Low cost iPhone? Apple has no problem cannibalizing its own business, typically with good results

“Apple has never shied away from cannibalizing its own business, typically with good results. With a new, lower-priced iPhone, it can build on that track record,” Rolfe Winkler reports for The Wall Street Journal.

“The company is working on such a device, according to The Wall Street Journal,” Winkler reports. “The reason: While its flagship iPhone remains a top seller among high-value mobile subscribers world-wide, the company has mostly left the lower end of the market to cheaper devices from Samsung and a handful of others running Google’s Android mobile operating system. In the year through September, Apple’s share of world-wide smartphone-unit sales was 20%, versus 63% for Android, estimates Strategy Analytics.”

Winkler reports, “Even as such a move risks cutting into Apple’s stellar gross margins from iPhone sales, the opportunity to attract more users to its platform may be more important in the long run. As incomes rise in China, for instance, many of those buying a cheaper iPhone today might graduate to more expensive iPhones later. Meanwhile, once on the Apple platform, they may also be more inclined to buy an iPad or a Mac.”

Read more in the full article here.

MacDailyNews Take: Why cannibalize if you don’t need to? Eat the iPhone wannabes’ lunches instead. As we wrote earlier today:

The trick – and it’s not too difficult – will be for Apple to make a pre-paid iPhone model that will delight customers in emerging markets, but not entice many current iPhone users.

Apple can do this by delineating the models based on screen sizes and, to a lesser extent, resolution (Retina displays) and/or features (for example: Siri).

Imagine a modern day 3.5-inch iPhone 3GS (with a faster processor, better battery, thinner screen, thinner and lighter body) as the pre-paid iPhone and an iPhone family for carrier-subsidized markets that features screens from 4-inches and larger with Retina displays, state-of-the-art cases (Liquidmetal?), Siri, etc. There would be little cannibalization to worry about with such a clear-cut delineation between flagship iPhones (“iPhone Pro”) and pre-paid models (“iPhone Mini” – don’t call it “iPhone Air,” that would give it too much cachet).

Related articles:
Cheaper iPhone could boost Apple’s market share but ding margins – January 9, 2013
Gene Munster: 60-70% chance Apple debuts $199 iPhone for emerging markets – January 9, 2013
Bloomberg: Apple developing cheaper, smaller iPhone for 2013 holiday release – January 9, 2013
WSJ: Apple prepping less-expensive iPhone – January 8, 2013
Apple to launch low-cost iPhone with 5-inch display for emerging markets in 2H13, sources say – January 8, 2013
Barclays: Cheaper iPhone for emerging markets ‘key’ for Apple – December 4, 2012

26 Comments

  1. Three issues to consider here: (1) Apple has significant supply constraints here and would have to find sufficient manufacturing capacity to handle the extra volume generated by a lower cost phone. (2) Apple will not usually de-spec a product to compete with low-cost, less functional, competitive devices. (3) Apple is still playing catch-up, especially in China, with iPhone 5 distribution, and will likely focus on satisfying demand for their high-end phone before canniballising sales with a low cost alternative.

  2. @MDN

    The trick will beach more difficult than u may think. The iPhone 5 is a $700 phone with 55% margins. They r gonna have to cut quite a few features and eat a lot of tgat margin to deliver a $200 phone worthy of Apple’s name.

      1. Actually, that was dictated to SIRI while driving…..

        @MDN: The trick will be much more difficult than u may think. The iPhone 5 is a $700 phone with 55% margins. Apple are gonna have to cut quite a few features and eat a lot of that margin to deliver a phone for $200 worthy of Apple’s name.

          1. Dude, fucking get over it. I was driving, dictated to Siri and corrected as much as I could manually while driving. She thought “be more” was “beach more,” BFD!

            Now, do you care to comment on the topic or not?

  3. This sort of goes against the “premium products for premium customers…” But for where they are as a company if they want to continue to grow they need to go after “the masses” so I like the idea of a cheaper iPhone.

    ***MDN the ad’s are getting pretty annoying. Especially the looped videos. It’s like those annoying blow up, inflatable devices businesses use. Ugg.

      1. What is Google serving you with? Mine have been pretty mundane, except for the Obama-hating ones, since I got past the run of ads for women’s high-heeled shoes a few months ago.

        1. Google? You mean Safari? Serving me with? Well, I suppose if you check all of them you’ll see what I mean. Trust me, I’m no prude. It’s a free country and people should be able to do what they want within reason. I have nothing against porn. Each to his own. But when I go to a website I don’t need to accidentally touch an ad and be taken to a near porn site. That’s not why I’m there. There’s a reason it takes so long to load MDN compared to AppleInsider or Mac Rumors. It’s all the advertising. It just doesn’t need to be filth. that’s all.

          1. Yes, I agree about the need for restraint in ads we get served. But the culprit for these ads is mostly Google, not Safari or MDN. Their ad servers are the source of what you connect to through MDN, or the link to it.

    1. Austin, get ad block for safari. It is free and it gets rid of those annoying ads. It is great! I was about to stop coming here because of that alone and Ad Block fixed it! Now MacDaily is a Great site!

  4. These jackasses don’t know anything more than you and I do. It’s pure speculation based on what they think is reasonable operating procedure for a company selling widgets. It’s fueled by their slavish adherence to the common wisdom that screams daily about market share. They’ve learned nothing since the 2000 bubble burst. Market share is meaningless. Let Samsung and HTC make $1 per phone and hold 80% of the market share. They know what their product is worth.

  5. MDN Take is right. The right approach is to AVOID cannibalization through proper product differentiation and marketing.

    I’ll go further and say that the “cheap iPhone” should be Apple’s take on the “feature phone.” It will be a “smart” phone, but in the same sense as the iPod nano being a “smart” media player. It has a defined set of features (apps) that comes with pre-installed with the phone. Its OS is what comes with it for the life of the product (except for minor bug fix updates). It can use an upgraded version of the touch-based OS that the current iPod nano uses, with phone-related apps added, which will be iOS-like without being iOS.

    Having a defined set of features allows Apple to fine-tune the technical specs, because Apple knows EXACTLY what the phone will be doing; Apple can design for the minimal performance requirements, not the maximum. This will reduce product cost significantly, over even a “modern day 3.5-inch iPhone 3GS (with a faster processor, better battery, thinner screen, thinner and lighter body).” With a “real” iPhone, Apple cannot predict what the user will do with the iPhone, so it essentially needs to be “over-designed,” just as a Mac needs to be capable of doing much more than what typical users will demand of it 99% of the time.

    It may even reach the $99 (full price) point. No one who wants a “real” iPhone will consider it. But it will be very attractive to anyone who wants a “feature phone,” and would not consider an iPhone due to high total cost of ownership.

  6. Cheap phones already exist for the masses. All they have to do is get a couple of tin cans and some string. If they want real smart phones, they will have to pay for them just like we do. Not everyone can afford a high end car nor a high end phone.

  7. Is a SubZero for rental apartments in the works? What about a Mercedes the price of a Logan? Hey, I hear Bentley is coming up with a full-size car the price of a Chevy! If Apple does something like this, it should have its own name like a myPhobe. Or, they should be making as much money on it as they do brand me technology iPhones.

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