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Diminishing Returns

Entry 1947, on 2018-11-16 at 19:54:23 (Rating 2, Computers)

There's a classic law in economics called the law of diminishing returns. It describes how increasing investment in one area doesn't always lead to a linear increase in profit unless other areas are also enhanced (and often, not even then). For example, adding more workers to a production line won't result in an equivalent number of extra items being built unless other factors are also increased, such as number of machines, supply of raw materials, etc. Another example might be marketing. Increasing a marketing budget might result in twice as many advertisements being produced, but probably not twice as many sales, because consumers will react negatively to too much advertising.

The same principle applies in other areas. If you spend twice as much on a car, for example, it probably won't be twice as fast, or twice as reliable. My car cost NZ$13000 and can do 0 to 100 kph in 5.7 seconds. To achieve that launch twice as fast I would need to spend a million dollars (or more) on a Porsche 918 or a Lamborghini. Definitely a similar consequence to the law of diminishing returns there, I think!

And now we get to the point of this post, because the same applies to consumer electronics.

My regular readers will know that I recently bought an Apple iPhone XS for just over NZ$2000. Some say that is ridiculous amount to spend on a phone, and those people might be similarly perplexed if they knew about all the other expensive Apple equipment I own. In fact, what I have spent on some other electronic equipment could also be questioned to a lesser extent.

In fact, most of Apple's new products are more expensive than what many people had hoped for, and there is some debate amongst members of the Apple user community whether they are now too expensive. I think it would have been better overall if the price of new devices had been kept to the same as the old ones they replaced - a sort of informal policy Apple has had in the past - but does even that represent a fair price?

A superficial look at the Apple devices' features compared with similar products from other manufacturers costing half as much might lead to the question: why spend that much? Well, there are many reasons why spending more makes sense, and a similar number of reasons why it doesn't. In fact, the person who makes the decision to pay the price premium and buy Apple products, and the person who decides to buy a product at half the price, both have justifications which make sense.

Actually, to be more correct, most people don't make purchasing decisions based on sound evidence and logic, but a good case could be made even if it often isn't. As an aside, this is an important point in economics generally, because classical economics assumes people make rational purchasing decisions where some newer forms, such as behavioural economics, point out that this is a false assumption. This makes a lot of classical economics invalid. No surprises there! But that is another blog post, so let's continue with the main theme today...

In most cases a $2000 phone will not be twice as good as a $1000 phone, just because of this version of the law of diminishing returns. But it will almost always be significantly better to a lesser extent. I want to give an example of where hidden benefits exist in the more expensive Apple products by comparing the technology which unlocks the phone.

Apple wanted to have the screen on the new phones extend right to the edge, so there was no room for physical buttons on the front of the phone. That meant that the technology used by the models from the iPhone 5S to the iPhone 8 could not be used for unlocking - that was a fingerprint sensor on the home button on the front of the phone on those models.

How have other manufacturers - who also want to extend the screen - solved this problem? Well some have put the fingerprint sensor on the back instead. Others have used a simple face identification system which recognises the user using the front camera. And others have put a fingerprint sensor on the screen itself. How good are these solutions? Well they are OK, but that is all, because all have serious flaws.

What did Apple do? They looked at those options, but in the end they decided to do it properly. The iPhone X models all have no less than 8 miniaturised sensors and transducers in less than 1 square centimeter available in the "notch" at the top of the phone. Some of these are used by the face recognition technology that Apple decided to use which uses a dot projector and infrared camera to do accurate recognition of the user.

Superficially this looks similar to other phones, but the details are where it matters. Apple doesn't tend to talk a lot about technical details, just the end result. This means that other unlocking systems look the same to many users, but they aren't. The Apple system is fast and reliable. They have turned a weakness (the lack of space for a front home button and its associated sensor) into a strength (a much better unlocking system).

I should admit here that I am writing this based on reviews of other products in general, and there might be some very good unlocking systems out there that I don't know about. However, the same principle applies to many systems in the iPhone and I think it is unlikely that other phones could match all of them unless they cost a similar amount to an iPhone anyway (Samsung's top phone costs almost as much as Apple's).

Other aspects of Apple products which might not be immediately obvious but add to their value include: top quality materials, long useful life, good operating system upgradability, careful attention to trade-offs between processing power and battery life, excellent interoperability between products, and the best attention paid to security, privacy, and ease of use concerns.

So is an iPhone worth twice as much as a good Android phone with similar features, or is a Mac worth more than a similarly configured PC, or is an iPad worth a lot more than an Android tablet? Well that depends on how much you use your device, how much you want your interactions with technology to be smooth and trouble free, and how much you just appreciate beautiful design (I don't just mean physical appearance here, I mean the complete experience of using the device).

The law of diminishing returns says that it is unlikely that doubling what you pay will get you something which is twice as good based on simple specifications or features, but looking a bit more deeply, maybe it's not such a bad deal after all, at least for those users who can truly appreciate the differences.

Comment 1 (4964) by Anonymous on 2018-11-30 at 09:03:28:

I'll right away grab your rss feed as I can not in finding your e-mail subscription link or newsletter service. Do you have any? Kindly allow me know in order that I may subscribe. Thanks. I could not refrain from commenting. Well written! Hi there! This blog post could not be written much better! Looking at this article reminds me of my previous roommate! He always kept talking about this. I'll send this information to him. Fairly certain he's going to have a very good read. Thanks for sharing!

Comment 2 (4965) by OJB on 2018-11-30 at 20:15:57:

Far anyone who is genuinely interested, RSS feeds for this blog, and my podcast are available if you click the link "RSS Feeds" at the bottom of every page.

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