Rumors have been swirling for the past several days about the possibility that Apple will release a cheaper iPhone, likely made of plastic. The muttering began with a post by DigiTimes, who isn’t particularly well known for their accuracy. What made matters more interesting, however, was a second report by the Wall Street Journal, corroborating the story with their own sources.
The Claim
From WSJ:
Apple Inc. AAPL -3.28% is working on a lower-end iPhone, according to people briefed on the matter, a big shift in corporate strategy as its supremacy in smartphones has slipped. […] Apple Inc. is working on a less-expensive iPhone as an alternative to the existing model, according to people briefed on the matter. The lower-end iPhone could launch as soon as later this year.
The report was later backed up by Bloomberg, who chimed in with yet another supposed confirmation:
Apple Inc. (AAPL) plans to sell a smaller, cheaper version of the iPhone as soon as this year, said a person familiar with the plans, part of a push to gain customers in developing nations.
Apple, which had been working on a more affordable smartphone since at least February 2011, is weighing retail prices of $99 to $149 for a device that would debut in late 2013, at the earliest, according to the person […] Apple has spoken to at least one of the top U.S. wireless carriers about its plans, the person said yesterday.
Later, Reuters posted some alleged comments from Apple’s Phil Schiller (link not working, as the post was later withdrawn), who was claimed to have said cheap smartphones will “never be the future of Apple products.” Those comments were later dramatically revised. While the interview was confirmed to have taken place, what Schiller may or may not have actually said seems up for debate (emphasis added, quoting Reuters’ revised report).
But in a new version of the story published after the original, the Shanghai Evening News removed all references to cheaper smartphones, except for a mention of a “cheaper, low-end product.” It also amended its original headline from “Apple will not push a cheaper smartphone for the sake of market share,” to “Apple wants to provide the best products, will not blindly pursue market share.”
Apple confirmed the interview had taken place and that it had contacted the Chinese newspaper about amending its original article, but had no further comment and declined to provide a transcript of the interview.
The Analysis
The “facts” of the story have changed a great deal since it was first confirmed by The Wall Street Journal. So what should we believe? Pretty much every Apple analyst has an opinion about this – and even former Apple CEO John Sculley has chimed in saying it’s a great idea! Here are some thoughts on why Apple might or might not release such a device – and what’s at stake in either case.
The Benefits of a Cheaper iPhone
- Faster and deeper market share gains in China and other emerging markets for Apple.
- Increase competition with low-end Android devices.
- Would address the pre-paid phone market more effectively,
These are not insignificant points. As Apple continues in the battle for smartphone marketshare against Android as a platform, and against Samsung and other top smartphone manufacturers, any edge they can give themselves will be an advantage. While the iPhone 4 and 4S are already available for relatively cheap, getting the devices at a discount requires signing a carrier contract, which isn’t ideal for everyone.
The real question is what sort of compromises a cheaper iPhone would require – and whether or not Apple is willing to make those compromises, which leads us into our next section.
The Downsides
- Quality concerns
- Fragmentation
- Profit margin
For the many benefits Apple could reap, there are also a number of concerns. All of the rumors I am aware of that claim Apple will release a cheaper iPhone suggest it will be made from plastic – and that doesn’t seem like an intuitive choice for Apple to make. Plastic scratches easily, becomes brittle, is very easily damaged, and tends to give a device a “cheap” look and feel. That’s definitely not the sort of thing Apple tends to go for.
Releasing a cheaper iPhone alongside an upgraded ‘iPhone 5S’ could also lead to fragmentation concerns. In order to work around those concerns, such a device would have to be powerful enough to run any available iPhone app – which would seriously affect the ways that Apple can reduce it’s production cost.
It’s also worth noting that Apple would have to significantly cut their profit margin if they released a cheaper device, which runs counter to their product philosophy. It’s also difficult from a business perspective. Look at Android, for instance. Android is gaining market share like crazy – but mainly due to cheap handsets. As a result, very few Android device makers are actually turning a significant profit from the devices. Samsung manages to turn a nice profit – but then again, they offer high-end premium smartphones alongside their cheaper offerings. Would Apple really be willing to take a profit hit on their most profitable line of products?
What’s in a word? The difference between ‘cheap’ and ‘less expensive’.
Apple has proven their ability to reduct product price points in the past – the iPod mini and iPod nano are prime examples of this. It’s possible that Apple could release a less expensive device without significantly compromising quality by altering the form factor, or scaling down the internal specs (perhaps taking away the Retina display on the low-end model). But again, the concern is fragmentation – such a device should still be capable of running any iPhone app from the App Store without issues, and without significant work being required of developers.
Wrapping it Up
In the end, it’s impossible to know for sure what Apple’s plans are – whether or not they are planning to release a cheaper iPhone, and how they would go about reducing the cost. But I wouldn’t be too surprised either way at this point – especially if they devise a way that doesn’t require significantly lowering the overall quality of the product.
Apple have long been masters in the pricing game, starting with the iPod – and a lot of smart people seem to thing Apple could head in this direction (including Ming-Chi Kuo, who has a remarkable track record for Apple predictions). It will be interesting to see what direction they go in!
Your thoughts?
Hopefully we’ve provided you with a little bit more to think about when pondering the idea of a cheaper iPhone – although there’s certainly much more we could have discussed. What are your thoughts? Sound off in the comments!
