What (some) people want is not a low-priced iPhone on contract, or even free on contract; they want a cheap (i)Phone available sans contract.
I want a cheap iPhone available without contract, because:
- I don't want a contract
- I tend to break things (me or my kids) and want the freedom of being able to buy a new device without asking anyone if they would be so kind as to subsidize it, or having bought "insurance", or having to pay north of $600 for the privilege!
So, if 3GS is the device for the lower-end of the market, fine: just sell it at an acceptable price with no contract.
Well said. The author also seems to not understand that in developing markets such as China and India, no contract && very low monthly bills are the norm. No way to subsidize in that space.
There was an iPhone 4 link too. Can't find it now. Maybe it's down until October 7.
Does that qualify as cheap? If not, I'm not sure what you want other than more for less. But the fact is, you can buy iPhones contract free.
The real problem the US has is that cell phone service is, by OECD standards, stupidly expensive and incredibly bad. In Australia I paid $300 for the iPhone 4 32GB and then $50/month for 2-3GB/month and all the calls and texts that I can possibly use ("cap" plans are very popular in Australia where you get a certain amount of credit that you can use for various things at set rates).
What's more this is on Telstra, which puts the coverage of any US carrier to shame.
So $50 x 24 + $300 - $100 (discount I got) = $1400. The phone cost A$1000 contract free so really I was paying $400 for 2 years of service.
With AT&T you pay $300 for the phone and a minimum of about $65/month (or $85/month if you want not to pay 25 cents for each text), which is almost double the price.
Wow, I didn't know you could buy an unlocked 3GS now right from apple. $375 is really not bad at all, either. T-Mobile's new phones are going to be $250 _on contract_. $125 more for an older iPhone on a dirt-cheap ($30/month) plan? Not too shabby.
I can't find a direct link to the unlocked 4, but it's still there, you have to go through the chooser and select an unlocked one there. It's still $549, same price as when I bought one this summer.
1) Apple are pushing down into the mid-market before moving further down into the low end.
2) Alternatively at the moment Apple aren't happy that they can create an iPhone that they want to put their name to and make money on at the price point you talk about.
Based on the way we see them behave with the Mac where Apple simply don't complete at the very low end, I suspect it's the later. This is a company who make money selling hardware - all the music and apps pull in a comparatively small amount and apparently really only run at break even.
If they can't sell a phone at that price and make money then they'll happily leave that market to others.
Prepaid doesn't have to mean cheap. From my point of view, I don't care if it's cheap. I just want it contract-free. I'll happily pay the full unsubsidized cost of the iPhone, provided it's unlocked and I can waltz up to any mobile provider in the world, say "I can haz prepaid SIM?" and start using it.
Given that an iPod touch starts at $199, can it really cost that much more to stick phone parts in the back of it?
At least in Australia, UTMS coverage is better on some carriers then GSM is. One of the carriers is even starting to convert their towers from 900MHz GSM to 900MHz UTMS. GSM can be considered dead at this point, and I think a UTMS chipset would be just as cheap, or cheaper than a GSM chipset.
Aside from the fact you just (re)invented the original iPhone, I don't think that's a device people would pay $300 for (add a bit to get Apple level build quality and profit margins).
I think you're right, but I also think that this strategy is dangerous: as PG used to say (maybe quoting somebody else?), don't let anyone fly under you.
If you want to pursue the strategy of the very high end, you have to be innovating all the time, in a very big way, which is not what yesterday's event was about.
Or you can count on a core of very loyal customers who will buy your products no matter what, at any price; those people exist but there aren't enough of them to fuel Apple's growth forever.
Doesn't that say that market segmentation doesn't work as a strategy?
Staying mid / high end seems to be working fine for the Mac 25 years on, and has started out pretty well for the iPad (though we'll see now the Fire has bought it a serious low price challenger).
Sure it's a risk, but so would getting involved in a low end race where they have no experience and where profit depends on a high volume low margin model they're not familiar with.
It's primarily about start ups - saying starting low and working up is easier that the other way round, but I'm not sure how it applies to mobile. Nokia owned cheap phones, Apple piled in at the top and that's worked out pretty well for them so far.
You think the Mac strategy is working out fine? Well, it might just about be coming back to respectability now, but frankly that's after 20 years where for much of that time it was a borderline irrelevant platform.
Apple's business, if you look at where they now get their revenues from, is all about phones. How's that sustainable? Short answer, it isn't really. They might have the fashion devices but they only have one of them and it's on a fairly slow refresh cycle. If any of HTC, Samsung, LG or any other of the Android vendors come up with the Next Big Thing in technology fashion, Apple don't have another card to play and the idea that one company in such a competitive market can lead both fashion and technology in perpetuity simply isn't credible. Yet with Apple the only player in their ecosystem, if they stumble the whole ecosystem stalls. If one Android vendor stumbles, another takes their place, the ecosystem keeps going and the vendor has the opportunity to catch up at their next release.
Apple might currently have the biggest selection of apps, but with Android fast closing in market share (indeed, looking likely to overtake) and some vendors deciding Apple's policies are too restrictive and switching away from the iOS platform, how long will that stay the case? Once iOS is no longer the dominant platform for app vendors, their more restrictive policies will start seeing the market fall behind its competitors and, just like MacOS, iOS slowly becomes a ghetto with limited software availability.
So what are the alternatives? True low-end iPhones? (I can't see a 2+ year old design doing well for very long against newer models in such a fashion-conscious sector.) Not great for Apple; more design and manufacturing expense, more complex supply chains, lower margins and the first-mover profits that Apple are currently enjoying are gone. Quite simply I don't think there's any precedent to suggest it's possible for Apple's current profitability from the iPhone to be maintained, and very little reason to believe its market position is sustainable.
The Mac remained profitable through that entire period.
The internet with it's land grab mentality has taught us to focus too much on market share, not enough on profit.
Android already has larger market share of the phone market but Apple rakes in the lions share of the profit. Off a single digit marketshare (iphone as a % of the phone market) Apple makes more than half the profits in the industry (http://www.asymco.com/2011/01/31/fourth-quarter-mobile-phone...).
When I wonder which model is sustainable, the questions I have are about the companies struggling to make profit from massive marketshare, not the one making good money from modest sales. I'm not saying Apple are nailed on, just that the whole industry is very very uncertain and there are questions and issues across the board.
Picking up a couple of specific points:
As for a 2+ year old design doing well against newer models. The iPhone 4 (15 months old) is the biggest selling phone in North America. The second biggest selling phone? The 27 month old iPhone 3GS. This is less of a fashion market than a lot of people make out. Plus if you're looking for precedents, I'm not clear where we see one for HTC, Samsung or LG doing anything particularly innovative in this sector. Good phones yes, market changing, I don't see it.
The Mac as a "ghetto" with limited software availability? Do you have a Mac? The Mac has for years had a far more active independent developer community that Windows ever did. For c. $30 (less now in the AppStore era or if you shop around) you could pick up high quality bits of software to do just about anything. When I got my first Mac 6 years ago (Windows user for 20 years before that) I was staggered by the ecosystem. Windows always ruled the corporate software sector but the Mac was never a ghetto.
iPhone isn't a fashion product. It's a rounded rectangle with a touchscreen on one side, and it has been for 4 years. Fashion changes more quickly than that and has more personality; Apple's design is more timeless, resembling 40 year old Dieter Rams designs more than anything recent.
that talked about innovation and how you need to out-differentiate to stay on top of the game; the position you never want to be in is to be "best in class" because best in class is for suckers: it consumes enormous amounts of resources for luxury features that customers won't pay for. You want to be out of this world (or good enough).
What Apple did to Nokia is they invented a completely new product that was much more than a "phone"; what is happening now is that
1) Android is becoming "good enough" (even Windows phone, according to some pundits)
2) Apple doesn't seem to care about "goodenoughness"
3) but Apple's products are not an order of magnitude better, as they used to be. They are flirting dangerously with best-in-class territory.
Well put. The US carrier subsidy is 350-400. That means a 3GS is still $350-400, so it is still not competitive with $150 unsubsidized android phones. With the 20% tax in china, why would I pay $500 for a 3GS when I can buy a 4S for around $750, or a low end android for $200.
The iPhone is 200 with contract, 450-500 without. They're certainly not paying the retail 500, I'm sure it costs them 430-470, making the subsidy more in the range of 250-300.
In the US there are less than 10 resellers, and it is well known that the average wholesale price for an iphone is $650. Of course there is different model mix in that number, but it is not close to $430. Notice that sprint made a commitment to buy 30.5 million iphones, and at current prices is estimated to be $20 billion. That comes out to $655.
Where do you get the 430-470 number? I am happy to be corrected, but I need some evidence.
I apologize. This is the 3rd time I have subtracted one hundred dollars from the cost of the iPhone.
I first purchased mine overseas where, because of the exchange rate, I spent 500 "moneys" on it, and this is the 3rd time that impression has bitten me in the ass. I stand corrected.
I agree, but Apple may be coming as close to this as it can. Apple is offering a new extended AppleCare policy for $99 which covers two accidental damage incidents for $49 each. I'm guessing the 4S will be available for $649 without plan (given the iPhone 4 is now $549 without plan).
I want a cheap iPhone available without contract, because:
- I don't want a contract
- I tend to break things (me or my kids) and want the freedom of being able to buy a new device without asking anyone if they would be so kind as to subsidize it, or having bought "insurance", or having to pay north of $600 for the privilege!
So, if 3GS is the device for the lower-end of the market, fine: just sell it at an acceptable price with no contract.