There’s been a lot of talk lately about drastic changes Apple may be making to the iPhone, mostly in the name of staying competitive with their primary rival Android. While the central argument has some logical flaws (chiefly that Apple isn’t competing directly with any one operating system, they compete with other handset manufacturers), there is likely some truth to the rumored new iPhone handsets.
Apple has long stated that they have engineered the iPhone to be the perfect size for single hand operation, even with the larger (but no wider) iPhone 5 screen. Many pundits have stated that Apple is losing market share because they have so far refused to enter the ‘phablet’ market (phone/tablet hybrids sporting a screen between 5 and 8 inches). Before the smartphone era handset makers had struggled to make flagship phones smaller; being unencumbered offered value that a smaller form didn’t impinge. Enter the smartphone era sparked by the iPhone, reversing the trend because of the value offered by screen space. Larger screens offered easier interaction with touch screens, easier viewing of media and websites, and more visibility for those that want to make a social/technological statement (oh my god, Becky- look at her phone! It’s so….BIG.) While the phablet market is a budding one, I’d wager that Apple will stick to their game plan of maximal utility from a uniform factor and not deviate from the screen size of the iPhone 5. A successful phone can only be so large before it becomes cumbersome, and a device that can’t be carried in a pocket is simply too large to be practical for all but a niche market.
Then there’s the rumor of Apple developing an entry-level, less expensive iPhone. It’s been rumored to cut corners that Apple generally doesn’t to contain costs, like regressing from the iPhone 5′s aluminum chassis to a composite plastic one. Originally I didn’t think this concept held any validity, as Apple has never adopted the strategy of offering a loss leader as Amazon does with the Kindle (or to a lesser extent Google does with the Android OS)- offering a product at low to no cost, expecting to generate profit from core businesses that are fed by customers channeled to it from the free/low cost product. While Apple could count on the profit generated by sales via the iTunes App Store, media sales through iTunes, accessories, and kickbacks from cellular providers that subsidize the price of the handsets to lure customers into a long term contract, they to date have not only collected revenue from those sources but also maintained a profit from the sale of the iPhone itself. This is only possible if your product is perceived as a quality good; Android handsets run the gamut from quality to entry level with prices to match. Even Google makes more profit from the iPhone than they do the far larger numbers of Android handsets in use.
So given these factors, what incentive does Apple have to delve into the entry level smartphone market? When you consider my home country’s smartphone market, very little; hence my (and many other’s) dismissal of the rumored cheaper iPhone. Sadly, like many Americans I tend to overlook the rest of the world, and this profoundly impacts the market strategy of a company like Apple looking to maintain their record growth and profits. The largest developing markets for smartphones aren’t in the Americas or Europe, they lie to the East. China is a booming market that Apple has been courting for a few years now, and they’ve had some success with their primary market strategy of premium product brand identity that has served them so well in their home country. While news of the Chinese technological market is news to most of us, it’s old news to technological strategists. India and the rest of Southeast Asia is the new gold rush, but old strategies may not work in these new business environments. Many of these countries lack cell providers willing or even able to offer subsidized handsets in exchange for long term contracts, and customers may be unwilling to accept them. In such markets you simply purchase your handset and pay as you go, and in markets such as this a $650 unsubsidized iPhone (the actual out of pocket cost of the cheapest iPhone 5) simply isn’t an option. For a company looking to enter a market, sometimes it’s best to conform to market standards rather than stoically stay the course. In such a situation a lower-cost iPhone makes perfect sense; while it may not generate the same profit as the handset does in my homeland’s market, it could very well do so in another or at least offer Apple a chance to gain a foothold in a rapidly developing market. One look at the history of consumer electronics shows the fate of those that move too slowly: the Zune was a fine digital audio device, but by the time it hit the market it was already passé. Apple cannot hope to maintain their meteoric growth in Western markets; we have already come close to smartphone saturation, with only the lower income demographics and niche markets left unplumbed (but already well targeted by inexpensive entry-level Android handsets). I’d go so far as to argue that catering to these markets is one of the reasons Android users as a whole have been found to use their devices less for non-telephone tasks like browsing and spend far less on apps and accessories; they simply have less use for smart devices and less money to spend. The market numbers are impressive when overall numbers of handsets are considered, but market share is meaningless if you aren’t generating adequate revenue from it.
So considering this, it is more than possible Apple may release a less expensive ‘new’ iPhone (rather than their entry-level strategy in existing markets of offering older models at a discounted price). Sadly for bargain hunters, these low cost iPhones may never be aimed at US or European consumers.