Apple Analysts Letdown: There is No Low-End iPhone
Apple's decision to simply upgrade iPhone 4S and lower the prices for the iPhone 4 and 3GS could have been a strategic mistake, or, at least, a missed business opportunity.
Analysts from IHS said that the fact that the company does not offer a true entry-level smartphone will cause Apple to "miss out on the hottest growth opportunity in today’s smartphone business."
While the iPhone 4 is now priced at $99 and the iPhone 3GS is free with a 2-year contract, they are not considered entry-level devices as they are still fully subsidized. And, realistically, we would have to admit that $0, $100 or even $200 for a smartphone are largely irrelevant considering the monthly cost to subscribe to a voice and data plan. IHS said that Apple would need an iPhone that would cost $100 to $150 without subsidies.
“Long-term phone contracts are available with service deals in the United States and other regions where mobile network operators offer subsidies," said Francis Sideco, senior principal analyst, wireless communications, for IHS. "These types of business models are not as popular in emerging regions where demand is rising the fastest for low-end smartphones. To compete in the low-end smartphone market, a company must offer a product that can be sold cheaply without a subsidy. The iPhone 3GS and iPhone 4 are still expensive if you don’t buy them with a contract.”
Still, IHS expects global iPhone shipments to total 83.6 million units in 2011 and 169.0 million in 2015. However, shipments of low-end smart phones are expected to rise to 422 million units in 2015, the firm estimates. However, it may be worth noting that Apple never had interest in a low-end, low-margin business. There is no conceivable reason to change that strategy now.
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Duh! Of course, if the article had started by stating the obvious, there would hardly be need to write anything else at all...
Also, I'd question the credibility of an analyst that doesn't understand Apple's core business model.
Sames story repeats again... Apple may eventually miss the train to a market they almost created on their own. That's exactly what they did with the Mac. They don't want any low margin product in their range, good for them... but that's what most of the market is made from! I think they already reached the biggest market share they could get with their current products range and if they stick to that strategy, they will soon end-up in a niche, but for some reasons, they seem to like that position.
Apple doesn't have a business model, they've just got an effective marketing model and randomly planned gadget releases
Apple doesn't have a business model, they've just got an effective marketing model and randomly planned gadget releases
Seems to me that those planned gadget releases and the heavy marketing is their business model.
Sames story repeats again... Apple may eventually miss the train to a market they almost created on their own. That's exactly what they did with the Mac. They don't want any low margin product in their range, good for them... but that's what most of the market is made from! I think they already reached the biggest market share they could get with their current products range and if they stick to that strategy, they will soon end-up in a niche, but for some reasons, they seem to like that position.
Exactly right - I really don't understand it
I hate Apple for the most part - truly, I do; however, I understand why they don't do it.
Apple simply doesn't want a reputation or association with low-end trash. They deliver what they want in a reasonable priced device, and in return, get to bring their consumers what they deem fit.
It's the same reason BMW doesn't deliver a car for $20,000 (Not counting rare occurrences that may exist that I am largely unaware of), they simply design a product with certain expectations - It's what they're known for, luxury, performance cars -- NOT cheap imitations.
Smart phones are just not cheap. They won't be for quite some time, now, particularly with service providers doing away with unlimited plans. Give it a couple of years.
I thought ALL iPhones were decidedly low end.
It depends what people class as low-end, having a bigger screen is something people seem to clamour for but I think there would be a serious market for an iPhone Nano.
It's the same reason BMW doesn't deliver a car for $20,000.
BMW makes plenty of $20K cars, they are called MINI Coopers. I will have a hard time ever buying a MINI because BMWs are also known to be unreliable money sinks once out of warranty, sort of like Apple.
this honestly confuses me. Since the networks force you to have a data plan the second you stick your sim in or activate a smartphone who cares if its "subsidized" you're going to have to pay it anyway, might as well get a phone discount. I suppose the 3g is pretty low end for a phone, but apple has to keep that double markup or the apple logo wouldn't mean as much if you didnt overpay
Odd, Apple isn't going into the developing market. Plenty of handset makers make smartphones only for the developing market. Nokia's market-share is collapsing and its surprising they aren't going anything to capitalize on that.
... what is 'low-end'... is not every previous model low-end now? They have a 3GS for free. Is that not low-end?
What could be more "lower" than the current iPhones?
The 3GS is free with a contact! What do you want them to give you a phone and pay you too! Where did this authors expectations come from do you not understand business at all. Apple doesn't want budget customers.
Of course there's no low-end iPhone. If you set your standard as low as the iPhone, you can't go any lower.
@everyone: there's a request in the Feedback section of the forums to make Gruener write articles on topics that make sense (PC hardware/benchmarks/etc) instead of Apple. Please support
Dear Fancarolina,
It's so foolish to believe tht a phone is free because you didn't pay anything on day one. If you want to buy a car and take a loan for 100% of the amount, you haven't paid a dollar before you received the keys... but how cheap is that once you sum up all you mortgage payments???
That's what telecom contracts are all about. You have this great feeling that you get a phone for free, you feel like a world champion of shopping, but after two years, or if you cancel your contract too early as well, you'll have paid your phone twice the price eventhough you barely used it. Everything has a price and free often turns out to be the most expensive of all solutions...
The 3GS is free with a contact! What do you want them to give you a phone and pay you too! Where did this authors expectations come from do you not understand business at all. Apple doesn't want budget customers.
More customers = more money. Don't want more customers = don't want more money.
Apple phones aren't expensive. They cost as much as a top HTC/Samsung model (okay, maybe a little more) and with a contract, all smartphones are literally a steal (Really, $200 for an SGS II? Buy, jailbreak, PROFIT), including the iPhone. There're just better options for money.
More customers = more money. Don't want more customers = don't want more money
This is 100% incorrect.
The PRICE you pay for gaining more customers is REDUCING your revenue from customers who would previously have paid the increased amount and now elect to go with the cheaper option.
This is very basic business logic - there is a sweet spot between the price you charge and the volume of sales you achieve which generates you the most profit. This sweet spot does NOT necessarily occur at the highest volume. As the maker of the most profitable mobile phone the world has ever seen (the iPhone 4) - Apple arguably got far closer to that sweet spot than anyone has before them.
From here to the eternity.
Fixed
It's the same reason BMW doesn't deliver a car for $20,000 (Not counting rare occurrences that may exist that I am largely unaware of), they simply design a product with certain expectations - It's what they're known for, luxury, performance cars -- NOT cheap imitations.
If they're not known for cheap, do explain why their 1 series competes with run of the mill junk and why there are so many 318's about ... I've got nothing against bmw (same can't be said about those driving em), but they ARE aiming for cheap. Like merc they've lowered build quality in order to compete on pricing. It's not a choice, is a nessecity.
Dear Fancarolina,It's so foolish to believe tht a phone is free because you didn't pay anything on day one. If you want to buy a car and take a loan for 100% of the amount, you haven't paid a dollar before you received the keys... but how cheap is that once you sum up all you mortgage payments???That's what telecom contracts are all about. You have this great feeling that you get a phone for free, you feel like a world champion of shopping, but after two years, or if you cancel your contract too early as well, you'll have paid your phone twice the price eventhough you barely used it. Everything has a price and free often turns out to be the most expensive of all solutions...
Ok answer me this. What smartphone is available for less the free without a contract on a major carrier. All smartphones have the associated costs you speak of. All cell phone contacts have early termination fees. If you can't afford the whole contract don't sign one.
Apple wants to attract customers who are affluent enough not only to buy their phones but who will also buy Apps. This is where Apple makes their money. The concept is the exact same as a strip club charging low cover because they will make it all back at the bar. Apple has set their prices as low as they can. the 3GS is free with a contract, the cheapes that any contract phone costs initially. Setting their prices for the iPhone 4 at $99 the iPhones 4S at $199 and I assume the big brother iPhone 5 will come in at $299. They have covered all the customers who can continue to afford to feed their Apple device Apps.
BMW makes plenty of $20K cars, they are called MINI Coopers. I will have a hard time ever buying a MINI because BMWs are also known to be unreliable money sinks once out of warranty, sort of like Apple.
Daft analogy, Fiat owns Ferrari so does that mean all Ferraris are as cheap as Fiats?
I know what he meant, you know what he meant, everyone knew what he meant, you had to be pedantic just for the sake of it.
Sames story repeats again... Apple may eventually miss the train to a market they almost created on their own. That's exactly what they did with the Mac. They don't want any low margin product in their range, good for them... but that's what most of the market is made from! I think they already reached the biggest market share they could get with their current products range and if they stick to that strategy, they will soon end-up in a niche, but for some reasons, they seem to like that position.
I love that people here believe they understand the market place. Maybe Apple should stop paying market researchers and just hire a bunch of people from Tomshardware Page...
It is obvious that Apple knows what people want. It is apparent since they sold out of their pre-sales within hours of going online. How many other smartphone manufactures are able to pull this off?
Most of what Apple produces is really part of the low-end-trashmarket when you factor out the casing an the hype surrounding it.
I love that people here believe they understand the market place. Maybe Apple should stop paying market researchers and just hire a bunch of people from Tomshardware Page... It is obvious that Apple knows what people want. It is apparent since they sold out of their pre-sales within hours of going online. How many other smartphone manufactures are able to pull this off?
No other manufacturer caters specificly to the uninformed customers, so no other manufacturer can.
HAHAHAHAHA, they hired an idiot to tell them that
The 3GS is free with a contact! What do you want them to give you a phone and pay you too! Where did this authors expectations come from do you not understand business at all. Apple doesn't want budget customers.
Free with a 2 year $50+/mo contract. Big deal. For a 2 year locked expensive contract I can get a SGSII for free. Guess which one I'd pick or every other sane person out there.
Ok answer me this. What smartphone is available for less the free without a contract on a major carrier. All smartphones have the associated costs you speak of. All cell phone contacts have early termination fees. If you can't afford the whole contract don't sign one.Apple wants to attract customers who are affluent enough not only to buy their phones but who will also buy Apps. This is where Apple makes their money.
Well, in the US, perception may be different as the bundled sales principle is more common, so you miss the point. But if it was possible to buy a iPhone 3Gs without a contract for a data plan, it's pricing would probably be nowhere competitive compared to the other manufacturers.
In Europe there are countries out there where bundled sales (devices + contracts) are illegal (for the sake of transparency and consumer protection).
In those countries like Belgium where iPhones are to be bought "standalone", the iPhone 4g 's full price is >650euros/32Mb and price for the 4Gs still unknown. Android phones such as HTC sensation or SGSII sell for 450 to 550€.
You won't see an iPhone 3GS in those countries as they are simply "unavailable": they are only in countries where they can be bundled with a contract and in those countries, you can only buy the latest model.
To get the "free" 3Gs phone with AT&T in the US, you'll have to pay at least 1320$ over two years, and that's the cheapest plan (450minutes/200mb)... The situation in Europe is quite similar with an initial fee of 59€ + contract of minimum 50€/month for 24 months. So, you'll never know how much the iPhone 3gs costs to the operator, but they make you pay a huge price for it as you can have a voice/data plan for almost half of the price if you buy it without a phone.
So, the truth is that the iPhone 3Gs is not priced competitively and that's hidden in the contracts. Apple starts loosing more and more market against competitors as cheap smartphones are getting better in quality. The examples of Nokia in the posts here above are irrelevant as well. Nokia has enjoyed great profits and a market leader position for more than 10 years thanks to their diversified products range before they totally missed the smartphone turn for different reasons (OS strategy mainly). In fact, had Nokia not managed to keep important sales volume in the low end phones, they would be dead long ago already!
If they're not known for cheap, do explain why their 1 series competes with run of the mill junk and why there are so many 318's about ... I've got nothing against bmw (same can't be said about those driving em), but they ARE aiming for cheap. Like merc they've lowered build quality in order to compete on pricing. It's not a choice, is a nessecity.
LOL - sorry, but in the US there haven't been any 318's in quite a while. BMW may be targetting cheap in Europe but NOT in the US.