Today, Apple could proudly make a ‘cheap’ iPhone

“Apple’s phones start at $400 and average $550-$600 where the average for phones globally is about $180 and the average for Android is $250-300. Apple’s sales are entirely high-end. This has taken it to around 10% of all the phones sold on earth each quarter – it appears to have about half to two thirds of the high-end segment, with Android (mostly Samsung) having the rest,” Benedict Evans writes for Seeking Alpha. “However, the bulk of Android’s sales are actually at lower prices: hence Apple has 10% of sales and Android has another 10% selling at the high end but a further 40% selling at lower prices. Windows Phone and BlackBerry have 2-3% and the rest is feature phones, which are converting to smartphones at prices under $100, which means Android.”

“This difference between market share and pricing is, incidentally, the reason why the iPhone has 10% of handset unit sales but a third of revenue, and why the iOS app store has two thirds of app store revenues,” Evans writes. “So, maybe 20% of the phone market is premium, of which Apple has half, and 50% (say) is at $100 or lower (though within that there’s a lot of people trading up from lower prices).”

“Apple says, over and over, that the objective is not to sell the most phones, but to make phones that it can be proud of. In 2007 the iPhone was an MVP lacking industry standards like 3G and a decent camera, yet it still needed to be $600 or more to deliver the vision. Today Apple could perfectly well make a phone it could be proud of at $300,” Evans writes. “There is absolutely no technical reason why Apple could not make a great iPhone and sell it for $300 or so today. It wouldn’t be the same as the premium product, but then the iMac was not the PowerMac.”

So far, “Apple chooses not to do a large screen phone, and it chooses not to go into the mid range, and it chose not to allow, say, third-party keyboards. There were strong technical challenges for all of these, but those have probably now been removed (certainly for the third point, given the extensibility of iOS 8),” Evans writes. “This means Apple has more cards to play than we’ve yet seen.”

Read more in the full article here.

29 Comments

      1. The 16gb iPod touch has a four year old processor that probably won’t be able to run iOS 9 next year, a weak camera and a small screen that won’t appeal to the developing world of which this cheap iPhone would be largely aimed. There wouldn’t be anything great about a smartphone modeled after it.

  1. Zzzzzzz… It is not just hardware. What these morons don’t get is that when I buy an iPhone, I am not only buying premium design and engineering, I am buying into a full ecosystem. I am buying into stellar, forward thinking research and development. I am paying for the beauty of the connection between my Macs and my iPhone and iCloud and iTunes and so on.

    If I didn’t care about any of this, I could buy a cheap OnePlus One phone and deal with a set of discrete services and incoherent apps, running on a me too phone.

    So Apple could make a cheap phone, but then say, “And you get none of our free services. You’re on your own.” People would scream bloody murder. So pay for the damn iPhone or buy some Android phone and cobble together your own user experience.

    Hardware-wise I love the HTC ONE M8, but man does Android wear on my nerves. And even after using it for the better part of a year, if you hand me someone else’s Android phone, I have to sit there and figure it all out again.

    That’s what cheap gets you.

    1. Good point. The “experts” often seem to forget other costs such as maintaining that ecosystem, paying for future iOS updates, iMovie, numbers, keynote, etc. all free to the purchaser.

  2. I think the main reason why Apple won’t make a cheap iPhone is because of the App Store. If it had access to the App Store, software quality overall would suffer as developers begin to support the cheap iPhones as new “lowest common denominator”. If the cheap iPhone did not have access to the App Store, and just relied on built-in Apps – it would not be an iPhone. The App Store at this point a crucial and inseparable part of the iPhone’s identity.

      1. power in a car is only as good as the road you ride on, and roads are not free, paving, procuring property, maintenance, etc…. not to mention safety
        Let them drive on third world roads and be hijacked with their lack of ecosystem and failed security, they can have all their power, since they are too cheap to pay for the ecosystem. i want to get somewhere without hassle or fear when i pull out my phone

  3. Perhaps if they manufactured in China, using close to slave labor, and managed their supply chain really well, and perhaps used plastic instead of icky metal, they could produce a device that might satisfy the monetarily challenged market segment.

    then again, some other multi-national company with no profit imperative might just undercut them as they would be buoyed by state subsidies. It would also help if that government continually rigged their own market to prevent companies from selling into its own borders.

    Otherwise, not so much.

  4. Today Apple could perfectly well make a phone it could be proud of at $300,” Evans writes.

    While that may be true, that $300 smartphone would be something more akin to the iPhone 4s than an iPhone 6. You won’t get the latest and greatest iPhone for $300 anytime soon. Eventually, the smartphone market will be commoditized and iPhone ASPs will probably fall to the $300 range. Until then, Apple will rake in the dough!

  5. The cheapest current, production model of the iPhone is iPhone 4s (three-year old device), which retails for $450 in the US (and occasionally on some merchant discount for a little less). On that model, Apple’s margin is around $160. Average life span of an iPhone is about 3-4 years (between owners). This provides Apple with about $40 per year to book profit for the device and to pay for all other free services and apps (iCloud, iLife, iWork, etc). This is rather tight, but fortunately, there are 5c and 5s (especially the higher models), where that profit margin is much, much greater (up to $500 per device), which translates to over $120 per year, providing nice and comfortable stream for all those free services and apps.

    The point here is, if Apple were to sell an iPhone for $300, the profit margin on that would likely be below $100 (perhaps $80 or so), which would translate into just $20 per year to cover all that free stuff they give away with each iPhone.

    Apple was NEVER into selling any piece of their hardware at or below cost. Even the cheapest pieces of Apple hardware (Lightning cable, Magic Mouse, iPhone charger, AirBuds…) command a solid mark-up.

    This is not going to happen.

  6. I’m not claiming to be an expert, but I learned in my recent masters program that there are really just four kinds of business strategy. One is to be the high end, quality leader. Think Calphalon cookware, Rolex watches, Mercedes or Apple. Mercedes doesn’t sell inexpensive cars. Sure, there’s no reason they couldn’t. But it would completely violate their strategy, changing people’s opinions of what it means to own a Mercedes. Focusing on this strategy has been great for Apple so far. If people want a cheap iPhone, they can buy a used one.

    1. Totally agree. I have an iPhone 3Gs that runs on H2O network (ATT) and has a 10$ a month plan. Actually you only need to pay 10$ every 3 months cause its pay as you go. Phone, text and data so I can even get GPS mapping.

      The phone costs me about 40$. The Sim was 10$ with phone number. Super cheap and its an iPhone.

  7. It is possible. After all, Apple did continue to sell the iPod Shuffle, and actually got the price of it down to $50. Apple is about good products, not about being elitist and pricing people out of the market. For instance, the low opinion that Apple fans have of Android adherents who buy budget phones, Apple most certainly does not share. Apple would love to have them as customers. Otherwise, why would they have come out with the Mac Mini, which is as cheap as a Windows PC?

    But the problem is that even if you can make an iPhone for $300 (debatable as the iPhone 6 will totally redefine what an iPhone is) Google has now gotten Android to the point that makes a $100 smartphone profitable and even a $65 smartphone feasible on a low margin. So, if you can get approximately the quality and performance of a $300 iPhone for $100, lots of folks will buy the $100 device. In other words, Apple is fighting the same battle now that they did against Microsoft. Except that where Microsoft purposefully bloated their OS to take advantage of storage and processing power, Android is doing the opposite, trying to get their OS to run on devices that have as low specs as possible. They accomplished that with the Chromebook and Chromecast, and are going to keep at it with Android.

    Basically, Google is trying to implement what Marc Andreeson and Netscape attempted almost 20 years ago (remember their netbooks?) but were crushed by the Microsoft monopoly (and the simple fact that the technology was not there yet).

    1. At 1/3 the price of an Apple product, you will never ever get anything close to the equivalent product. The specs on the hardware are only a piece of what makes a great smartphone. Apple has all the pieces, and what they charge is what their worth. That’s why Apple exists, why their products are superior, and why Apple is the most valued company in the known universe. You cannot kludge together non-Apple products and get the equivalent, at any price. And the difference in true cost to go with the best is a pittance over 2-3 years.

  8. All the comments here, so far, are wrong. Apple can certainly sell a phone it would be proud of for $300 retail. It’s called the iPhone 4. It was state of the art, what, three years ago? Who cares if it doesn’t have the fastest processor and a small(isn) screen. If you want a low-end iPhone, that’s it.

    Of course, there’s not a single reason in the world why Apple would WANT to sell that phone today. None.

    1. The iPhone 4 is a four year old phone that can’t run iOS 8 and shouldn’t even be allowed to run iOS 7. How on earth could Apple proudly sell that as a product today?

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