The Not-So-Cheap, but Colorful, iPhone

With Apple releasing a "cheap" iPhone that's $100 less expensive than its flagship model, and with the price gap being even smaller in China, the Wall Street Journal opines that the new iPhone may not be cheap enough for China.

With the cheaper phone, Apple will no doubt gain sales and market share. But it will still fail to reach the majority of city dwellers, according to a projection from the Wall Street Journal based on income distribution data from research firm CEIC Data.

The projection, developed in consultation with analysts, assumes that a working, urban family would be willing to spend, at most, half of its total monthly income on a single smartphone. Working on that assumption, around 260 million Chinese urban residents could potentially be willing to buy the iPhone 5c. That means cheaper iPhone effectively doubles Apple’s addressable market from the 125 million who would be willing to shell out for the more expensive handset.

My guess? Apple will sell iPhone 5c's as fast as it can make them, rendering moot the idea that it would sell more at a lower price. You can only sell your product as fast as you can make it. The new design is visually striking, and I think that's about more than just giving people a variety of colors to choose from. I think Apple designed the 5c with the goal of letting its customers in nations like China telegraph to their peers, "I can afford an iPhone." Given how status-conscious and luxury brand-focused Chinese consumers are reported to be, that's no small consideration.

It also means that an Apple phone is still too pricey to appeal to roughly 430 million people, or 62% of the country’s urban population.

So... only 263 million prospective customers, who happen to be the more affluent members of Chinese society. Apple sold 31.2 million iPhones last quarter, worldwide.

I appreciate the article's assertion that most Chinese consumers are looking for a phone that costs less than half of the price of a new iPhone, with many wanting to pay less than a quarter. But that's not a market that Apple is presently willing to serve, nor would it make sense for Apple to abandon its traditional business model and to start producing iPhones that could be sold at that price level. Will that give Android an advantage among bargain hunters? Yes, as will the array of larger-screened Android phones. But you don't make profits by selling low-quality merchandise at razor-thin margins, which is why Apple and Samsung are the only mobile phone manufacturers who are presently earning a significant profit from phone sales.

Smartphones will eventually become commoditized, a process that is accelerating with the release of attractive Android phones from several of Samsung's competitors. Apple won't be able to sustain its margins forever, although it is positioned to be the last man standing. The trick then becomes, how to leverage your platform into continued, significant profits. Apple has a number of advantages in that respect, including the fact that it has been careful to maintain backward compatibility in its devices. With most iPhones running the latest version of iOS, and with every iPhone built to Apple's standards, third party manufacturers can develop products and services that connect with the iPhone much more easily than they can with Android devices. It can only help Apple if, while Android remains the operating system of choice for bargain hunters, it holds its position as a phone of choice for affluent consumers around the world.

Even as the WSJ article suggests that Apple needs to make cheaper phones, it acknowledges the problem with that position:

Ma Tao, who owns a shop on the second-story of the electronics mall, echoed concerns that have already been voiced by some analysts: that the new phone would lead to a short-term spike in sales, but that it would erode Apple’s reputation as a maker of luxury high-end phones in the long run.

Meanwhile, the phone vendor they interviewed suggests that Samsung sales in China will suffer as customers opt instead for a considerably cheaper, Chinese "equivalent". It may turn out that Chinese consumers opt for the flagship iPhone, in silver, graphite or tacky gold, and those products are also designed to telegraph, "This is an iPhone". I'm taking a "wait and see" position on whether keeping the price "that close" will turn out to be a mistake, but I'm suspecting that for now it's a good move to maintain luxury pricing and to appeal to brand-conscious Chinese consumers, giving them a discount but also a brightly colored excuse to argue, "I picked this one because it's my favorite color, not because I wanted to save money".

I think that the article glosses over one of Apple's significant problems in the Chinese market - the size of its displays. The concept of a phone that you can operate with one hand is great, and Apple should continue to offer the standard sized iPhone. But if you've ever squinted at a small screen, consider what it would by like to read Chinese or Thai characters on an iPhone screen, or to enter text in an Asian script. Then consider the population that wants a bigger screen because it's better for videos and games. Or because they only want one device, and are attracted to the phablet.

If I were Apple... and I admit an uncanny knack for being incorrect in my Apple-related predictions... I would be thinking about releasing a larger-format iPhone no later than a year from now, and ideally in the spring.

The Logic Behind Control Freaky iPhones

I have sympathy for the argument that Apple has a history of being something of a control freak with its hardware, and that its tendency to want to control what users do is manifest in its iOS devices, the iPhone and iPad. If you're the sort who likes to customize your experience within the OS, you have very few options. If you're the sort who likes to dig deeper into the device to change appearance or function, Apple works hard to prevent that. If your intentions are good, than can be frustrating.

That's not to say that it's not frustrating, also, when your intentions are bad. Although some people jailbreak their iOS devices in order to use them on a network that does not yet support the iPhone, or because they enjoy hacking the device, let's be honest: Most people looking to jailbreak an iPhone or iPod, or complaining bitterly about how Apple restricts their freedom as compared to Android, are primarily interested in installing bootleg apps or making "free" in-app purchases.

As it stands, iOS looks its age. There are pro's and con's to that, the most obvious pro's being that it's easy to use and remains compatible with most older iOS devices. On the other hand... it's somewhat inefficient, the constraints on file organization make it somewhat clumsy, it screams out for new features, some of its functionality is clumsy (adding an event to the calendar, for example), and its quaint adherence to skeuomorphs (e.g., making a calendar look like an old, on-paper desktop calendar) needs to go. (Rumor is that skeuomorphs are on their way out in the next iOS update.)

When you look at the latest version of Android, or when you look at Android's present market share, the question I heard a while back, "Why do developers still tend to develop an iOS app first, instead of starting with Androd," seems fair. I think the answer is this: Because Apple is enough of a control freak to ensure that a majority of iOS device holders will buy their apps, instead of installing "free" bootleg versions. That's an issue I expect to only become more pronounced as Android starts to saturate the market for lower-cost smartphones.

Although I'm not sure that they expected it to happen so quickly, Apple has known for many years (really, all along) that it's only a matter of time before any computer technology becomes commoditized. You can create a premium product and sell it at a premium price, but if the run-of-the-mill product is almost as good as yours that is likely to result in your rapid loss of market share. People seem to forget that while Apple is competing with Samsung (and, indirectly, Google) for the lion's share of the smartphone market, it's competing with Amazon (and Google) to be a dominant vendor of electronic books and media. Google doesn't give away Android in order to give its competitors an advantage in the marketplace - it does so to give its own software product an advantage, and to better position itself to compete in the mobile space for ads, apps and media.

To the extent that Apple can make itself the device maker that is most likely to provide royalties to developers and content owners, and Android doesn't find a way to rein in bootlegging, that aspect of Apple's control freaky nature is likely going to provide it with a significant advantage when negotiating with content providers.

What if the Facebook Phone... Isn't a Phone

What if it's a takeover?

You'll find lots of explanations about why it would be a bad idea for Facebook to develop and market its own cellular phones. And it's hard to argue with that. But what if Facebook has a different plan in mind? An Amazon-style plan, forking Android, pushing its own app store to the forefront, then cutting deals with cellular phone manufacturers to use Facebook's flavor of Android instead of Google's version on their already-compatible hardware? The change could be made pretty much invisible to the average consumer, but with Facebook driving traffic through its own browser, pushing out more of its own display ads, baking in new features like its camera and perhaps instant discounts, "buy with Facebook" allowing you to use your phone as a charge card, and the like?

If Google ever gets tired of carrying the weight of its competitors and changes the way it licenses Android, Amazon and Facebook will still have its latest edition of Android as a foundation for their own cellular operating systems.

A Walled Garden, Yes, But....

A persistent criticism of Apple is that, with the iPhone and iPad, they have created a "walled garden", limiting what users can do on the devices and restricting which vendors can sell applications that will run on them. For example,

I have no plans to be captured by the Apple ecosystem. It is the height of control-freakery, with Apple telling app developers and even journalists whether what they sell through its storefront is acceptable. Apple wants customers to live in its gorgeous walled garden. No thanks, I prefer to make my own decisions.

It's a fair criticism to a point. Inherent to its business model, Apple does restrict what you can do with your iPhone and iPad. From the technological side, the restrictions keep malicious programs, viruses, worms and the like off of the devices, as well as avoiding technology that causes frequent crashes or drastically shortens battery life (sorry, Flash). Apple was savvy enough to recognize that users would blame it, not software companies, for crashes or for short battery life. Second, yes, by controlling the storefront Apple gets a cut from every product it sells. Apple has made some mistakes in excluding apps from its App Store, and imposes restrictions that keep certain apps out of its store, but pretty much all of that content can be accessed through the browser build right into the device.

The complaint reminds me of the early days of computers, with the introduction of the Mac and mouse. If you remember that era you may recall hearing from PC aficionados that a GUI was too limiting - that you were removed from the real power of the line command, a faster and more efficient means of controlling your machine. That's true to a degree, but even when they were forced to use line commands, most users learned little more than they needed to learn in order to run basic software packages. With improvements to GUIs, most computer users never even fire up a command prompt. Yes, probably 5 - 10% of computer users like and benefit from at least occasional use of a command prompt, most computer users were happy to see it go. The iPad and iPhone can be accused of continuing in that direction: making that same 5 - 10% of the potential user base grumble about it being difficult to program or customize iPads, the pros and cons of "jailbreaking" a device, etc., but producing an easy-to-use stable product that the other 90% of users enjoy.

But if you look at things from another perspective, the iPhone and iPad have, at least, made the cage a lot larger. Consider what was available on the market before the iPhone. If I wanted to develop a software product for the Blackberry or Palm, what was the mechanism through which I would have been able to push it out to the masses? What about a cell phone app - what if I wanted to produce software to run on Sprint's phones? What if I wanted (or want) to sell a VOIP app that will run on any cell phone and let people switch from their cellular minutes to making calls over an Internet connection at a coffee shop? Apple has produced beautiful devices that make us recognize that a cellular phone or tablet-type device is in fact a computer and is capable of doing more than its maker allows (unless you jailbreak the device) but while you're still in a cage, the cage is enormous as compared to what other handset manufacturers previously allowed (and in many cases what they presently allow).

I don't know if the author is a power user. I don't know if he's off writing apps for his Android phone, or if he considers it to be an exercise in freedom to watch Flash videos through a cell phone browser. I suspect that, as with most of the people who used to talk up the freedom and power of the PC's historic command line, it's an "I like to know that I could modify the OS and write my own Apps if I wanted to, and learned how, even though there's no realistic chance of either actually occurring." Let's say, however, that he wants to write and market an app for Android devices. Does he have a realistic option other than selling it through Google's app store or Amazon's app store? If he produces a product that competes with an add-on service from a cell phone carrier, can he be sure that his cellular service won't block or disable the app? That is, where in this market can I find the garden that is not walled - let alone one that has not been forced to expand in response to the iPhone?

As tablet computers become more powerful and capable, we may move into a future in which your cell phone can truly be your personal computer - use it on the go with it's built-in screen or use a wireless connection to have it power a monitor and keyboard for full computer functionality. If that's what the market wants, that's where Apple, Amazon, and the larger world of Android devices will go.