Low Price iPhones: There’s a Model for That

| Analysis

The idea that Apple is going to make a cheap iPhone just doesn't sit well with me because the low-end market is something the company has historically been willing to leave for its competitors to fight over. That said, Apple also has its own way of systematically working its way down the market ladder and eating into what little it previously left for its competition, and that could be the company's modus operandi for the smartphone market, too.

An iPhone mini? MaybeI've already said that I don't expect to see a cheap iPhone any time soon, at least not outside of markets like China and India. What I can see happening, however, is a methodical and systematic move to take more of the smartphone market by releasing different lower priced iPhones over time. The precedent for that has already been set, and it's called the iPod.

Apple made its move into the portable music player market in 2001 by targeting high end users. The first iPod came with a premium price at US$ 399 for the 5GB model and $499 for the 10GB version. The company released a couple revisions to that first model that added higher storage capacities and lowered the price of the 10GB model to $299, and took the portable music player market by storm.

Compare that to the iPhone where Apple now offers multiple storage capacities and various models at different price points. If you don't need the latest and greatest model, you can buy last year's at a discout.

Once Apple felt it had sufficiently saturated the high end market with the iPod, it introduced the mid-range iPod mini. Following along with that model, once Apple feels it has taken enough of the high end smartphone market, we could see the launch of a new mid-range iPhone with a a price to match.

After Apple takes the mid-range market, it can roll out a low-end iPhone model just as it did with the iPod shuffle to lock up the rest of the mobile music player market. That's assuming Apple wants to compete with low-end smartphone makers, which I'm not convinced Tim Cook, the company's CEO, is interested in.

Apple's iPod mini launched in January 2004, three years after the first iPod rolled out, and the iPod shuffle followed the following year. The first iPhone went on sale in June 2007, and now it's 2013 without a mid-range model, so if Apple is planning a second and distinct iPhone model, the company isn't working on the same schedule it used for the iPod.

Assuming Apple is planning on shipping a mid-range iPhone, we're getting closer to when the mythical device could launch, but I don't think we're quite there yet because iPhone sales are still strong despite the fact that annual growth does seem to be slowing. Apple won't release a second model until the time is right, and hitting that sweet spot on the calendar will be a tricky move.

Releasing the mid-range iPhone just ahead of the holiday buying season would give Apple two models to attract customers, and the competition wouldn't have any time to react in time and most likely wouldn't be able to do much more than show off reactionary prototype products at the Consumer Electronics Show at the beginning of the year. The lower cost iPhone would eat into high end iPhone sales to a degree, but would also likely draw in consumers that otherwise would've bought less expensive Android-based smartphones from Samsung or HTC.

For Apple, this wouldn't be a race to the bottom. Instead, it would mimic the iPod's dominance through quality products at different price points. Apple didn't follow that route in the PC wars, and it won't do it in the smartphone wars, either.

Which brings us back to the question of when Apple would consider releasing a mid-range iPhone. Probably not this year since there still seems to be plenty of the high end market to take. Assuming Apple does take the multi-iPhone model path, maybe fall of 2014, That would give the company two smartphones going into the holiday buying season -- but that's a big "if."

The iPhone line is already several years old and Apple hasn't seen the need to release a lower price model yet, and so far offering the previous two year's iPhone at a discout has been working well.

And how about the low-end iPhone? Even though Apple took on the low-end music player market with the iPod shuffle, I don't see that happening in the smartphone world, especially if that meant compromising on quality to hit a price point.

Apple doesn't seem interested in offering consumers a complex product lineup, and adding in extra models would do just that. I'm betting Apple's next move is to add a second, larger screen, iPhone model, and for now the lower-priced market will just have to wait.

Comments

Lafael

Well, a model exists, but how relevant is the ipod expand-scheme to the iphone situation? Apple took gradual control starting from the top of the price-ladder for music-players. But they did so without having significant high-end competitors. For the iphone, there are competitors that seem to sell high-priced devices in significant volume. Comparing Galaxy to Zune - well they are competitors in different leagues.

When the ipod-line expanded, I think the development of the high-end (Classic) ipods slowed down, and innovation were focused on mini, nano and shuffle (and of course iphone/ipod touch). In light of iPpone-competition, Apple seems to need much of their development-resources to fix iOS, figure out the cloud, and continue to improve the hardware position compared to other flagship phones. Engineering new cheap-designed iphone-hardware instead of keeping up or improving the innovation in the top iphone-model, makes little sense in light of current phone-competition. And then there’s new areas such as iThis and iThat.

If Apple owned the high-end phone market, I would agree that they may follow the ipod-scheme – but they don’t.

mhikl

Excellent work, Jeff. I agree this is very likely the scenario well trodden by Apple and not one to overlook. Apple gets it with the straight arrow; the others pull out their shot guns.

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