Aug 132013

It’s mid-August, which means ’tis the season for people to froth batshit speculation about the next iPhone – or depending on who you talk to – iPhones. AllThingsD, an outlet that usually has its shit together regarding Apple announcements, pegged the announcement date for the next iPhone at September 10. Jim Dalrymple of The Loop blessed it with a “Yep.” In the build-up leading to the event, pundits are trotting out the product missing from Apple’s offerings: the cheap off-contract iPhone. Because Apple is missing out on gazillions of sales or something.

It looks like Gruber is putting a star next to one of his recent posts on the topic, which is a good indication that his own words are going to outnumber the ones he sticks into a block quote. This post has JG hopping on the low-cost iPhone bandwagon, a device being referred to as the 5C:

If Apple does unveil an iPhone 5C, I expect them to concurrently abandon the iPhones 4 and 4S. Their three pricing tiers for the next year would be a new iPhone 5S at the high end, today’s iPhone 5 in the mid-range, and the new 5C at the low end. This way, all new iPhones would sport 16:9 aspect ratio displays, and all would have Lightning adapter ports. Adios both to 3:2 displays and the grody old 30-pin port.

The first part is rational: if Apple does release 2 iPhones simultaneously, it makes sense that they rein in the 2 stragglers and tighten the lineup. I don’t see why the 5C would be at the low end, however. If anything, I see the 5C being the middle tier and the 5 at the low end. Why? Well, I’ve never really moved on from my thinking on the topic since I wrote about it last year.

So why not the possibility of Apple releasing a “stripped down” version of the iPhone with – or about the same time as – the iPhone 5? No friggin’ way.

For this to be the case, there has to be failure on one of two axes that make successful Apple products: price and features. A”stripped down” version of the iPhone 5 is what? The iPhone 4? If that’s the case, there’s no way Apple offers it for below $300. Does it share the form factor of the iPhone 5 without some killer feature? It’d have to do without a shitload of killer features to bring the cost below $300, at which point it’d again reflect poorly on the brand.

So what has changed besides the consecutive number of days that people analyzing Apple are insisting that the company needs to make this cheaper phone? Gruber does make a point that a “stripped-down” version of the iPhone has existed for a while: the iPod Touch.

With the iPad, Apple charges quite a premium for cellular models — they cost $130 more than the corresponding Wi-Fi-only models. Apply that to today’s iPod Touch lineup and you’d get a 32 GB low-cost iPhone for $299 + $130 = $429. But there’s also that 16 GB Touch for just $229. Part of the cost savings on that device is that it doesn’t even have a rear-facing camera. And I’ve never believed that the $130 premium for cellular iPads is entirely related to component and assembly costs; I think Apple charges a premium for cellular iPads because they know many people are willing to pay that premium.

All told, I think Apple could build and sell an iPod Touch-caliber iPhone 5C for $399, possibly as low as $349.

If we’re being inclusive, there’s a bunch of other stuff that the 16GB iPod Touch doesn’t have besides the rear camera and a cellular chipset (a GPS chip, a multi-mic, an ear speaker, a magnetometer and a proximity sensor, to name a few), but I take his point. If we’re comparing the 2 devices from an “iSuppli” perspective, the iPod Touch’s components come much closer to ASP than the iPhone 5. But just because Apple can leave more money on the table for the sake of volume doesn’t mean they should. A better strategy – if Apple were indeed interested in addressing the low-cost market – would be to position the iPhone 5 on the bottom tier and have the “better” and “best” models be new. At the end of the day, the question that defies the notion that the lowest-cost iPhone should be a new one is: “How much less than a one year-old iPhone can a new iPhone be?”

I don’t think that question is one Apple’s ready to ask about the products in its highest-margin segment – and I don’t think it has to.

 Posted by at 11:23 pm

  3 Responses to “TMA Needs Help Understanding This “iPhone 5C” Thing”

  1. I also have difficulty seeing how to position a “less than great” iPhone. Using iPod as a guide, there would have to be a significant change in form factor – i.e. another way to be great. But I trust Apple more than anyone else to show me I’m wrong.

  2. “Another way to be great.” That’s it exactly. I can’t see how Apple releases a new phone that gets positioned beiow the reigning top-of-the-line. But my contacts pale in comparison to Gruber’s (i.e. his “little birdies” outnumber my plants whatever to none), so it’s entirely possible that Apple could make this work. This solo blogger just doesn’t see how.

  3. I think it makes sense…. they’ve always had a low cost iPhone, the last year’s model. That made sense when the last year’s model’s efficiencies over it’s lifetime (the 4 and 4s) made it profitable to sell at a reduced rate. I don’t think that’s the case with the 5 – it’s just too damn hard to make cheaply. So they take the guts of the 5 (which they probably can make inexpensively now that they’re far into production), slap em in a less expensive case and use that as their “free” or low tier phone. This is Apple – I fully expect there will be no deliberate hobbling of the phone – on the contrary – I expect it to have all of the features of the 5, just different speed and storage options. Then there’s IOS7… it needs to run smoothly on all models, but it’s resource intensive (all that physics and animation cost cycles). It doesn’t make sense to sell a 4s when it won’t run the os as well. I also doubt this thing will come in under $400, but that’s just a guess…

    It also makes sense for Apple to do this for the (as MDN puts it) “settlers” who just buy whatever phone and use it as a phone. The stats show that most of them don’t use phones for anything other than phones. IOS grows on you. You start finding ways to use it, then all of a sudden you’re hooked. There a a lot of people that will be attracted to the lower cost and the bright shiny colors.

    Having said that – Apple always has 2000 reasons to do something, not just 2, and they’d just as soon can the whole thing if even one of those reasons doesn’t fit. They will make this work somehow… they (almost) always do :)

    Anyway, we’ll see in a few days what they have in store, and a few months as to whether it pays off for them….

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