What Apple gains by not offering a 32GB iPhone 6/Plus: At least $4 billion

Usually Apple releases three versions of the product that are separated by the storage dimension. In the past it was 16GB, 32GB and 64GB. And the versions increase in price by the standard $100,” Rags Srinivasan writes for Iterative Path. “That changed with iPhone 6.”

“There is no 32GB version. For $100 more instead of getting just 16GB more or 32GB for another $100 you now get lot more. Instead of 100% more for $100 more and 300% more for $200 (more than base version) you now get 300% more for $100 and a whopping 700% more $200 more than the base version,” Srinivasan writes. “”

“What Apple is doing is a simple case of price discrimination done right. It is an effective lever for them to get customers to self select themselves to the version that is most profitable to Apple,” Srinivasan writes. “Let us say the unit numbers stayed the same (likely will be higher given the unprecedented demand we are seeing). Let us assume a conservative rate of 25% to 30% of people will willingly choose the 64GB version. Let us give a high end cost of $16 for the additional 48GB storage. Just for this limited and conservative scenario… That is close to $4B in new profit just by keeping the base version at 16 GB.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]

27 Comments

  1. If you stream you do not need more memory.
    I use my CD changer in the car- which can play AAC encoded homegrowns- and use the iPhone through Bluetooth for Phone and streaming radio.

    I prefer my iPad or a Mac formats things and see the Phone as a last option rather than a first option.

    1. Uh, yeah…no. You don’t realize how people use storage on their devices. Many apps are several hundred MB or more than a GB in size. Even more so, do you realize how much space all the photos and videos people take all the time take up? When my mother-in-law got a 16 GB iPad I thought it was more than enough. She has filled it up with photos and videos and does not have a computer to dump them on. 16 GB is a pitiful nothing.

  2. Yeah, sneaky. 16Gb is a little anemic but 32Gb would be plenty for many customers that now have to pay for 64Gb. The fact that the top to middle tier is a doubling of RAM and the lower to middle tier a quadrupling does seem a little unfair (or a bargain?).

    As a stockholder though I am of course conflicted. 🙂

      1. Not really, if Apple had gone with the traditional 3-tier pricing step up that it has always done in the past, they would’ve sold the 32GB, 64GB and 128GB, with the 32GB being the same price as the 16GB is today.

        Personally, I want as much capacity as possible, I’d buy a 2TB iPhone if they could, however it seems like those who don’t store much are perfectly fine with 16GB. My mom and my girlfriend would be fine with 8GB.

        So I can see why they wanted to offer a bare-minimum for people, but didn’t want to offer 4 tiers, and the numbers may be off for the $4 Billion by removing the 32GB, but it does seem as if they did push more over to a higher level.

        1. Google and the likes continue to offer 16 GB memory as base for many devices. Why would Apple offer 32 GB as base memory option?

          Besides, there is quite a lot of people who do not use much of applications, nor they have giant media library. They browse Internet, use maps, calendar/reminders/messages, read electronic books and make occasional photos and videos, and 16 GB is fully enough for that. They should not pay more.

          1. I wasn’t suggesting that 16GB isn’t enough for some people and even gave the examples of my mom and girlfriend who are more than fine with 8GB.

            My point was that in the past, Apple has moved from 4, 8, 16 to 8, 16, 32, to 16, 32, 64 with the price difference scaling accordingly (the price difference is the same for small, medium and large capacities).

            So if following tradition, Apple would’ve provided a 32, 64, 128 option this year, and the 32GB would’ve adopted the 16GB price. The 64GB would’ve, by tradition, adopted the 32GB price, which it did, but there’s no option for the 32GB, instead someone wanted to buy the base price is only getting 16GB.

            Again, for my mom, girlfriend, and others, the idea of setting a higher starting capacity is just a waste, and really it doesn’t matter to them that they’re only getting 16GB, but for anyone where 32GB is the right amount for them, it’s a bummer for them that they have to pay for more capacity (half of which they won’t use) as compared to what they would’ve done based on how Apple traditionally upgraded the tiers.

            I’m just describing their disappointment.

            1. Apple isn’t losing money.

              Flash prices have fallen historically from the beginning and drastically since 32GB was first offered as the 2nd tier.

              Relative in this context should be applied to what Apple has historically done which is shift the tiers one step at the same price point. Thus 64GB was expected to be the second tier and 32GB the first. Those who were looking to get 64GB anyway got the iPhone at the price they should’ve expected. Those looking to pay the base price for the iPhone ended up getting 16GB instead of the 32GB they expected.

              Again, I’m not arguing against what Apple did, nor am I arguing that Apple shouldn’t have a 16GB base model, I’m just point out how expectations weren’t met for some people (and not even me since I wanted and got a 128GB model).

  3. 16gig is barely acceptable anymore especially for a phone that doesn’t have an expandable memory slot. I understand it’s probably more profitable for Apple, but as a consumer I wish they would forgo the 16 and start with 32.

      1. I am staying away from the 64gig but not as far away as the 16 gig. 16 is almost insulting at this point. I’m waiting for a Space Grey 128gig to come in at Best Buy. With the way this wait is going I just may breakdown and buy it at Apple.

  4. On the flip side though, those of us like myself that bought a 64GB 5s last year and a 64GB iPhone 6 this year saved $100. Same works for the 128GB iPad compared to last year’s price as well.

  5. As an investor, I love apple to maximize their profit, but I believe this decision hurts apple more than helps.

    IMO the biggest problem with this decision is the significant resulting increase in the percentage of iphone users who will not be able to do OTA full version iOS upgrades.

    Apple requires 6gb free for the upgrade from ios7 to ios8. The number required for iOS9 will no doubt increase next year.

    Apple and their developers vastly benefit from having the great majority of iphone users on the newest OS. It’s one of the great selling points for IOS vs android.

    The inability for so many users to do OTA upgrades of the OS, takes a great deal way from this major selling point, and from user satisfaction as well. It’s something most users will not think of when they buy the phone, but will be unhappy about later.

    1. They cannot make the phones fast enough. I have three daughters and a wife. tThey all get by just fine with 16gigs, they only use them for calling, texting and a handful of apps. I work with iPhone owners. A sample poll I took wit 11 of them only three had more than 16 gigs on their iPhones. I have the 6+ with 64. Have 60 apps and only halved filled. Those who load movies and music need more than 16. Apple knows what it is doing.

      1. @CupertinoJoe

        I don’t doubt that many users fall into that category. However a verysignificant number of others do enough photos and videos to fill up a 16gb phone.

        iOS8 adoption is far behind iOS7 adoption at a comparable point in time, and many including myself, believe the requirement for 6gb of free space is a big factor in that.

        Consider this statement from John Gruber, a blogger among Apple’s greatest fans:

        “The original iPhone, seven years and eight product generations ago, had an 8 GB storage tier. The entry-level iPhones 6 are 85 times faster than that original iPhone, but have only twice the storage capacity. That’s just wrong. This is the single most disappointing aspect of the new phones.”

        1. “iOS8 adoption is far behind iOS7 adoption at a comparable point in time, and many including myself, believe the requirement for 6gb of free space is a big factor in that.”

          Except it’s not a requirement. You barely need any free space if you do a tethered update (which you really should btw).

          The original iPhone, seven years and eight product generations ago, had an 8 GB storage tier. The entry-level iPhones 6 are 85 times faster than that original iPhone, but have only twice the storage capacity.”

          Except the 8GB was the maximum storage tier when the 1st generation iPhone was first launched. The new iPhones have a maximum capacity of 128GB, or 16 times as much storage, which means it was better than doubled every other year.

          The minimum storage option on the 1st generation iPhone at launch was 4GB. So the minimum increased only 4X in 7 years.

          For the maximum, I can see the advantage… great I can have more photos, movies, apps, and music with me if I have more than what the previous capacity could hold.

          With the minimum, I’m not sure what the advantage is of upgrading it since larger capacities are available for purchase, and if I won’t use more than 16GB, that extra capacity is just wasted.

          1. You’re right about 4gb being the original iphone’s minimum storage. Gruber stands corrected. 🙂

            According to Wikipedia, however, you’re wrong about the original maximum, which they say was 16gb, as opposed to the 8gb you indicated.

            The real point here, however, is that Apple did something great years ago when they made it possible to use an iphone and/or an ipad without ANY Mac or PC. No tethering necessary for ALL of the iphone’s great functionality.

            Now with OS’s getting larger and larger, there’s much less free space on a new 16gb iphone and a very significant portion of the installed base who don’t have a machine to tether to. (not to mention all those for whom tethering would simply be technically challenging)

            1. “According to Wikipedia, however, you’re wrong about the original maximum, which they say was 16gb, as opposed to the 8gb you indicated.”

              Sorry, but I’m right about that as well. I wrote “the 8GB was the maximum storage tier when the 1st generation iPhone was first launched.”

              When the 1st generation iPhone was first launched it was available in 4GB and 8GB. One color. One carrier (AT&T). The 16GB version of the 1st generation iPhone didn’t come out until February, 2008. I remember this vividly because I was very tempted to upgrade to 16GB.

              “Now with OS’s getting larger and larger, there’s much less free space on a new 16gb iphone and a very significant portion of the installed base who don’t have a machine to tether to.”

              The size of the OS isn’t significantly larger. At issue is that when you do an OTA update, the software has to fully download, decompress on the iPhone, and then run an upgrade installation that preserves the old OS in a state that can be recovered if something goes wrong until the upgrade is complete. It’s one reason why non-tethered updates are a bad idea, it’s like performing brain surgery on yourself.

              But be that as it may, you’re dividing up those with 16GB iPhones into a subset of people who don’t tether and dividing that group into a smaller subset of people who don’t have enough space to upgrade, and dividing that group further still into a subset of people who actually would upgrade, and yet again into a subset where if they did, it would matter (as in they’d buy apps that they otherwise couldn’t).

              All of this to justify saying no to people who find 16GB is more than enough storage. They have to buy something that has more, even though they’ll never use half of it.

            2. <<>>

              Acknowledged

              <<>>

              After all these subdivisions it would seem to be a trivial issue. It’s not.

              Historically, the subset of people who would eventually WANT to upgrade, is about 95%. Not a trivial subset.

              Historically, the subset of iPhone users buying entry level memory is largest of the three tiers. Not a trivial subset.

              As reported by MacNewsDaily, 9to5Mac and many others, Adoption of IOS8 is trailing IOS7 adoption at comparable points in time by a very wide margin.

              From John Gruber, author Daring Fireball blog: He’s received more feedback on this issue than on any other in history of his blog, ALL indicating that people want to upgrade and they can’t. (And there’s no greater Apple supporter than Gruber)

              Not a trivial subset.

              <<>>

              No I’m not. I’m saying that apple should provide 32GB at the bottom tier for the iPhone 6 rather than 64gb and do so without increasing the price.

              I’m also saying that the price per GB of flash 7 years ago was 24 times greater than it is now, while during that time apple has increased the minimum storage by a mere factor of 4.

              I’m TOTALLY in favor choosing pricing for the purpose of maximizing profits. In this case I believe the loss of these specific profits will be more than made up for by additional profits accruing from greater user satisfaction and brand value.

            3. Keep in mind those are subsets of subsets and you need to compare those to the number of people who are perfectly fine with 16GB or less of storage that you’re asking to buy 32GB even though they’ll never use half of it.

              There’s just no way that you can show that the subset of the subset of the subset…. where you get to the point where those people would actually do anything significant with the iPhone… like be purchasing content.

              Apple has the stats on this. They have pretty competent people working this over and coming to these conclusions.

              People like my mom… who would actually be fine with an 8GB iPhone, have Facebook, Words with Friends, and nothing else added. They check email, use Safari, etc… They want the lowest priced iPhone available and extra capacity is just a waste.

              “No I’m not. I’m saying that apple should provide 32GB at the bottom tier for the iPhone 6 rather than 64gb and do so without increasing the price.”

              I’m not sure what this is in response to exactly, but the cost has to come from somewhere. If you’re asking for Apple to offer the 32GB at the same price as 16GB, why not just ask Apple to take their cost difference and markup on that and reduce the price of the 16GB since so many people are perfectly fine with 16GB or less.

              “I’m also saying that the price per GB of flash 7 years ago was 24 times greater than it is now, while during that time apple has increased the minimum storage by a mere factor of 4.”

              True, but the component cost has never had anything to do with this. If it did, Apple would have vastly different price/capacity structures. Apple is pricing based on the value of the product. It’s a different argument entirely to suggest that Apple should differentiate tiers with an alternative method.

      2. The 16GB phone is most likely for bulk enterprise customers, don’t you think? Those guys shouldn’t be using their work phones to store days worth of music or gigabytes worth of photos and movies. They need them to run workplace-provided apps, and not much else. Keeping the cost down for that seems like a good idea to me.

        1. Indeed, I was thinking about the ibm deal and that Apple now have a greatly expanded range that was unthinkable before the iPhone 6 and iPad releases this year.

          As you said, enterprise users accessing back-end systems don’t need 128G devices, 16G is plenty for those purposes.

  6. 16Gb is too less.. it just plain sucks.. ideally there should be two models of iphones the 64GB and 128GB for the latest iteration, with 16GB and 32 GB making the older models. Its not that apple needs the extra 4Billion cash, they would atleast have a huge lot od satisfied customers especially coming from android base where most of the handsets offer micro sd option.

    By increasing the base memory of the existing iphones they would just eliminate a huge marketing option of the android handsets manufacturers who tout Micros SD slots for extra storage on their 4GB handsets. Wake up apple, when you make the best device why act greedy in a silly way.

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