There are three cost sources: materials, design, and manufacturing. I claim that because phones are small and expensive to design it’s just not worth it.
Materials: Phones have very high $/kg already. At $5,000/kg, you could launch them to space and only double the cost. So unless there’s a better battery design made of pure gold, phones can already afford basically whatever materials are optimal. Even a $4 million hypercar costs less per kg than an iPhone Pro.
IP/design/software is zero marginal cost. It doesn’t make sense for companies to spend $10 billion designing an OS for its premium users only. Better to segment on hardware.
Manufacturing: Assembly just isn’t that expensive. As for components, it’s impossible to make a phone with chips more than one process node ahead than average. So you get $500 phones that are one node behind, and $1500 phones that are at the frontier and 20% faster, and that’s the limit.
I don’t really think progress being fast is quite sufficient to explain things. If every tripling in price could get you a 20% better phone, many people would pay for an 81x more expensive, 107% better phone just like they do for private jets. If it became obsolete in a year, the billionaire would have their phone guy replace it every six months. I think it’s because a phone, or gmail, starlink, etc. has super high fixed costs, and the smaller market for luxury goods generally means the design will be worse. For food or furniture better quality ingredients/materials can more than make up for it, but consumer electronics can only get slightly better components because most already designed things are within the cost/kg budget of a $1k phone.
Everything more expensive per kg than phones has an interesting way of funding their design costs without scale:
Military tech like fighter jets, radar systems: Cost mainly from r&d. The military demands highest performance and is a large market, spending 2-5% of GDP on fairly small volume
Pharmaceuticals: Cost mainly from r&d. Either large scale or literally lifesaving for rich people
Luxury watches: Practical benefits of a luxury watch are nil but people buy them anyway for status and wonder, essentially paying watchmakers to arrange titanium and rubies into ever more elaborate shapes that happen to tell time.
So my prediction would be that the luxury smartphone business only starts up when lots of rich people have different problems from the average consumer that need a custom device (security maybe?) or subscribe to a status game that results in the phone equivalent of luxury watches.
because phones are small and expensive to design it’s just not worth it
This would imply that luxury watches and luxury fashion don’t exist, which they do. (I see you mention the watches later in the comment, but not the fashion, although your explanation for luxury watches roughly applies to fashion as well).
I don’t really think progress being fast is quite sufficient to explain things
I’ll agree here. I don’t think my theory fully explains certain things. Books, movies, and other creative works are things that don’t quite fit into this framework nicely. I suspect that these things are limited by creative innovation, but I’m not very certain about that belief.
I think it’s because a phone, or gmail, starlink, etc. has super high fixed costs, and the smaller market for luxury goods generally means the design will be worse
The super-high-fixed-costs hypothesis would imply that we don’t have luxury watches, cars, jets. I suspect it is a factor in what causes a luxury good to come onto market, but I don’t think it can be the only factor.
So my prediction would be that the luxury smartphone business only starts up when lots of rich people have different problems from the average consumer that need a custom device (security maybe?) or subscribe to a status game that results in the phone equivalent of luxury watches
I appreciate the concrete prediction, although I wouldn’t be surprised if these conditions are already met in some way. The ultra-wealthy definitely already need more security, privacy, etc than your average joe. And I believe that many of the ultra-wealthy already subscribe to status games.
There are three cost sources: materials, design, and manufacturing. I claim that because phones are small and expensive to design it’s just not worth it.
Materials: Phones have very high $/kg already. At $5,000/kg, you could launch them to space and only double the cost. So unless there’s a better battery design made of pure gold, phones can already afford basically whatever materials are optimal. Even a $4 million hypercar costs less per kg than an iPhone Pro.
IP/design/software is zero marginal cost. It doesn’t make sense for companies to spend $10 billion designing an OS for its premium users only. Better to segment on hardware.
Manufacturing: Assembly just isn’t that expensive. As for components, it’s impossible to make a phone with chips more than one process node ahead than average. So you get $500 phones that are one node behind, and $1500 phones that are at the frontier and 20% faster, and that’s the limit.
I don’t really think progress being fast is quite sufficient to explain things. If every tripling in price could get you a 20% better phone, many people would pay for an 81x more expensive, 107% better phone just like they do for private jets. If it became obsolete in a year, the billionaire would have their phone guy replace it every six months. I think it’s because a phone, or gmail, starlink, etc. has super high fixed costs, and the smaller market for luxury goods generally means the design will be worse. For food or furniture better quality ingredients/materials can more than make up for it, but consumer electronics can only get slightly better components because most already designed things are within the cost/kg budget of a $1k phone.
Everything more expensive per kg than phones has an interesting way of funding their design costs without scale:
Military tech like fighter jets, radar systems: Cost mainly from r&d. The military demands highest performance and is a large market, spending 2-5% of GDP on fairly small volume
Pharmaceuticals: Cost mainly from r&d. Either large scale or literally lifesaving for rich people
Luxury watches: Practical benefits of a luxury watch are nil but people buy them anyway for status and wonder, essentially paying watchmakers to arrange titanium and rubies into ever more elaborate shapes that happen to tell time.
So my prediction would be that the luxury smartphone business only starts up when lots of rich people have different problems from the average consumer that need a custom device (security maybe?) or subscribe to a status game that results in the phone equivalent of luxury watches.
This would imply that luxury watches and luxury fashion don’t exist, which they do. (I see you mention the watches later in the comment, but not the fashion, although your explanation for luxury watches roughly applies to fashion as well).
I’ll agree here. I don’t think my theory fully explains certain things. Books, movies, and other creative works are things that don’t quite fit into this framework nicely. I suspect that these things are limited by creative innovation, but I’m not very certain about that belief.
The super-high-fixed-costs hypothesis would imply that we don’t have luxury watches, cars, jets. I suspect it is a factor in what causes a luxury good to come onto market, but I don’t think it can be the only factor.
I appreciate the concrete prediction, although I wouldn’t be surprised if these conditions are already met in some way. The ultra-wealthy definitely already need more security, privacy, etc than your average joe. And I believe that many of the ultra-wealthy already subscribe to status games.