The SE is dead; long live the iPhone.

In what was billed as a surprise announcement, Apple today introduced the newest member of the Apple family: the iPhone 16e. But it wasn’t really much of a surprise — Apple’s impending iPhone SE revamp has been its worst-kept secret. Rumors of a refresh have been rife for some time, and finally, Apple has pulled the plug, bringing about a much-needed rationalization of its phone portfolio. The new iPhone 16e no longer stands out as the iPhone that was not just cheap but felt cheap, as well. Now, Apple’s brand of accessible luxury gets a little more accessible for people who don’t want to settle for anything less than (almost) the real thing.

Luxury, made even more accessible, will drive customer lifetime value.

The embrace of a lower-end product and its rationalization within the core portfolio is standard in the mass luxury playbook; we have seen this strategy succeed with great effectiveness in luxury car brands, such as BMW and Audi, that thrive on entry-level options without hefty price tags. The iPhone 16e generates a new revenue stream for Apple, and this will be particularly noticeable in key markets like India, where iPhones are out of reach for most people and there is furious low-cost, high-quality Android competition.

There is also a second-order effect of cheaper devices like the iPhone 16e bringing new customers into the Apple ecosystem. The revenue and margins from devices are just the beginning of what Apple hopes will be a beautiful friendship. Customers engage with all of Apple’s services (which are twice as financially lucrative as its device business) over an extended period, boosting their “customer lifetime value” to the brand.

The 16e is a smart boost for Apple Intelligence.

The new iPhone 16e also provides a more accessible on-ramp to Apple Intelligence. Tim Cook, Apple’s CEO, tells us that iPhone sales have performed best in markets with Apple Intelligence. But even in these markets, the constrained backward compatibility (15 Pro and better required) effectively prices out the adoption of many of these AI capabilities. We’ve seen a limited appetite among many of the installed base to upgrade from previous versions, but the new phone reduces the cost hurdle of joining the Apple Intelligence bandwagon.

Effective product management and marketing will minimize cannibalization.

The problem with a lower-end product in a luxury portfolio is that you want it to be good but not so good as to cannibalize the crown jewels. The iPhone 16e is designed to limit such flight from higher-margin phones. For example, if it’s photography and video a buyer is after, then the camera on the 16e is never going to meet the needs of a “pro-sumer.” And if it’s all about symbolic status, the single camera lens will immediately signal where the 16e resides in the social hierarchy of iPhones. That said, some leakage from the higher-priced iPhone product lines is inevitable, but this will be offset by the financial benefits of growing the base.

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