The consumer tech world was set abuzz earlier this week after WSJ reported that Apple was planning to launch a cheaper iPhone later this year. The report was followed by another from Shanghai Evening News that interviewed Apple’s Phil Schiller that indicated a denial of the earlier WSJ report. But then Apple reached out to the newspaper and had them revisit Schiller’s quote, which made it sound as if Apple was confirming the existence of a cheaper iPhone. Apple rarely comments on rumors and media speculation but this aberration does little to douse the rumors. So will Apple launch a cheaper iPhone?
The answer is no. As far as Apple is concerned it does not make cheap products. But that’s mere semantics and the answer could be very well yes, if you replace the word cheap with affordable or cheaper with more affordable. Could Apple launch a more affordable iPhone this year? Most probably.
Many, including myself, have believed that a more affordable iPhone has always existed. Currently, we have the iPhone 4S and the iPhone 4 that Apple still sells in the market. The iPhone 4S and iPhone 4 are cheaper than the iPhone 5 but are they affordable? Well, if it is going to be your first iPhone and you have not experienced its value through its lifetime, then not really. In emerging markets where smartphones are not subsidized by the carrier, a 16GB iPhone 4S costs more than the latest Android flagship, the Samsung Galaxy S III. If you have never used an iPhone, the Galaxy S III would always look as a better option than the iPhone 4S.
Apple probably realizes that its current iPhone pricing strategy won’t work in emerging markets where carriers do not subsidize phones and users are expected to pay the full price upfront. While a $99 iPhone 4S and a free iPhone 4 in North America and Europe might be the norm, it translates into $700 and $500 in countries like India. The strategy was fine till the time the focus was on developed markets but that strategy is changing as Apple looks at markets like China, Brazil and India, from where it believes it will get its next major chunk of users. Apple expects China to become a bigger market than the US in coming years. To get some traction in these markets, what Apple needs is a $400 or even lesser iPhone, a price point it cannot achieve with even the iPhone 4 if it wants to retain its usual margins.
But does it make sense for Apple to launch two variants of the iPhone with a significant price difference? Won’t it cannibalize the flagship iPhone? After all, people would go for the ‘cheaper’ iPhone, right?
Spare a thought about the iPad mini. When other manufacturers would have thought of cutting costs down by using plastic casing, Apple went all out with the same iPhone 5-like design. The result? The iPad mini is affordable but it is not ‘cheap’. What Apple did here was make an affordable tablet desirable and aspirational at the same time. At the same time, it is not expected to cannibalize iPad sales but has only made more people buy its tablet rather than, say a Nexus 7. All this achieved while it retains similar levels of margins.
I believe that the affordable iPhone would be similar to the iPad mini. I have my reservations of Apple going for a polycarbonate plastic casing for this variant as it would scream cheap. Apple has never done that, not even for its $49 iPod shuffle, which looks more premium than many $199 portable music players available on store shelves. If there is one area where Apple does not compromise, it is design and the affordable iPhone won’t be an exception.
Where Apple would compromise to get the price right is the specifications. A 5-megapixel camera without the quartz glass could be a good start. It could even ditch the Retina Display, something we have seen Apple do with the iPad mini. In all probability, it would be a sort of mashup of elements from multiple iPhones. The iPhone 4’s camera, the processor from the iPhone 4S, the design from the iPhone 5 and a non-Retina Display (though I think it would be better than the iPhone 3GS display). It could ditch HSPA+ and LTE and opt for just HSPA. All of these things put together, it could do well with a smaller battery, which won’t only save space but also has associated cost benefits.