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iPhone 5C will ambush Apple's innovation

Gordon Kelly

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iPhone 5C will ambush Apple's innovation

Right now it is fashionable to bash Apple… heck even Fox News is doing it. "What have they had lately?” espoused Fox Business News correspondent Charlie Gasparino last week. “They have had the iPad, they've had a few other things, but they don't have anything innovating from [like] what came from Steve Jobs.”

Jobs’s old friend Oracle CEO Larry Ellison also weighed in with a few punches this week. “We already know [Apple’s destiny]” he said, “We saw Apple with Steve Jobs, we saw Apple without Steve Jobs… now we're gonna see Apple without Steve Jobs [again]."

Read more about the budget iPhone 5C

The problem getting up everyone’s nose is a perceived lack of ‘innovation’, but this isn’t what bothers me. During Job’s 24 years and two spells in charge of Apple the company came up with four revolutionary products: the Macintosh computer, the iPod, iPhone and iPad. That averages out to one every six years. The iPad came out in 2010. Innovation (however we may define it) isn’t overdue yet we’re just less patient these days. Instead what irritates is how Apple is increasingly sabotaging its ability to innovate and on the back of operating system, iTunes and Apple TV inertia its latest way to do that is by releasing a budget iPhone 5C.

The case for

On the surface the so-called iPhone 5C makes sense on many levels. Most obvious is its role as a gateway to lure users into the company’s iOS and OS X ecosystems. In the face of ever-cheaper, better specified Android and Windows Phone handsets the iPod touch no longer does this job and Apple risks losing customers early to Google and Microsoft - customers who might get comfortable there, invest heavily and never come back.

Furthermore advances in phone technology seem to be levelling out. All phones are fast these days, most have decent cameras, GPS, accelerometers, 3G (or even 4G) and most of the biggest apps are multi-platform. Apple might as well exploit this plateau and once again get the masses aboard who have given Android an astonishing 79 per cent mobile phone market share.

iPhones for everyone, break out the party poppers.

The case against

budget iphone 3On paper this model works for just about everyone, except Apple. Apple is not your average company.

It got to where it is today by preaching that it is about as far away from an average company as it is possible to be. To do this Apple has succeeded in convincing the world of three things: its products are innovative, this makes them aspirational and this combination makes it worth paying a premium to attain them.

It is genius: the innovation takes care of the marketing, being aspirational results in demand (and content customers after a purchase) and big profit margins keep investors happy.

A budget iPhone risks all of this. By definition it can’t be as innovative, aspirational or as profitable. Worse still the better it sells the bigger ball and chain it becomes around Apple’s leg. Take a look at the iPhone 5S rumours. NFC, a fingerprint scanner, more responsive screen technology, larger capacities… they may be mostly upgrades, but they are all things that can inspire app developers to do the innovation for them. A budget iPhone will have none of these. In fact the latest rumour is it may not even come with Siri.

Budget devices often outsell more expensive options (look at how iPad mini sales rocketed past those of the iPad) and developers will have little motivation to create apps that can’t be used by the widest user base - a user base that just took a technological backwards step. Apple is welcoming the biggest problem of the Google Play store: developers designing for the lowest common denominator. It is one reason why premium Android gaming experiences remain thin on the ground and ‘free’ apps proliferate weighed down by invasive ads.

Apple can crow all it likes about the possibilities of any new fingerprint scanner, NFC or the extra horsepower of an iPhone 5S, but if developers aren’t exploiting them they will stagnate. Stagnation hits premium sales, hurts brand aspiration and convinces increasing amounts of users that the budget model is good enough.

What’s more when an iWatch or iTV eventually arrives can Apple afford to differentiate iPhones by their level of integration/functionality with these devices?

Limit it and you risk wider interest in them and jeopardise their chances of success. Give parity and there is even less reason to buy a premium iPhone. It is a no win-scenario. Contrast this with the current Apple sales model: you bring new functionality and it simply encourages people to upgrade to the latest and greatest iPhone triggering sales around the block and huge profit margins.

What is *really* the matter?

So perhaps the bigger question is - why is Apple looking to take all these risks? Lamborghini doesn’t need a budget car to stop people being hijacked by Ford when they buy their first Fiesta.

Lamborghini knows when you can afford it the appeal will always be there because they are confident in their innovation, differentiation and aspirational brand. If Apple is starting to question these qualities (and only they know their internal roadmap) then perhaps the company’s problems do go as deep as Fox and Larry Ellison would like us to believe.

Read about the new iPhone 5S features to expect

Jedibeeftrix

August 16, 2013, 5:12 pm

"Apple is welcoming the biggest problem of the Google Play store: developers designing for the lowest common denominator."

To a limited extent they already suffer this given that they continue to sell older models with lower specs. This isn't really going to be any less capable than an iphone 4S, now is it?

Nate Ebner

August 17, 2013, 8:54 am

Excellently put. It's always easy to recognise a Gordon article.

I don't know the current figures, but it wasn't long ago that while Apple had around 20% market share, they were making over 80% of the profit in the sector. That as you said is their business model. Low(ish) sales, with huge profit margin.

A budget iPhone will IMO take more sales away from the 'real' iPhone than it will from Android, because it will be Apple's definition of budget.
Many people who want an iPhone can't really justify it's expense, but they buy it because they want an iPhone. Now, they will buy the budget one. Whereas, I can't, see the 5C being anywhere near good enough value to challenge the budget Android alternatives.

The original rumoured plan, to only sell the budget iPhone in developing markets was a good idea, as a way to grow user base, with out jeopardising current and future sales. It would function very well as a gateway device in those markets because it could be more affordably priced, and the desire for owners to have the 'real' iPhone at a later date, like they do in America would be strong.

The platform familiarity point is a good one though, as OS is a much bigger deal for phones, than cars as in your example. I wonder if they could accomplish their intended goals, by licensing iOS to Foxconn, to make an own branded phone, which could be sold more cheaply, and without Apple branding, so as to preserve the brand's cache, prestige and desirability. That way they have virtually a 100% profit margin on the device (a $10-20 license fee per handset), while Foxconn would be happy to price competitively to ship more units, and establish a brand for themselves in the mobile sphere.

Alex

August 17, 2013, 10:09 am

The problem with apple is that it no longer has a premium product. To charge a premium price they have to take another big step. Fixing up IOS is one positive step, but you don't need a new iPhone to achieve this.

The fingerprint scanner will not do the trick. I am sure that the will alienate many loyal users who think that their fingerprints may get into the wrong hands.

I am sure making a replaceable battery and SD card would also do the trick. I am sure this is why Samsung sells so well.

I think ultimately they need to get back to making the user experience better. Other manufacturers have already added an IR blaster. Motorola appears to have a very long battery life. Perhaps if Apple could get hold of some of the emerging battery technology that gives 5 to 10 times the density then they would have a product that really sets itself apart. A week of heavy use without charging would be something.

They cannot wait for someone else to take the initiative.

Google Glass may not be the way of the future but I applaud Google to seeking out new ideas and see where they lead.

So until they can come up with a new idea to put them ahead, then they need to have a budget priced phone because they cannot really justify a higher price.

Mark J.

August 17, 2013, 1:46 pm

"Instead what irritates is how Apple is increasingly sabotaging its ability to innovate and on the back of operating system, iTunes and Apple TV inertia its latest way to do that is by releasing a budget iPhone 5C."

I'm not a native English speaker but man who writes this???

DigitalFury

August 17, 2013, 3:36 pm

Lambo is bleeding money and is only being kept afloat by all the AFFORDABLE cars being sold by Volkswagen.

Congratulations, you made a good case as to why Apple *must* market the 5C and not do what Lambo does unless it wants to become irrelevant. Android is eating Apple's market alive and if Apple does nothing, it will continue to free fall and hit 20% by next year, and from there it is all downhill.

There is nothing worst in marketing than grandstanding, you bite the bullet and go where the clients go - period.

Terry Hambridge

August 17, 2013, 7:39 pm

If apple truly want a larger portion of the market, releasing a cheaper version of the iphone with less functionality is not the way forward, the reason andriod is so sucsessful is simply because their operating sytem does not restrict the user from doing things like putting video's on their phone in any format and it allows it's users to use bit torrents to download, both of which the iphone do not allow. If apple wants to appeal to a larger market, they need to drop any restrictions allowing the customer more freedom as to how they use their iphone.

DigitalFury

August 18, 2013, 8:43 am

Most ordinary users (i.e. not nerds) do not care about using BitTorrent on their computers, let alone on a smartphone, put .mkv videos, swap batteries or used SDs. They just want something easy to use, that looks good and can be shown to friends/coworkers, that can send emails, SMS, surf the net, play some games and runs apps. Nowadays a lot of Android-based phones fit the bill nicely at 1/2 or even a 1/3 of the price of iPhones, and at the other end some are even better than the 5. Apple has been squeezed out. It has stalled, with a high price that cannot be justified, as it has no real differentiating factor for itself. Considering that Apple market is the "Premium" segment, logical next step would be to have some real innovations that people are willing to pay for, but Steve's dead and innovations at Apple seemed to have died with him. The iPhone might just end up being the next RIM/BB in the next 5 years.

Gordon Kelly

August 18, 2013, 10:44 pm

Native English speakers

Gordon Kelly

August 18, 2013, 10:48 pm

I personally think there are very good reasons Apple should make a budget iPhone, I even go into them. This is simply my opinion.

I think you get my point even if you don't like my metaphor. I'll try not to write about cars too much :)

Gordon Kelly

August 18, 2013, 10:57 pm

I think you're spot on. As I allude in my conclusion Apple would be better focused trying to wow us again in the premium end of the market than enter the 'budget' (at least in Apple terms) sector of the market and all its potential pitfalls. Premium brands making this move tend to regret it.

Gordon Kelly

August 18, 2013, 11:00 pm

Thanks!

Your point on price is a very good one. What is 'budget' to Apple... The iPhone 5 already lags behind in terms of technical innovation and something like the Nexus 5 could really embarrass a budget iPhone. How many premium brands can you think of that saw their future in the budget sector and made a success of it? They're few and far between for a reason.

The Foxconn idea is really interesting, but I can't see Apple ever licensing out its OSes to anyone. Both a pro and a con of Apple is the company's obsession with being in control of every part of their hardware and software.

Gordon Kelly

August 18, 2013, 11:03 pm

Fair point, but whereas a 4S will be a third generation handset soon and at the point of contact renewal for many a budget iPhone would make these specs current again for another few years when the 4S should've been long gone.

Gordon Kelly

August 18, 2013, 11:13 pm

Really good comment DigitalFury. The concern is the motivation behind the move into the budget sector. Does Apple feel it can do longer do a good enough job differentiating premium iPhones? 3-4 years ago you bought an iPhone because it was the best handset on the market. Remember Steve Jobs at the launch of the original iPhone saying it was 5 years ahead of anyone else. What happened to that lead. ..

Nowadays Apple seems to have all but given up competing with other premium handsets. If it sees the budget option as a consequence of this I'd be very concerned.

Nate Ebner

August 18, 2013, 11:17 pm

I have a relative with over 30 years experience working in the mobile phone sector.
He has seen multiple times the drive for growing/maintaining market share as the precursor to a companies profits and eventually sales taking a huge nosedive.

It happened with Motorola who was the big dog at one point, then Nokia, and has affected others in different ways.

There are too many players to make a solid business by high sales with low margin. That's why Apple has had so much success, as their business model is/was the opposite of this.

It says forget the unit numbers, the real game is the bottom line. How much profit you make. Budget devices just erode the brand, and slash profit margins.

So what should Apple do?
It's a tough question, but they need to offer something that has the classic Apple appeal.
iOS 7 looks like it's a decent step, but mainly playing catch up to Android at this point.
They should as others point out focus on more innovation, but maybe more importantly they should realise that their previous success was significantly down to circumstances that they can't recapture in the mobile phone sphere, and that they will be in more of a battle going forward.

Nate Ebner

August 18, 2013, 11:20 pm

Or at least you thought/everyone told you it was the best handset.
With their 'fanboys' (for want of a better term) they have got themselves trapped in a two yearly new release cycle, with a minor revision inbetween, which leaves them basically guaranteed to be uncompetitive in an S year.

David Trotter

August 19, 2013, 4:55 pm

It's an iphone which will probably come in pink...... it'll sell by the bucket load.

As you said, the technology has reached a plateau so I don't users will see any real performance difference and I doubt it will make any difference to developers. It makes sense to bring out a cheaper plastic version - it's arguably a more practical phone material anyway.

I'm also sure it wont really affect 5S and iphone 5 sales too much either - Who wants to be seen in a posh bar in west London with a poorly 5C?

I'd recommend one for my mum. I think that says it all really.

Gordon Kelly

August 19, 2013, 6:15 pm

Hey David! It'll certianly sell by the bucketload, but I don't think it'll do Apple any favours in the long term. Premium brands tend not to go 'budget' well. Typically because their attempt at budget tends to be heavily under specced and overpriced. Latest talk of a £320 sim-free RRP suggests that is what'll happen.

Personally I'd suggest a Nexus 4 (or wait for the Nexus 5) at £239.

David Trotter

August 19, 2013, 10:00 pm

I see what you're getting it... it'll be a success but may damage and water down the Apple premium brand in the long term.

The whole smartphone market is becoming less interesting... well to me recently anyway. It seems the technology improvements are reaching diminishing returns and they are scraping the barrel trying to come up with new features. I would rather see a focus on real life issues such as battery life and cellular reception. But these are difficult things to quantify and market.

I tell you what though, I've seen a hell of a lot of cracked and smashed iphone screens. With its plastic body, maybe the 5C will bounce better

DigitalFury

August 20, 2013, 9:11 am

Well your real life issues might be different than somebody else's. I will agree with cellular reception, but I do not care much about battery life per se - i.e. I am never that far from an outlet. I would rather have a much improved camera.

Who knows, there might a Nokia for me in the future, that Bandit looks tasty...if it has the 42MP camera.

Gordon Kelly

August 20, 2013, 12:38 pm

That's exactly it.

There is also the risk it will cannibalise premium iPhone sales as the iPad Mini has done to the iPad rather than pull customers from budget Android and Windows Phone handsets.

I agree with you that the smartphone market is hitting a plateau and it is therefore a strong argument to say Apple should exploit this with a budget model that will do most things for most people.

Then again this is *Apple* and I can't help but think it simply devalues the brand, creates a new bottom level for developers to maintain compatibility (any iPhone 5C will sell in droves and need to be app friendly for 3-4 years) and pushes the focus away from innovation.

None of this is new. The smartphone market had plateaued before the iPhone - then look what happened. Right now it doesn't feel like Apple is again going to be the company to make the next breakthrough.

Zeus

August 21, 2013, 10:20 am

All these comments are great and make sense. To me they should just have last year's model and the new model being sold at the same time. The last year's model after a year of being around should become cheaper to make, those premium components should become cheaper as newer ones are used. That way the 'budget' handset is still based on premium materials. The only concern is where they intentonally remove feautures e.g. siri not being available on the iphone 4 or now on the 5c.

Zeus

August 21, 2013, 10:30 am

Battery life and the SD Card are really great concepts. The only concern is Apple knows it will hurt the sales of the top end size models. Also the SD card in samsung's case have made them lazy. Case in point the S3 was supposed to have a 64Gb model, it didn't materialise, The S4 was meant to have the 16, 32 and 64 models, Only the 16 is available. Personally I'm such a tech junky I would still get the 128Gb version and still smile that a SD card slot was available :). The way to sell it would be to put in only in the higher end models, say for the 5s in the 128Gb and 64Gb models.

Jayman

August 25, 2013, 8:50 am

You can only milk a revolutionary product for so long. Once the competition catches up, it is time to move on. Premium pricing is not possible in a commoditized product. Apple has squeezed the last cent out of the iPhone and there is not a lot of squeezing left to do.

DigitalFury IS stupid

August 29, 2013, 12:59 am

You are stupid. There is no such thing as A "NERD" just people. Plus bittorrent is a protocol not a program. utorrent is a program. plus people do use that because they pirate movies, music, games etc

you are stupid

August 29, 2013, 1:02 am

Samsung sells well because of the better everything than apple.
finger print scanner in the wrong "hands" bad pun
its micro SD card
A week of heavy use only happens in old nokia phones :( no smart phones can do this. nokia n95 for example can but nokia n97 mini for example cant

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