The best thing Tim Cook didn't announce
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I want a cheap iPhone available without contract, because:
- I don't want a contract
- I tend to break things (me or my kids) and want the freedom of being able to buy a new device without asking anyone if they would be so kind as to subsidize it, or having bought "insurance", or having to pay north of $600 for the privilege!
So, if 3GS is the device for the lower-end of the market, fine: just sell it at an acceptable price with no contract.
1) Apple are pushing down into the mid-market before moving further down into the low end.
2) Alternatively at the moment Apple aren't happy that they can create an iPhone that they want to put their name to and make money on at the price point you talk about.
Based on the way we see them behave with the Mac where Apple simply don't complete at the very low end, I suspect it's the later. This is a company who make money selling hardware - all the music and apps pull in a comparatively small amount and apparently really only run at break even.
If they can't sell a phone at that price and make money then they'll happily leave that market to others.
If you want to pursue the strategy of the very high end, you have to be innovating all the time, in a very big way, which is not what yesterday's event was about.
Or you can count on a core of very loyal customers who will buy your products no matter what, at any price; those people exist but there aren't enough of them to fuel Apple's growth forever.
Staying mid / high end seems to be working fine for the Mac 25 years on, and has started out pretty well for the iPad (though we'll see now the Fire has bought it a serious low price challenger).
Sure it's a risk, but so would getting involved in a low end race where they have no experience and where profit depends on a high volume low margin model they're not familiar with.
Incidentally PG's piece is here: http://www.paulgraham.com/start.html
It's primarily about start ups - saying starting low and working up is easier that the other way round, but I'm not sure how it applies to mobile. Nokia owned cheap phones, Apple piled in at the top and that's worked out pretty well for them so far.
It's true that it has served Apple incredibly well recently... but it nearly killed them once.
There was a very interesting talk at the business of software conference of 2009 by Geoffrey Moore:
http://blog.businessofsoftware.org/2010/03/video-of-geoffrey...
that talked about innovation and how you need to out-differentiate to stay on top of the game; the position you never want to be in is to be "best in class" because best in class is for suckers: it consumes enormous amounts of resources for luxury features that customers won't pay for. You want to be out of this world (or good enough).
What Apple did to Nokia is they invented a completely new product that was much more than a "phone"; what is happening now is that
1) Android is becoming "good enough" (even Windows phone, according to some pundits)
2) Apple doesn't seem to care about "goodenoughness"
3) but Apple's products are not an order of magnitude better, as they used to be. They are flirting dangerously with best-in-class territory.
Apple's business, if you look at where they now get their revenues from, is all about phones. How's that sustainable? Short answer, it isn't really. They might have the fashion devices but they only have one of them and it's on a fairly slow refresh cycle. If any of HTC, Samsung, LG or any other of the Android vendors come up with the Next Big Thing in technology fashion, Apple don't have another card to play and the idea that one company in such a competitive market can lead both fashion and technology in perpetuity simply isn't credible. Yet with Apple the only player in their ecosystem, if they stumble the whole ecosystem stalls. If one Android vendor stumbles, another takes their place, the ecosystem keeps going and the vendor has the opportunity to catch up at their next release.
Apple might currently have the biggest selection of apps, but with Android fast closing in market share (indeed, looking likely to overtake) and some vendors deciding Apple's policies are too restrictive and switching away from the iOS platform, how long will that stay the case? Once iOS is no longer the dominant platform for app vendors, their more restrictive policies will start seeing the market fall behind its competitors and, just like MacOS, iOS slowly becomes a ghetto with limited software availability.
So what are the alternatives? True low-end iPhones? (I can't see a 2+ year old design doing well for very long against newer models in such a fashion-conscious sector.) Not great for Apple; more design and manufacturing expense, more complex supply chains, lower margins and the first-mover profits that Apple are currently enjoying are gone. Quite simply I don't think there's any precedent to suggest it's possible for Apple's current profitability from the iPhone to be maintained, and very little reason to believe its market position is sustainable.
The internet with it's land grab mentality has taught us to focus too much on market share, not enough on profit.
Android already has larger market share of the phone market but Apple rakes in the lions share of the profit. Off a single digit marketshare (iphone as a % of the phone market) Apple makes more than half the profits in the industry (http://www.asymco.com/2011/01/31/fourth-quarter-mobile-phone...).
When I wonder which model is sustainable, the questions I have are about the companies struggling to make profit from massive marketshare, not the one making good money from modest sales. I'm not saying Apple are nailed on, just that the whole industry is very very uncertain and there are questions and issues across the board.
Picking up a couple of specific points:
As for a 2+ year old design doing well against newer models. The iPhone 4 (15 months old) is the biggest selling phone in North America. The second biggest selling phone? The 27 month old iPhone 3GS. This is less of a fashion market than a lot of people make out. Plus if you're looking for precedents, I'm not clear where we see one for HTC, Samsung or LG doing anything particularly innovative in this sector. Good phones yes, market changing, I don't see it.
The Mac as a "ghetto" with limited software availability? Do you have a Mac? The Mac has for years had a far more active independent developer community that Windows ever did. For c. $30 (less now in the AppStore era or if you shop around) you could pick up high quality bits of software to do just about anything. When I got my first Mac 6 years ago (Windows user for 20 years before that) I was staggered by the ecosystem. Windows always ruled the corporate software sector but the Mac was never a ghetto.
Given that an iPod touch starts at $199, can it really cost that much more to stick phone parts in the back of it?
This. A basic GSM phone costs less than $20; attach it to an iPod Touch and voilà: a cheap iPhone!
I've been wondering if this is true for a long time, but couldn't find an educated answer...?
You're right! It's SO easy a 12 year old with a soldering gun could do it! Your insight is blinding in its brilliance.
Aside from the fact you just (re)invented the original iPhone, I don't think that's a device people would pay $300 for (add a bit to get Apple level build quality and profit margins).
The iPhone is 200 with contract, 450-500 without. They're certainly not paying the retail 500, I'm sure it costs them 430-470, making the subsidy more in the range of 250-300.
Where do you get the 430-470 number? I am happy to be corrected, but I need some evidence.
I first purchased mine overseas where, because of the exchange rate, I spent 500 "moneys" on it, and this is the 3rd time that impression has bitten me in the ass. I stand corrected.
http://store.apple.com/us/product/MC555LL/A?mco=MTY3ODQ5OTY
There was an iPhone 4 link too. Can't find it now. Maybe it's down until October 7.
Does that qualify as cheap? If not, I'm not sure what you want other than more for less. But the fact is, you can buy iPhones contract free.
The real problem the US has is that cell phone service is, by OECD standards, stupidly expensive and incredibly bad. In Australia I paid $300 for the iPhone 4 32GB and then $50/month for 2-3GB/month and all the calls and texts that I can possibly use ("cap" plans are very popular in Australia where you get a certain amount of credit that you can use for various things at set rates).
What's more this is on Telstra, which puts the coverage of any US carrier to shame.
So $50 x 24 + $300 - $100 (discount I got) = $1400. The phone cost A$1000 contract free so really I was paying $400 for 2 years of service.
With AT&T you pay $300 for the phone and a minimum of about $65/month (or $85/month if you want not to pay 25 cents for each text), which is almost double the price.
And even those spitting with fury at the disappointment will glance with envy at the guy who in a meeting quietly asks Siri to order him coffee for the lunchtime break.
Really? I think it's far more likely people will glance with annoyance at the guy talking to his phone PA app during a meeting. There are a lot of good use cases for smart voice input, none of them take place in a meeting.
My view on why they've done it this way is that they've retained a clear visual deliniation between the higher end iPhone 4s and the low end 3GS. No-one who has a 4 or a 4S is going to be annoyed that they guy with the cheap iPhone looks like he's got the same thing as they have.
That comes with the downside of making the cheaper model a slightly tougher sell - it's visibly "old" - but that's Apple protecting their key market, the high end stuff.
But it will be interesting to see how the cheap [1] 3GS performs commercially against more modern Android phones in the same price bracket. Will Apple's brand have people going "wow, I can get an iPhone" or will people be saying "I don't want a two / three year old phone regardless of who makes it".
Obviously the attitude will vary from person to person but it will be an interesting test of Apple's name value to see if it can give a boost to older hardware.[2]
[1] I say cheap not free as it's free on a relatively pricey contract.
[2] I'm not running the 3GS down - I have one in my pocket right now, it's my primary phone, just it is older hardware and I think over the next 12 months will begin to show it's age more and more.
It may be old looking, but aside from processing power, graphics performance and "retina" display, it is a perfectly fine phone for the low end market.
Maybe, but it's a gamble. It's not enough that the 4/4S guy himself knows that he has the good stuff. Everybody else needs to know it too.
But the potential downside is that there will be Apple-branded hardware out there that is seen as cheap and less desirable, and that many people won't understand the distinction. If that happens, the 4/4S guy will now just have an "iPhone" like the rest of the riff-raff, which opens up the high end to competitors.
Why would someone else be annoyed by another persons choice in phone? I guess I could understand if you thought the other person made a bad purchase, but how is it possible to be annoyed that someone else has something you agree is good?
Are iPhones really that big of status accessories for their owners? This explains so much.
They basically ripped the Toyota iQ platform
For comparison, I got a Galaxy S(captivate) phone for free when I renewed my contract a year ago.
Hmmm.... http://en.wikipedia.org/wiki/Aston_Martin_Cygnet Bad example. I know the underlying motivation for Aston wasn't to compete with Smartcar, but that's what they released nonetheless.
I don't understand how one can write this.
That's what makes Siri such a concern.
When was the last time Apple released a beta product? Have they been hiring too many Googlers?
Or, given that "Siri" alledgedly sounds like slang for buttocks according to today's interwebs, bought an outside technology and didn't immediately rebrand it to sound Apple like?
Apple needs to do the same for the iPhone...
I paid $200 for an LG Androidy thing (an Optimus V, if anyone really cares) and now I pay $25 a month for 300 minutes per month and unlimited data. It's a crazy better deal than anything else out there.
5% market share is not mainstream in mind. I guess I was referring to huge market share...
But after thinking about this more, I just don't think it is helpful to analogize to the iPod. The difference in markets is huge, and I doubt the iPhone's share will ever be like what the iPod's was (and still is).
1. 3gs owners: it's time to upgrade to the 4/4s (that's me)
2. It'll burn down existing stocks a lot faster. What was more valuable, an HP TouchPad in production or an HP TouchPad when the production was stopped?
3. Parents who have an iPhone will be able to get their kids one on the cheap, thus reclaiming ownership of the ir own phone. This also indoctrinates the child into the world of the iPhone, a strategy Apple has pursued with all of its products since the very beginning.
4. Lastly: get the phone into the hands of a holdout, at least on a trial basis, and hope for an upgrade after a couple of months, if not the same day in-store.
Market share is very important to Apple as it bears on their bottom line and while not compromising on quality (low-end iphone) they can still get a portion of that share by unloading old 3gs stock and maybe even removing 1 & 2 stock still out there in the wild that does nothing to promote present-day Apple products. Walk into any of their stores with an ugly piece of hardware and they'll try hard enough to get you to hand it over.