Most Apple services require Apple hardware, after all). A lower price could just jumpstart phone sales, thereby plugging more users into Apple’s services.

What does it mean for advertisers?

Like Netflix, Apple TV+ will offer no advertising, nor will Apple Arcade. While the new Apple News service does include advertising, publishers have called the monetization potential “abysmal.” Apart from publishers seeing increased traffic to their websites, the focus on privacy and lack of programmatic options have left them wanting.

It’s a disappointing showing considering the bevy of new content available, but Apple isn’t the only game in town. Google’s new video game platform, Stadia, is set to drop in November and will allow players to stream cloud-based games on their mobile devices. Monetization plans have not yet been revealed, perhaps leaving room for advertising opportunities.

Meanwhile, content providers like Hulu and YouTube are already offering a steady stream of ad inventory with their services. Hulu’s ad revenues are forecast to hit $1.82 billion this year, while YouTube’s U.S. ad revenue is predicted to reach $5.47 billion by 2020. 

With service offerings on the upswing as phone sales slow, advertisers will want to keep an eye on content providers’ offerings in the future. We can only hope that a drive toward content creation eventually leads to profitable new advertising opportunities.

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