I’ve written often about the ‘iPhone Nano’ scenario. It’s been on the cards for years and it’s one of the most private fears of many a mobile manufacturer and mobile operator.
Back in 2009, I remember discussing the horror with which the industry react to the phrase ‘iPhone Nano’. This was back when Apple had dribbled out a few iPhones to the planet but really, the product was highly restricted because it required a heck of a lot of money up front (compared to a subsidised Nokia of equal value) and the tariffs were, on average, at least £5/$5 more. But everyone wanted one. Everyone on the street wanted one.
As Apple began relaxing the exclusivity in many markets, iPhone ‘joy’ spread. Operators who previously were unable to officially offer the device(s) jumped on the bandwagon. Industry Chief Financial Officers toasted the iPhone for it’s ability to get consumers locked-in to 24-month contracts.
Whilst iPhone remained a bit-player, everybody was reasonably content. More and more now, operators have begun realising (and recognising) that every time they flog a 24-month iPhone contract, their assuming ‘bit pipe’ status for that customer. Never again will an iPhone customer click or tap ‘internet’ and land on the operator portal. Operator branded app store? You can forget that. Yes, the only revenues you’re going to see from that 24-month contract customer are the ones you’ve factored in: £35/month and a few odds-and-sods, maybe an additional text bundle, maybe a bit of roaming data.
It’s fine though, when it’s a small percentage of your total subscriber base. You can still let your marketing and propositions team play with the rest of them.
This industry loves stability. And, for the most part, we’ve had stability from Apple on the iPhone front for a long time. If you think about it, apart from the launch and the introduction of the App Store concept, iPhone has been certain and predictable at least from the point of view of the mobile operator and competitors. Yes there have been all manner of announcements and launches from Apple, new models were launched with a lot of pizazz — but the iPhone fundamentals remained stable.
The total cost of ownership of iPhone is still rather extreme. For most consumers, the iPhone is one of their most expensive (and treasured) purchases. It’s broad in appeal but highly restricted in terms of affordability.
Oh anyone can buy one now. You don’t need a credit check, you just need the readies. Five hundred smackers, typically, to buy an iPhone ‘pay-as-you-go’. Even on eBay, it’s difficult to find a cheap iPhone. They hold their value very very well.
So we’re fine.
Until, that is, Apple introduce a raft of iPhone Nano devices each priced at a highly competitive £49. For the entire device. Or £99.
Imagine the trauma that would engulf the industry. Imagine the queues. £99 one-time fee to own an iPhone? Available unlocked from all good consumer electronics retailers? They’d fly off the shelves. Faster and at greater volumes than any iPhone launch we’ve ever seen.
Why would Apple bother with this?
Oh it’s simple. Although they’ve a market cap of 326 billion dollars (14x BIGGER than Nokia and 54x bigger than Motorola), Apple is a minnow when it comes to mobile phones.
An absolute minnow.
The company sold 18.65 million iPhones last quarter. In a good quarter, the giants of the market (Nokia, Samsung) would (roughly) eclipse that in the first 10-15 days of the quarter.
And whilst I know Nokia isn’t quite at it’s prime, my point is, iPhone is small.
Something needs to be done.
Why?
Because iPhone is one of the central pivots of Apple’s on-going strategy. It’s a key gateway point for consumers into Apple. Indeed, buy an iPhone and the chances are — as we see anecdotally all the time — it won’t be long before you’re eyeing up a MacBook. Or an iPad. The ‘gateway’ point is only going to get more important as we begin to see the effects of iCloud on the world.
Something needs to be done because Apple’s share price is in the pits.
Well, not really. 😉
But run with me on this. Suspend your disbelief. If you’re a shareholder, you’ll rightly be delighted with Apple’s performance since the end of 2006.
The company has added well over $200 in value across the last 5 years.
And that is the challenge for Apple.
At last count, the company had $63 billion sitting in it’s bank accounts. Enough to buy Nokia, three times over.
Apple also has the unenviable position of having to deliver consistent returns to highly demanding shareholders who want, very much, to see the share price hit $400, $500 and beyond.
These shareholders, not necessarily wise in the way of the mobile industry, will be looking upon the growth of Android with no small amount of alarm. Apple’s market share is evaporating — not because they’re doing anything wrong per se, but because the market is growing substantially. And most folk are buying Android phones — the growth is obviously coming from the lower end too.
What is Apple doing about this? Huh? Eh? Come on! We want to see results!
That’s what the shareholders will soon be demanding. A bit-player position is simply untenable.
And goodness me, see if Nokia and Microsoft actually start getting traction, the pressure will continue to mount for Apple to do something about it.
This is why we’re getting all sorts of he-said, she-said, some-guy-overheard style rumours percolating across the marketplace. The rumours are coalescing into ‘two phones’ at the moment. Apple will apparently launch two phones. Your guess, at this point, is as good as mine. The executives I’ve spoken to are, on pain of huge, huge penalties, saying nothing. There’s not even eyebrow wiggling going on.
Expect to see Apple begin to target the lower end of the market. This is the market that has traditionally been buying £199 iPod Touches as the cheapest way to access the App Store (and gaming).
I think it might take a few product generations before we see £99 iPhones, but it’ll certainly be on the cards. Especially when the pressure to ‘do something’ begins to get untenable.
The problem with being big and having pots and pots of cash is that the market is going to start screaming for more, soon. Not even the Jobs Halo will withstand that.
There’s plenty of precedent too. It’s precisely what the company did with the iPod Nano. With one product announcement, the company democratised cool music players. Anyone with $49 could join the Apple world — and millions did.
The elephant in the room though is the ‘computer issue’. An $800 iPhone is useless to you unless you have an $800 desktop/laptop with which to activate it. And if you only bought an 8GB iPhone, then you can only buy 4 or 5 movies from Apple before you run out of space.
The existing iPhone framework dependent on desktop sync does not work when you move out to the wider audiences. A case in point: A few months ago, one of the chaps who cleans the offices in which I work got himself an iPhone. He was delighted. He paid top dollar for the iPhone 4 from 3UK. A super purchase. The only problem? He couldn’t activate it as he doesn’t have a computer. He doesn’t need a computer. He can’t be bothered with desktops. So I activated it for him.
I guarantee you he hasn’t upgraded the phone. He hasn’t backed it up. He hasn’t synched it. He’s no infrastructure beyond the actual phone.
Most of the marketplace is like this chap: No desktop.
So that’s a real barrier. However you’ll note that Apple have addressed this with iOS 5 — to the whooping delight of the gathered keynote crowds a few months ago.
And the data storage issue is a problem. How can you be expected to sell more stuff to consumers if they run out of disk space on the device they use to do the purchasing? Yeah. iCloud is taking steps to solve that.
So Apple is headed in the right direction.
If we’re truly going to see two handsets, I wonder if we’ll see a budget vs a high end device? I wonder if Apple will begin to break things out like they’ve done with their laptop range, to hit as many price points as possible?
They’re going to have to. There’s no question about it.
Why, then, is an iPhone Nano priced at a highly accessible £49 or £99, a total flipping nightmare for the rest of the marketplace, operators and OEMs combined?
Well Apple is already heavily influential way beyond it’s market reach — and that’s when the company is lucky to ship in the 50-75 million devices a year range. What would the market look like if Apple hit 200 million devices a year? How would the world look if, by 2014, there were 800 million iPhones in use across 4 billion people?
I know the figures are a little… blue sky… but consider the ramifications.
If 80% of America was running on Apple, what would the market look like? How would the market respond to Apple deciding to obsolete ‘3G’ and ‘4G’ in favour of LTE-Advanced, provided by LightSquared in the 2014 models? Apple’s got a rather successful (and rather annoying) history with forcing change upon it’s willing customers. And with such huge market share, Apple would have some serious leverage.
This is the fundamental issue. The company is already massively influential yet they’re nothing compared to Samsung and Nokia’s logistical scale. If they actually start heading toward 200,000-500,000 sales per day, that’s going to start to cause no end of headaches for the market. It’s a remote possibility at the moment — but I submit that simple economics will require Apple to expand market share downwards to the larger audiences.
Bring it on.
What do you reckon? Will we see an ‘iPhone Nano’ style product priced competitively in the next year or so?
I advise quite a few non-techy people as to their phone purchases and at the moment it’s a really difficult task. Most of them end up with one or another of the cheaper android phones because they’re in the right price bracket and they get pushed toward them by the staff in phone shops. Then the problems start. First is usually battery life (they just can’t understand how a phone can’t make it through a single day), applications which aren’t available to them (usually to do with screen sizes/resolutions on the smaller Androids), things their friends’ phone do that theirs doesn’t (usually one that’s running a different branded skin on top of the OS), I’ve even had to advise on some problems caused by crapware from the Android marketplace. And all of that is before you get to inferior camera and radio components that seemingly affect most mid-end to cheap Android phones.
Symbian, has some genuine usability problems that make me hesitate to recommend it (the dummed-down approach to e-mail of Nokia messaging can cause real problems even in fairly basic use-cases) and some app catalogue omissions (like Kindle) that cause real problems.
These aren’t stupid people and they really like some of the things that modern phones let them do. But they don’t live their whole lives through their phone and they don’t want to have to think about it. For them it’s such a basic fundamental that it really has to just work or they start to get extremely frustrated.
You can be cynical and say that iOS has always been the perfect feature-phone operating system, so if it comes to a feature-phone price point, how can it possibly fail? But, the fact that seems not to be acknowledged is that Apple is simply not subject to competition at the moment. If a competitor made a comparable product then Apple simply couldn’t get away with the profit margins that it does.
It doesn’t matter that Nokia and Android phones offer more functionality or that they’re cheaper, they simply aren’t making the same offer and so they aren’t addressing the same market.
Apple basically offers it’s customers freedom from choice. And no, that’s not a bad thing when it means freedom from thinking about screen resolution, cameras that can’t take recognisable pictures and batteries that can’t power the device for a single day. In fact, in my industry that type of service offer is usually just called ‘design’.
So, personally, if Apple makes an iPhone Nano, I wouldn’t have any hesitation in recommending it and I’m sure most people wouldn’t have any regrets in buying one.
And it won’t be too long in the future that Apple announces that it’s ‘invented’ real multitasking on a phone. (OK, at this point I should declare my interest; can’t wait for the N9).
If Nokia brings the MeeGo Harmattan Swipe UI to it’s mid to low range phones and gets support for the 20 or so most used apps, however, then it will rule the world. Again. (If you’re all up to a little slogan irony this early in the morning).
You make a lot of good points there Sam — here’s a question for you. What
would the average consumer pick:
– $100 iPhone
– $100 Nokia MeeGo/Symbian/WP7
I think the consumer would go for the ‘brand’ — which, ironically in this
case, is Apple. I know Nokia has huge, huge, HUGE brand presence around the
planet, but I wonder if Apple is ‘bigger’ and more appealing in the minds of
consumers.
Ewan, you’re right it’s a no brainer really.
Tim Cook, and others, have hinted quite a few times in analyst briefings that they will cover more market segments than just the high-end. There’s only so much more exponential growth iPhone can get in high tier and developed markets, they need a product that fits the needs of lower segments and developing markets.
I would expect to see a cheaper iPhone option either in the Autumn or Q2 next year.I would imagine Apple would use the current iPhone 4 processor, have a cheaper screen, less memory and possibly cheaper CMF (although not cheap-looking, Apple are very keen on aesthetics as we all know).
Let’s also remember Apple doesn’t care about voice, it’s just an they had to include in iPhone to get networks to range it. Now that iOS has a such massive mind-share, it is just possible that Apple could release a 3G-capable iPod Touch rather than a cheap iPhone.
We also need to consider price.
Today:
iPod Touch is priced from about £195-£335 (8GB – 64GB)
iPhone 3GS is £480(8GB)
iPhone 4 £510 (16GB)
This suggests that the sweetish spot for the *first* ‘cheaper’ iPhone is probably around the £300 mark.
That’s at around the same price as a lot of mid-tier Android phones.
It would make it available ‘free’ on a £25/month contract or possibly less.
I would be willing to bet that many people would somehow or another also consider stretching their budgets to acquire sim free.
Oh I like your analysis there. Very good indeed!
I believe you are dead on here Ewan. I thought this would have occurred a year ago, but the powers that be over in Cupertino are a heck of a lot smarter than I am. They are going to wait for the tipping point before offering the lower priced version of the iPhone. Why come out with one now when the masses are still picking up the expensive model like hot-cakes. Once sales start to slow, and they have all that can beg, borrow and steal to own the top model, it will be then they come out with the nano iPhone.
Unfortunately, no one on the outside is privy to the research and details of Apple’s current sales as they relate to who can and who can’t afford the iPhone at this time. But sure as you write this and call for this, I also believe it to be inevitable…
Giff
Yes, you’re certainly right that that would be enough to sway a lot of consumers. In fact if the iPhone Nano does happen I think there’s good chance of Apple draining the market of any real profit, to the extent that it’s competitors would have to rely on alternative revenue streams (such as Google’s advertising dominance) simply in order to support OS and service development. Maybe this is one of the fears that’s driving Elop.
Equally, I was amazed by how perfect a marketing package the N9 seems to be. Even the whole concept behind the device – ‘just swipe’ – looks like a great marketing tag for a slick but substantive product that is actually designed to part consumers from their cash. This is something completely new from Nokia, which seemed to operate in it’s glory days by making ‘monster phones’ that vastly exceeded the competition in features, and meeting every price point down from that, but never seemed inspire popular lust.
Nobody seems to be able to beat Apple on brand and marketing. But the N9 seems to be the closest we’ve seen.
Perhaps, given the intentions that Nokia seems to be signalling, the question shouldn’t be ‘Can Apple make the Nano’, but ‘Can Nokia bring the swipe UI to S40?’. The former seems a certainty give enough time. The latter looks considerably more open to question.
Compare that with the SGS II; amazing lineup of components but all the consumer sees is a big slab with the back of a plastic 1980s radio set.
Apple has always made margin on their hardware but there might be a case for low margin if Apple can claw back revenue from on- device services?
Good points re Nokia!
Nice one Ewan.
I’d just comment on the shareholder bit. My understanding is that management is not at all driven by any pressure to please the shareholder (e.g. no dividend despite the cash mountains) and rather that the share price will take care of itself if the company succeeds.A cheaper model has indeed been hinted by Tim Cook during a quarterly briefing.$299 off contract sounds like a good price positioning IMHO. Low enough to be differentiated from top model + tempting for impulse buy and high enough for healthy margins.
Let’s think about brand for a minute. Who holds more sway when you choose a new device – your preferred smartphone manufacturer or your carrier? With an iPhone, I’d say it’s Apple all the way.
So maybe it doesn’t matter much to your iPhone buyer which carrier the iPhone comes from. Brand appeal is so strong – all that matters is the price point of Apple’s device, and whatever monthly fee is lowest using carrier x.
What does my carrier have over me that keeps me with them? Coverage aside, the only thing they have that keeps me with them is my phone number, which is an arse to port away. How does Apple break that tie? Roll a Google Voice-style service into iCloud.
I port my number to iCloud once (or get a new number with a direct-from-Apple new iPhone). Then I choose (on my phone) whichever carrier I want to use, on a monthly rolling basis. Or depending on how much of the value chain Apple wants to own, just pay Apple directly for mobile service, and leave them to deal with those carriers
Apple’s goal is data-centric, carrier-agnostic devices -note their efforts to obsolete the SIM. In 5 years carriers could be wistfully remembering the days when they billed the customer directly…
This doesn’t just apply to Apple. Any phone maker with enough end-customer appeal could have a shot at this, but Apple’s in the driving seat.
Let’s think about brand for a minute. Who holds more sway when you choose a new device – your preferred smartphone manufacturer or your carrier? With an iPhone, I’d say it’s Apple all the way.
So maybe it doesn’t matter much to your iPhone buyer which carrier the iPhone comes from. Brand appeal is so strong – all that matters is the price point of Apple’s device, and whatever monthly fee is lowest using carrier x.
What does my carrier have over me that keeps me with them? Coverage aside, the only thing they have that keeps me with them is my phone number, which is an arse to port away. How does Apple break that tie? Roll a Google Voice-style service into iCloud.
I port my number to iCloud once (or get a new number with a direct-from-Apple new iPhone). Then I choose (on my phone) whichever carrier I want to use, on a monthly rolling basis. Or depending on how much of the value chain Apple wants to own, just pay Apple directly for mobile service, and leave them to deal with those carriers
Apple’s goal is data-centric, carrier-agnostic devices -note their efforts to obsolete the SIM. In 5 years carriers could be wistfully remembering the days when they billed the customer directly…
This doesn’t just apply to Apple. Any phone maker with enough end-customer appeal could have a shot at this, but Apple’s in the driving seat.
Taking your points a little further Matt, if you think about FaceTime, Apple
has already removed the operator entirely, right? It wouldn’t take much to
connect the audio portion of that into the telephone network.
Taking your points a little further Matt, if you think about FaceTime, Apple
has already removed the operator entirely, right? It wouldn’t take much to
connect the audio portion of that into the telephone network.
That’s one way they could go – and I’d be surprised if they don’t. But the problem is quality and reliability of VoIP, even over 3G, let alone GPRS. Until 4G/LTE gains significant traction, I believe you need regular mobile service as a fallback. Having Apple as my carrier would mean they deal with fallback when “audio-only Facetime” isn’t available.
Being an American I just couldn’t pass up the love fest going on here with Apple. Funny thing though, the press and many others are starting to get sick of the elitist attitide Apple portrays such as the ad campaign “If you just don’t have an iPhone, well you just don’t have an iPhone”. Really?
Great camera? Great battery? For real? Take a shot with an N8 camera and lets compare, same with the battery life.
Keep your eye on the under dog (Americans are fickle and change on a dime, plus we love under dogs). As for a a mass market cheap iPhone for the masses… won’t happen over the next 24 months. The Elitist don’t need it for the same reason BMW or Porche don’t need to make an everyday ride for Joe the plumber. Nokia, Samsung & HTC will push Mango/MSFT into prominence.
http://www.networkworld.com/community/node/76367
http://www.technologyreview.com/blog/helloworld/26846/
http://www.technologyreview.com/blog/helloworld/26846/
good points JK! I still think the branding potential as demonstrated by the
iPod could well help out Apple with the lower-end of the market