Google – Page 3 – Naofumi Kagami

Groupthink at Google?

Just a short note. I am worried that we might be seeing symptoms of groupthink coming out of Google.

First Sundar Pichai on making money.

As ever, Google makes such a killing on advertising—including, now, on YouTube—that it just doesn’t have to consider commerce when it doesn’t want to. “The model emerges later,” said Sundar Pichai, Google’s powerful senior vice-president of products and the master of its Android and Chrome software platforms.

“I’ve always been comfortable building in two directions,” he added in an interview following a two-hour-plus keynote presentation to thousands of developers. “First, if we help users get information, a lot of which is inherently commercial, monetization opportunities arise. Second, history always shows that if you build something millions or billions of people end up using, that builds a lot value too.”

Next Google’s Chief Business Officer, Omid Kordestani.

Q: How would Google monetize a self-driving cars?

A: The lesson I’ve learned over these years, you have to build it first. If the users come, you can monetize it later.

These comments may not have mattered too much 5 years ago when desktop PCs were still going strong, and the issue of declining cost-per-click on mobile was still not an issue. However, now in 2015, Google is facing serious questions on maintaining its financial growth. There is the issue that Google is not as profitable on mobile as it is on the desktop. There is the issue that mobile users don’t even use the Web as much. There is the issue that Apple may distance itself from Google. There is the issue that AOSP may unbundle Android from Google’s money earning services. There is the issue that Google still generates most of its revenue from search advertising and the “moonshot” projects aren’t predicted to remedy that situation any time soon. There is the issue that the EU is having an issue with the way Google is driving money generating traffic to its own sites. That is why Google’s stock price has been performing very badly for the last two years.

You would expect Google to understand the concerns that investors have, and at least make some comments that would sooth their anxiety. However, to the contrary, we hear even the Chief Business Officer tell us that he basically has no concrete idea yet on how to make money, but it will be fine.

I wonder if somehow Google’s management has lost track of what is happening in the real world. Maybe it has lost a member who used to tell them that they have to at least give a casual thought about earning money. That is the groupthink that I am worried about.

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Android Wear OEMs Are Copying Apple Watch And That Is A Sound Strategy

When you consider that Android Wear reportedly only sold 720,000 watches in 2014 and Apple Watch had a million pre-orders on the first day, it is plainly obvious that the best strategy for Android Wear is to copy Apple Wear. Unless you have a very good reason to believe in your own original strategy and your ability to implement it, it is always better to go with the flow.

Therefore the report that the Asus ZenWatch 2 is copying Apple Watch in both design and marketing material is totally expected and makes complete sense. In fact what is more disturbing is this interview with Google’s product manager of Android Wear, Jeff Chang. Chang stubbornly reiterates Google’s almost ideological emphasis on openness and flexibility, and also on the always-on display. This is fine if Moore’s law allows Google to make the smartwatches that they want in say a year’s time, and maybe Chang has knowledge of future products that can achieve his goals. If not, Google should also be copying Apple Watch.

Incidentally, I’m very sure that ASUS should be putting a bit more effort with the back case. That is not how the back cases of watches should look.

Android No Longer Competes With iOS

The Google I/O keynote on May 28th 2015, confirmed a thought that I have had for a long while.

On April 3rd 2013, I wrote a post (in Japanese) titled “Predicting Android’s Change Of Direction: Thoughts from Andy Rubin’s Demotion” (「Androidの方向転換予想：Andy Rubin氏の降格を受けて」). In that post, I argued the following;

Andy Rubin considered Android to be very valuable in and of itself. For him, it was important to make Android the best that it could be. This meant being better than iOS.
Larry Page is not very interested in Android itself. His interest is in Google’s cloud services, and Android is only one of many initiatives to maximise their user base.
Hence Android’s market share itself is not important, nor is controlling Android an imperative. Even if iOS, Firefox OS or Tizen expanded their market share, that would not be a problem as long as they used Google’s services.
Android does not need to be the best smartphone OS.

From this, I predicted that Android would stop trying to copy iOS in the attempt to get iOS users to switch. Instead, Android would probably focus on the low-end in order to expand the use of smartphones in markets where iOS would not have a strong presence.

The 2015 Google I/O keynote strongly suggests that this indeed has been their strategy ever since. The signals that I observed were;

Android M itself (excluding the cloud services that would also be available on iOS), no longer adds major features that would give it an advantage over iOS.
The announced Photo service is also available on iOS from day one. Now on Tap which is not feasible on iOS which is why there isn’t an iOS version.
The improvements on offline connectivity are geared towards countries where Internet connectivity is unreliable or expensive compared to the average income.

Google itself mentioned that Android M is mainly about fixing bugs and annoyances in Lollipop, and if that is to be believed, then the next version of Android coming out in 2016 should have many more features. However, since I am now more confident of my reading of Google’s strategic imperatives, I am pretty sure that this will not be the case. I predict that the 2016 version of Android will also not have any major new features.

In short, I am now sure that Google no longer intends to compete with iOS with Android. Essentially, they are giving up the high-end smartphone market to Apple and they are cool with that. Instead, Google sees Android as a vehicle to spread their services to market segments that iOS cannot penetrate.

How will this strategy fare in the future?

This strategy is sound if Google’s sole objective is to learn about what people are doing. However, from a financial standpoint, there are many risks. By far the largest risk is, what if Apple is successful in distancing itself from Google? What if Apple somehow succeeds in significantly reducing the number of Google searches performed on iOS?

There are several dark shadows on the horizon in this regard.

Google search may no longer be the default search engine on Safari. (link)
The vast majority (75%) of mobile search ad revenue comes from iOS (from Goldman Sachs)
Apple has been working to reduce iOS’s search reliance on Google, and the ability to display Wikipedia search results in Spotlight have reduced Google clicks(9to5mac).

It seems that either these reports are false, are insignificant, or simply that Google’s management is oblivious to these threats.

Either way, Google’s strategy makes it financially vulnerable due to an over dependence on iOS. Since Google still lacks a strong alternative revenue source to search ads, anything that causes it to lose this revenue will significantly slow the company’s growth. The only way to mitigate this risk would have been to attempt to capture the high-end smartphone market in collaboration with Samsung. This is very much to opposite of what Google’s actions suggest.

In conclusion

I am now quite sure that Google’s management gave up on the high-end smartphone market at the time when Andy Rubin was demoted on March, 2013. The past two years has seen Google focus on the low-end smartphone market, while deemphasising high-end features, and even fighting with the vendor that dominates high-end Android phones.

2015 is the year when we might see this strategy backfire. There are multiple reports that suggest that Apple will more aggressively distance itself from Google, and that this will have a significant impact on Google’s growth.

Importantly, by neglecting the high-end smartphone market, Google has burnt the bridges and has no backup strategy if this is indeed what happens.

Questions About Google Becoming an MVNO

Some quick questions that I have following the reports that Google is striking deals with Sprint and T-Mobile to become an MVNO;

What will the larger carriers, Version and AT&T think about this? Unlike Android OEMs who had to rely on Android in spite of how Google provoked them with Nexus phones and Motorola, carriers do have a choice. If they decide that they don’t want to do business with a competitor, they can more heavily promote iPhone or Windows Phone, and de-emphasize their efforts selling Android phones.
Will Google have access to the data that flows through the wireless network? I think this is unlikely because MVNOs don’t own the wireless communications infrastructure, but I don’t know much about the system so I can’t really say. I’m sure Google would like the data, but if they really did, they could simply monitor everything that happens on Android phones. Maybe eavesdropping on the network is more acceptable than on the phone.
Is this a Nexus? As I recall it, the purpose of the Nexus project was to create good hardware and sell them at low prices, hopefully encouraging their OEM to follow suit. Is the purpose of the current deal to do this. Since MVNOs are completely reliant on their partner for the network, Google has no control over the quality of the network. The only thing they can control is price. They might try hard to lower prices, that’s all that they can do.
Is Google just dipping its toes into the water? Maybe their ambition is to eventually become a full scale carrier. Becoming a carrier would give them data and the ability to improve on quality.
Maybe Google just wants the money. Despite all the businesses that Google is getting into, money generation is almost all from their old search advertising business. As the Internet and even smartphones are starting to saturate the market, it is likely that Google will start to see its revenue growth slow down. Google is certainly looking for other ways to earn money. Maybe becoming an MVNO is simply part of this plan. Maybe they are simply looking for profitable businesses in adjacent markets. I doubt that MVNOs make much profits, but Google has to start somewhere.

Slow Adoption Of Android 5.0 Lollipop

It seems that three months since its release, the adoption of Android 5.0 Lollipop seems to be unprecedentedly slow.

Still, as can be observed from the graph below, three months into its existence KitKat somewhere around 2% was already present in a significantly higher number of devices than Lollipop currently is.

NewImage

Compared to previous major upgrades of Android, Lollipop is quite big. It renews the UI design (Material Design) from Holo which has been in use since Android 3.0 (2011), it features a new ART runtime that replaces Dalvik which has been in use since, the beginning and it also has support for 64-bit devices. Lollipop is brand new in many ways, and I thought that Google would try very hard to drive quick adoption.

This clearly hasn’t been the case. I strongly doubt that this was intentional.

A bit worrisome.

Overhyping the Revenue Potential of the Emerging Countries

A beautiful infographic on the state of App Stores by App Annie.

Unfortunately, I can’t agree with the title “Mobilizing the Next 5 Billion”. If anything, this infographic tells us how dominant the “app store superpowers”, Japan, South Korea and the United States are. These superpowers are not only dominant in current revenue, but also have revenue growth that is equal to the emerging countries. This means that the emerging countries are not catching up; instead the lead of the superpowers is widening.

The infographic tells us that the superpowers will remain dominant in revenue for the foreseeable future. The next 5 billion is unlikely to contribute significantly to total revenue from app stores for quite a while.

Ad Spend Versus Time Spent on Mobile

Flurry Analytics released a report titled “Apps Solidify Leadership Six Years into the Mobile Revolution” back in April 1st of this year which I hadn’t analyzed in detail. Looking back, I certainly should have; It is a trove of information.

Here, I would like to look at the final graph that they show.

Here the assumption is that “time-spent is the timeless currency”, an old saying in the world of advertising that means that advertising revenue distribution follows time-spent distributions. If this holds true, then the above graph suggests that ad revenue share for Google will trend downwards while ad revenue share for other apps will rise.

This is a bold suggestion and I would certainly like to see some more information related to this. The current study is still too crude to draw a definitive conclusion, some of the reasons for which I will outline below;

Of the 18% Time Spent on Google, 14% is actually the total of time spent inside a browser. Flurry is attributing 100% of the time spent in a browser (including Safari on iOS) to time spent on Google. This is an understandable approximation because a large proportion of ads on the web are from Google, but still quite extreme.
Of the 65% Time Spent on Other Apps, a large proportion will be showing apps from AdMob, Google’s mobile advertising network which they acquired in 2009. Hence much of this 65% could be attributed to Time Spent on Google.
Although Google has very strong market positions in both search ads (AdWords) and display ads (AdSense), search ad revenue is growing much faster. It is also the majority of their revenue. It is very possible that search-related ads can earn a disproportionate amount of money that cannot be inferred from time-spent alone.

On the desktop, Google worked hard to provide free solutions for the activities that people did on their PCs. They created Gmail and Google Docs because email and productivity applications were the activities that people did. They acquired Blogger because a lot of the content that people were reading on the web were blogs. They created their own RSS reader because that was how many people read content.

Google was not content with simply supplying ads to websites and webapps; they created or helped create the websites/webapps themselves, or they tried to provide tools to read the content more effectively. They tried to be much more involved than a simple advertising agency.

On mobile, it does seem that Google is struggling to do this. They have failed to create an engaging social network, and they aren’t involved in the creation of games. YouTube, although significant at 4% of total time, is still quite small compared to games and Facebook. They don’t have a direct presence inside the dominant mobile activities.

It will be interesting to see whether Google will push harder to be more than an advertising agency on mobile, or whether it will be content with pushing ads through search and AdMob.

Will High-End Android be a Samsung Exclusive?

I have been very wary of Google’s efforts to build in the tools that Android requires to compete with Apple in the high-end smartphone market. My feeling has been that Google is no longer interested in the high-end smartphone market and is satisfied to let Apple have it. Instead, Google is focusing on the low-end market and on bringing low-cost smartphones to the emerging markets.

Recent announcements reinforce my thinking.

On Nov 13, 2014, Samsung and BlackBerry announced a partnership to build and market a tightly integrated, end-to-end secure solution aimed for enterprises. It is well known that Apple dominates corporate market share in smartphones and tablets, and security is one of the reasons why Android is struggling. The interesting thing is that Google seems very uninterested in developing a solution of their own for this quite lucrative market.

At the keynote of Samsung Developer Conference 2014, Samsung introduced Samsung Flow, which is basically their version of Apple’s Continuity features. The important thing to note is that Continuity is a feature that is only valuable for customers who can afford multiple devices. Again, why did Samsung and not Google develop this? Is it because Google is relatively uninterested in the customers who are wealthy enough?

Samsung recently announced its answer to Apple’s iBeacon feature, Proximity. This is a technology to enhance customer experience at stores, mall, stadiums, museums, etc. and also push you special offers and stuff. As stores embrace iBeacons, there was the possibility that some of the offers would end up being exclusive for iPhone users. Now it will be exclusive to iPhone and Samsung users. Why wasn’t Google interested?

If this continues, Samsung might create a rather formidable barrier-to-entry for the high-end Android market, blocking HTC, LG, Lenovo and others from competing.

Although I do suspect that the overall market for high-end Android devices might shrink, I do not doubt that Samsung will continue to dominate for the foreseeable future.

Who Is To Blame For Samsung’s Bad Fortune?

As the profits plunged on Samsung’s smartphone business, the web has been awash with reasons.

Ben Bajarin has shown very nicely that the largest problem that Samsung faces is the decline of the high-end business, which is also mentioned by a Samsung executive in the Guardian article.

The high-end of the business has been dominated by Samsung and Apple and still is. This means that there are two possibilities.

Apple took away Samsung’s sales in the high-end. That is to say, users of high-end Android phones (who were mostly using Samsung devices) switched to the iPhone.
The high-end market for Android smartphones saw a sudden shrinking. That is to say, mid-range smartphones were perceived as good enough and hence there was no need for customers to purchase high-end Galaxy devices anymore.

I suspect that both of these happened but I want to analyze them in isolation because it makes the situation easier to understand. Although these two look similar, they are actually very different. The first means that Apple was able to steal market share away from Samsung. The second means that vendors of mid-range smartphones (including Samsung of course) captured the customers who previously bought high-end phones. We will look at each separately.

Apple is stealing away the high-end

This is obviously happening. All reports point to Apple selling huge numbers of iPhones and it has been suggested that a lot of these are switchers who have abandoned Android phones.

The important thing is why. Of course the triggering event is the increased screen size of the iPhone 6. However, what is more important is why couldn’t Samsung match the iPhone 6 before Apple threw down the gauntlet. Why was Samsung left clinging to screen size as the only feature that could keep it competitive in the high-end.

Although design and/or Apple’s brand could well be a factor, it is also as likely that iOS and its app ecosystem could have been perceived to be superior than Android. If this was the case, then the blame would have to be put onto Google. Google failed to create an operating system and ecosystem that was competitive against iOS. The only reason that the high-end Android market existed at all was because Samsung had large screens while Apple did not.

If it was design or branding, then it would be harder to place the blame on either Samsung and Google simply because Apple is so good at these. Either way though, the result is that the high-end Android market cannot exist anymore.

The high-end Android market is shrinking

This is a completely different dynamic. If this were the case, then we should be seeing customers who previously owned the flagship Galaxy devices either downgrade to mid-range Android devices or to extend their replacement cycle. I have not yet seen a statistic that suggests that this is happening, but it is plausible.

This can only happen if Android smartphone hardware is starting to be considered as good enough, even by previous high-end purchasers. This also has to happen while at the same time, on the Apple side of the fence, Apple customers are not considering iOS hardware to be good enough. There must be something very different happening to Android customers and iOS customers.

The good enough of hardware is determined by software. If the software can take advantage of new hardware and create a true benefit for the customer, then old hardware will not be good enough. On the other hand, if the software does not have any compelling features that require new hardware, then old hardware will be good enough. No matter how much the hardware improves, whether customers will demand it depends on software.

In the case of iOS, the OS made full use of the 64-bit hardware to enable much faster processing of photos and movies. The OS made use of the TouchID sensor, which is also now being used by the Apple Pay service. Apple has given each piece of new hardware a significant reason for existing, and that is why customers want new devices.

On the Android side, that has not been the case. Google has not moved quickly to 64-bit, it has not worked hard on corporate level security, and it has not introduced software support for biometric sensor technology. Instead, Google has introduced a lot of software technologies that enable low-powered devices to smoothly run the latest operating system. Instead of adding new features that would take advantage of new high-end hardware, they focused on making sure that the mid-range and low-end hardware would be able to run the latest operating system and to take advantage of all of its features. In summary, Google actively designed their new operating system so that Samsung would have a hard time differentiating itself.

Although I’m not sure whether Google did this intentionally, it has made it very difficult for high-end Android smartphones to compete with mid-range ones. This is not only a challenge for Samsung, but it will also be a challenge for any OEM that plans to move upmarket. It will mean that companies like Huawei, Lenovo and Xiaomi will not be able to move up-market unless they gain significant control of the OS.

So what should we blame?

I think that Google was targeting the low-end from the start, but Andy Rubin was not. I genuinely think that Andy Rubin was much more focused on the high-end and he didn’t seriously consider making Android work better on low-end devices. I think he wanted to make Android as good as or even better than iOS. The fact that his reign coincided with when Samsung was strongest is no coincidence.

When Andy Rubin was removed and Sundar Pichai took over, it became rather clear that instead of fighting with iOS, Android would focus on the low-end. In fact, most products that Google creates (many of which were under the supervision of Sundar) aim at the very low-end where prices are normally zero. Google Docs is a prime example of this, as is Chrome OS. Google’s strategy is to commoditize all markets except for search and advertising, by providing a good enough product for free.

Samsung could have tried harder to take control of Android so that they could create software that took advantage of high-end software. In fact, they tried. Considering that Samsung was mainly a hardware company, I don’t think that they ever misunderstood that they needed good software; it was just that they didn’t have the resources or the culture to create great software. It’s hard to blame their strategic thinking for this.

Google could have tried harder to preserve the high-end. However, it’s priorities were clearly in the low-end. It’s hard to focus on both.

I would say that the only strategy that we could actually blame was Samsung’s decision to team up with Android. Samsung should have seen that Google would ultimately aim to commoditize their own OS and all hardware vendors using their platform. Samsung should not have helped Android to gain market share, and instead waited for a contender whose priorities aligned better with Samsung’s goals. Of course, that is what Nokia did.

Luxury versus Premium In Tech

Why aren’t iPhones being disrupted by low-end Androids?

Apple’s iPhones have retained their value (high selling price) and sales despite a large number of low-cost Android devices entering the market. The quality of these low-cost Android devices has also improved significantly, and as a result, many people have claimed that the performance difference between these and the iPhones no longer justify the premium prices. That is to say, low-cost Android phones are “good enough” in the terminology used in “The Innovators Dilemma” by Clayton Christensen.

If the low-cost Android phones are “good enough”, then Christensen’s theory suggests that the high-end iPhones could be disrupted. However, market performance of the iPhones suggest that this is not happening. New iPhones break sales records every year whilst the selling price has not come down appreciably. Interestingly, Samsung, which dominates high-end Android, has had a hard time selling its most recent flagship device this year compared to last year. If anything, what we are seeing is high-end Androids being disrupted by low-end ones, whereas the iPhone is somehow immune.

One big question is, why aren’t iPhones being disrupted by low-end Androids? Why isn’t Apple facing the same problems that Samsung is? Many people give many different explanations for this.

Differentiation alone is not the answer

A common theme is that Apple controls the whole experience while Samsung only controls the hardware. Hence Samsung has more difficulty differentiating itself from the cheap OEMs. While this is no doubt true, differentiation only matters if the unique features that you provide are useful. To illustrate this, imagine if iOS and Android were absolutely equal in utility. Then the differentiation that iOS provides would not provide a competitive advantage for Apple; it would only make them different. And being different alone will not increase your sales.

This becomes clearer if we go back to the mid 1990’s, when Apple was in dire straits. Even at that time, Apple had control of both software and hardware whereas DELL and Compaq did not. However, this did not help Apple at all. Because the classic Mac OS was no longer significantly better than the competition, differentiation was no longer positive; it was actually negative.

Although I do not dispute the importance of differentiation, it is only positive if you have a superior product. If you have an equal or worse product, then differentiation is actually toxic. Differentiation can be positive or it can be negative. Hence the key attribute that we should be looking at is not differentiation, but whether or not the product is significantly superior or not.

iPhones as a luxury

Another common explanation is that the Apple brand has now attained luxury status, and that this has made iPhones immune from feature and price comparisons. This means that iPhones can command high prices despite features being on parity with cheaper Android phones.

It also suggests that iPhones will be immune from low-end disruption as described in “The Innovator’s Dilemma”. Low-end disruption happens when technology improves the functionality of a product up to the point where it overshoots the needs of the majority of the public. Therefore, for low-end disruption to happen at all, the product must improve over time. Since luxury status is often not a function of technical progress, this makes luxury immune to “The Innovator’s Dilemma”.

I have huge issues with how the word “luxury” is used in these contexts. The way many people use “luxury” is to explain a how a high-priced product sells well despite the absence of any perceivable (at least to them) desirable functionality. They are not saying that the iPhone is luxury because it shares certain attributes with other luxury products; instead they are calling it a luxury because all other explanations have failed.

Regardless of whether the iPhone is truly a luxury or not, this is not how we should be using this word if we are serious about understanding the truth. Instead, we should strive to understand consumer behavior towards luxury products and see how the iPhone fits in.

Luxury vs. Premium

If you look up “luxury vs premium” on Google, you can see that this topic is quite often discussed.

James D. Roumeliotis sums up a long blog post with the following;

Luxury is not premium – and premium is not luxury. They are two dissimilar categories catering to different market segments.

A luxury brand is more about prestige and appearance – it’s about pedigree and social stratification. As objects of desire, they stand out as aspirational to all but a few souls. These crucial elements keep these products exclusive on purpose. Premium, on the other hand, stands for performance, value added, state-of-the-art, craftsmanship, and timeless design.

Mark Whiting conducted a market research study on luxury brands which is summarized in a blog post;

The criteria used to classify Luxury brands

Although putting a brand in the luxury or premium category is the result of a personal opinion, our Luxury Detectives agreed on seven criteria defining luxury brands.

Uniqueness: Irreplaceable objects, produced in small quantities, handcrafted. Can only be made in a specific place or country. Exclusive distribution: strategy of rarity, waiting lists, few stores. For one of our Luxury Detectives based in Los Angeles, Villebrequin perfectly captured the spirit of Southern France.

Timelessness: Products that will last that will never go out of fashion and will be passed on to the next generation.
Excellence: They will be made by skilled artisans and the finest fabrics and fabrication will be used. Culture of connoisseurship. The best customer service will apply.

Iconic Communication: A very sophisticated and codified visual universe built on dreams, desires and fantasies .
Sensual Aesthetic: Refined aesthetic that conveys sensuality, indulgence with a hint of extravaganza and it appeals to the 5 senses.

Brand Soul: Builds its identity around a creator, the history of the house, and has its roots in history.

Innovation: Brands that dare to push boundaries and surprise. They stay faithful to their roots, but modernize and adapt style to present time to express coolness

And finally, Seth Godin says the following;

Luxury goods are needlessly expensive. By needlessly, I mean that the price is not related to performance. The price is related to scarcity, brand and storytelling. Luxury goods are organized waste. They say, “I can afford to spend money without regard for intrinsic value.”

That doesn’t mean they are senseless expenditures. Sending a signal is valuable if that signal is important to you.

Premium goods, on the other hand, are expensive variants of commodity goods. Pay more, get more. Figure skates made from kangaroo hide, for example, are premium. The spectators don’t know what they’re made out of, but some skaters believe they get better performance. They’re happy to pay more because they believe they get more.

The iPhone attributes which are related to premium are;

State-of-the-art performance: Despite having lower specs on paper, iPhones have had much smoother animations and scrolling than even the top Android devices. Benchmarks, particularly on web browsing performance have also consistently shown iPhones to be faster than Android.
Craftsmanship and timeless designs: It has been widely recognized that the craftsmanship and design of iPhones are superior to Androids.

The iPhone attributes which are related to luxury are;

Brand Soul: The history of the Apple brand and the association with innovation and the life of Steve Jobs is very strong and unique.
Innovation: The history of the Apple brand has been around innovation. Many people perceive Apple to be the most innovative smartphone manufacturer.

On the other hand, some attributes that are important for luxury products, but are lacking on the iPhone;

Uniqueness: Even in unsubsidized countries, iPhones have a least double digit sales share. This easily disqualifies iPhones from being unique in developed countries.
Needlessly expensiveness: Although iPhones are more expensive then their Android counterparts, the price is not too different from Android flagships. You cannot say iPhones are needlessly expensive.
Iconic communication: Commercials for iPhones always feature ordinary looking people doing ordinary things. They do not use iconic figures going to an extravagant location in a luxury car. Apple is not sending a luxury marketing message.

We can see that although Apple does have luxury brand appeal, their product, marketing and pricing strategies are very strongly non-luxury. Instead they are squarely aimed at the premium market.

It would be very wrong to classify iPhones as luxury.

Consequences

Premium means being a high-quality product with superior performance and design/craftsmanship. Advances in technology will allow new market entrants to easily attain a premium position in the performance aspect. Also, since manufacturing of Apple products is outsourced to China, design and craftsmanship are not too difficult to copy either (as proven by Xiaomi). Hence being a mainly premium supplier means that you will feel the forces of low-end disruption, and you are in no way immune.

Premium suppliers have to make sure that their products are always state-of-the-art with the best designs and craftsmanship. In the tech world where innovation (driven by Moore’s law) is so fast that any technology risks being overridden by “The Innovator’s Dilemma” in a matter of years (witness the flat-panel TV story), this is extremely difficult. What happens is that you may be state-of-the-art, but your technical expertise overshoots customer needs and becomes irrelevant very rapidly.

It is not constructive and even misleading to categorize iPhone as luxury. As with Samsung, Apple is subject to the forces of low-end disruption and has to ensure that the iPhone is premium by making sure that it is significantly better than cheaper Androids in both performance and design/craftsmanship.

Apple has been better at making their products premium. Samsung has failed. It’s that simple.