The iPhone pricing dilemma…

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    Posted: 17 June 2012 05:34 AM

    Great little article on why the iPhone has 50% marketshare in the USA, but faces a different challenge internationally where subsidies aren’t hidden:

    http://www.ben-evans.com/post/25177869096/iphone-pricing-and-us-market-share

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    Posted: 17 June 2012 06:38 AM #1

    (Note:  Not intended as a slam on the article.)

    Hm.  Last I checked iPhone was tearing it up internationally.

    TCO is only part of the story.  If you’ll allow me to bring out the broken record player again…

    Imagine:  One company growing its little premium smartphone business based around one handset when the competition collectively outsold it in smartphone units and total handset units from the very beginning.  And most all of the competition pushed the mix towards smartphones, and pushed their smartphones (remember now, always collectively outsold Apple) towards the only really viable iOS competitor out there - Android.  Which is “free”!  Where Android, until recently, could be deployed on much lower-cost handsets because that’s just not where Apple focuses its energies.  Is there any real surprise here?

    The challenges are different but it’s not like Apple isn’t treating each competitive situation a little differently.  And UK alone isn’t enough data.  Finding out the rest, well, requires access to the full research report.

    Also, do we have any data other than the nebulous “Android activations” or analyst estimates or rolling-3-month surveys upon which to base honest-to-goodness Android smartphone sales per quarter or year or something?  Aside from that, there’s smartphone rate of growth.  If there’s only two players worth mentioning, Android and iOS, it will become easier over time to see, given a reliable metric, which platform is “winning” for any particular quarter.

    [ Edited: 17 June 2012 06:44 AM by Mav ]

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    Posted: 17 June 2012 11:13 AM #2

    What phone and how much data do you get for $384 for two years of service?! I’m pretty sure I could find something from either Cricket or Virgin (the author must have written this report before June 6) for that price, but it would not be anything close to the capabilities of an iPhone or high-end Android device.

    So if you want a smart phone that will be used mostly as a feature phone with perhaps minimal email usage, then go for a cheap prepaid Android phone. But the increased capabilities you receive for an additional $25 a month presents an incredible increase in value.

    Apple does not face a pricing dilemma. You can now buy an unsubsidized iPhone for $375. What is the cheapest Android phone? $75? And what do you lose in capability just to save $300 over 2 to 3 years?

    You need to separate the hardware cost from the service cost. Otherwise, you might as well compare high-end Android phones to burner phones.

    Edit: Does Apple really want any share of the sub-$200 smart phone market? I think they intentionally cede the bottom 30% of all the markets they compete in (computers, phones, tablets).

    [ Edited: 17 June 2012 12:36 PM by Drew Bear ]      
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    Posted: 17 June 2012 12:05 PM #3

    Burgess - 17 June 2012 08:34 AM

    Great little article on why the iPhone has 50% marketshare in the USA, but faces a different challenge internationally where subsidies aren’t hidden:

    http://www.ben-evans.com/post/25177869096/iphone-pricing-and-us-market-share

    Sounds great in theory, but Apple has done pretty well in the UK and according to this graphic has a larger market share in the UK then Android.  The issue with Apple and market share is where Android does best is where there is little effort on Apple’s part to compete. 
    Android has filled the void left by Nokia leaving the market, wether that success will continue is anyone’s guess

    info graphic OS by country.

         
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    Posted: 17 June 2012 06:27 PM #4

    The argument is not that the iPhone is not doing well outside the US. The argument is that the iPhone is not the majority market share holder outside the US. If the iPhone had 50% share globally as it has in the US it would be selling in the billions of units per year. Producing that many would be a real challenge.

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    Posted: 17 June 2012 06:39 PM #5

    Didn’t we already know that iPhone isn’t the majority (smartphone) market share holder outside the US?  Pundits keep forgetting Apple started out outsold and that has never changed.

    If anything, that iPhone _gained_ a majority market share in any major market, let alone “Android-dominated” Verizon and Sprint (back in 2010, anyway), was quite a revelation (that’s not reflected in the share price).

    Apple is already at a 120-140M production run rate for iPhone and that’s staggering.  We’ll be talking run rates of close to 200M, maybe even more, by next year.  No doubt Apple is already trying to tool up to build over a quarter billion iPhones in a year.  It may already be thinking of half a billion iPhone/yr. production rate, as ridiculous and potentially implausible as that number sounds.

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  • Posted: 18 June 2012 07:40 PM #6

    Same here, I heard iPhone was killing it across the globe at the 2012 keynote speech. iOS 6, new Macbook Pro, everything of that sort.

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    Posted: 18 June 2012 08:02 PM #7

    I dont think the article was meant to imply that the iphone is failing outside the US,rather it is a good illustration of the different dynamics in play between the US market & the global market.

    I think its highly likely that the iPhone will maintain 50% marketsahre in the US, due to it being the obvious best device for many in a market where the average plan & subsidy are huge.

    I also find it highly likely that the iphone will stay under 25% marketshare internationally, due to the iphone being a premium priced device in markets where the average plans & subsidies are quite small.

    However the international market is so huge that even 10% share is hundreds of millions of devices a year, so I am not saying this is a bad situation for apple to be in currently.

    However I find it intriging to think about how apple in several years may try and address the very large market it currently prices itself out of at present. How can it target this huge vast untapped pool of users numbering in the billions, without eroding its premium device position.

    Will Apple even bother?
    Will the iphone 3GS remain with us for years to come, getting cheaper every year?
    Will it be a whole new category of iphones?
    Will it even have a screen?
    ...

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    Posted: 19 June 2012 12:53 PM #8

    The article correctly focuses on TCO (total cost of ownership). I do not believe the iPhone carries any premium in the high-end smartphone market. The best Samsung, HTC and Motorola devices cost the same (subsidized or unsubsidized) and the data plans also cost the same. Doesn’t matter if you’re in the US or China.

    This parity holds true down to the $375 unsubsidized device price range. TCO for the 3GS is the same for any similarly priced phone with an identical phone plan.

    Where Apple falls off the TCO list is when the device price drops below $375 AND the phone plans drop. The problem with that comparison is that you are now comparing devices that do not offer the same functionality or plans that offer the same amount of data.

    I asked the author of the article what you get for the $384 TCO he lists as the lowest. What phone and how much data? I believe there are much lower data plans outside the US, but I’m willing to bet they also offer much, much lower data caps.

    A $75 Android phone is probably running Android 1.5 with a lousy screen, terrible UX and no access to Google services. A $16/mo. service plan probably offers just enough data for such a phone to handle basic email. You can call that a “smart” phone, but it offers little more than feature phone capabilities.

    A few months ago Horace posted an analysis that listed Apple with 9% market share (of all mobile phones) and 75% profit share. I think Apple is doing just fine with their iPhone pricing. It is the other market participants that have a pricing dilemma.

         
  • Posted: 19 June 2012 02:56 PM #9

    Drew Bear - 19 June 2012 03:53 PM

    A few months ago Horace posted an analysis that listed Apple with 9% market share (of all mobile phones) and 75% profit share. I think Apple is doing just fine with their iPhone pricing. It is the other market participants that have a pricing dilemma.

    Absolutely. I often use this sports analogy. Apple is racking up the score - which is the only thing that matters - but the crowd is obsessed with the fact that the other team constantly has the ball. Touchdowns, not yardage, runs, not hits, goals, not time of possession is what matters in football, baseball and hockey. Similarly, profits, not market share , is what matters in business.

    Why would Apple want to lower their prices and win unprofitable market share? That’s as dumb as a football team running the ball when you’re down by 45 points. It may boost the stats, but it ain’t a winning strategy.

         
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    Posted: 19 June 2012 05:48 PM #10

    Drew Bear - 19 June 2012 03:53 PM

    The article correctly focuses on TCO (total cost of ownership). I do not believe the iPhone carries any premium in the high-end smartphone market. The best Samsung, HTC and Motorola devices cost the same (subsidized or unsubsidized) and the data plans also cost the same. Doesn’t matter if you’re in the US or China.

    This parity holds true down to the $375 unsubsidized device price range. TCO for the 3GS is the same for any similarly priced phone with an identical phone plan.

    Where Apple falls off the TCO list is when the device price drops below $375 AND the phone plans drop. The problem with that comparison is that you are now comparing devices that do not offer the same functionality or plans that offer the same amount of data.

    I asked the author of the article what you get for the $384 TCO he lists as the lowest. What phone and how much data? I believe there are much lower data plans outside the US, but I’m willing to bet they also offer much, much lower data caps.

    A $75 Android phone is probably running Android 1.5 with a lousy screen, terrible UX and no access to Google services. A $16/mo. service plan probably offers just enough data for such a phone to handle basic email. You can call that a “smart” phone, but it offers little more than feature phone capabilities.

    A few months ago Horace posted an analysis that listed Apple with 9% market share (of all mobile phones) and 75% profit share. I think Apple is doing just fine with their iPhone pricing. It is the other market participants that have a pricing dilemma.

    There is one difference I think you are missing in your first paragraph, high end smartphones from Samsung, HTC etc are actually far cheaper unsubsidized, but this is hidden in the US. In the US carriers pay a higher subsidy for the iPhone than they do for other devices, but the consumer doesn’t see this as they are all priced the same at $199 on a 2 year contract.

    Internationally this is not the case, the difference in cost on high end models is very apparent.

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    Posted: 19 June 2012 08:32 PM #11

    Burgess - 19 June 2012 08:48 PM
    Drew Bear - 19 June 2012 03:53 PM

    The article correctly focuses on TCO (total cost of ownership). I do not believe the iPhone carries any premium in the high-end smartphone market. The best Samsung, HTC and Motorola devices cost the same (subsidized or unsubsidized) and the data plans also cost the same. Doesn’t matter if you’re in the US or China.

    This parity holds true down to the $375 unsubsidized device price range. TCO for the 3GS is the same for any similarly priced phone with an identical phone plan.

    Where Apple falls off the TCO list is when the device price drops below $375 AND the phone plans drop. The problem with that comparison is that you are now comparing devices that do not offer the same functionality or plans that offer the same amount of data.

    I asked the author of the article what you get for the $384 TCO he lists as the lowest. What phone and how much data? I believe there are much lower data plans outside the US, but I’m willing to bet they also offer much, much lower data caps.

    A $75 Android phone is probably running Android 1.5 with a lousy screen, terrible UX and no access to Google services. A $16/mo. service plan probably offers just enough data for such a phone to handle basic email. You can call that a “smart” phone, but it offers little more than feature phone capabilities.

    A few months ago Horace posted an analysis that listed Apple with 9% market share (of all mobile phones) and 75% profit share. I think Apple is doing just fine with their iPhone pricing. It is the other market participants that have a pricing dilemma.

    There is one difference I think you are missing in your first paragraph, high end smartphones from Samsung, HTC etc are actually far cheaper unsubsidized, but this is hidden in the US. In the US carriers pay a higher subsidy for the iPhone than they do for other devices, but the consumer doesn’t see this as they are all priced the same at $199 on a 2 year contract.

    Internationally this is not the case, the difference in cost on high end models is very apparent.

    Can you give specific examples of the price of let’s says the Samsung S3, HTC One X in specific countries.  I checked the price yesterday between the iPhone 4s and Samsung S3 in India and the price difference was 44500 RS iPhone vs 43180 RS Samsung so I don’t see a big difference although Samsung is cheaper it is about $30 on a $700 handset so IMO other factor are more important.