They're all wrong. Apple's iPhone versioning (redux)

Following up from my earlier post on Apple’s iPhone versioning, Apple has released its new range. Here is the pricing:

iPhone 4S (8GB): $0 ($450 unlocked)

iPhone 5c:

16GB: $99 ($549 unlocked)

32GB: $199 ($649 unlocked)

iPhone 5s:

16GB: $199 ($649 unlocked)

32GB: $299 ($749 unlocked)

64GB: $399 ($849 unlocked)

In other words, the same pricing structure as before thereby vindicating my prediction: “we will see a similar set of versions and price points as in the recent past.”

Now both Ben Thompson and John Gruber got that bit wrong. You might think I could gloat but here was my actual conclusion:

I would favour a theory of standardisation. Apple are more likely to standardise screen size, Siri and other things like finger-print access because this will help stimulate the developer ecosystem. This is just cleaning up following a successful change in iPhone design last year. And with that change we will see a similar set of versions and price points as in the recent past.

So I was right on pricing (as I thought it fit a market aesthetic) but wrong on the basis for versioning. There was no standardisation here.

Both Thompson and Gruber have followed up with mea culpas. But I think they haven’t got it quite right there. Apple did change its strategy in a significant way: for the first time for the iPhone it introduced a high-end, niche targeted product. Thus, the versioning strategy went from this:


to this:


Critically, the basis for versioning changed. Previously, it was on “storage” and “newness.” Now it is on “niche features.”

To be sure, storage is still there. However, everything that Apple and everyone else has done over the last few years has been to make storage a non-issue if you are connected to the Internet. Basically, you don’t need to carry much “stuff” unless you are a frequent traveller.

As for “newness” I think that I downplayed this too much and Ben Thompson has retreated from it too quickly. The issue is that, for mass market competitive phones, newness matters. When a non-loyal brand customer walks into a store and wants a smart phone, one of the questions they likely ask is “is this the latest one?” This is a reasonable question as they probably anticipate that in two or three years, if they don’t have the latest one now they will be in trouble. For Android phones, there is always a latest one. Indeed, it comes every month. For Apple, you had a choice between the latest and most expensive or last year’s model. I suspect that was becoming a big issue. So what Apple did yesterday was release a new model for the mass market and made it latest by improving on last year’s model in a few ways. In other words, newness was taken off the table as a source of differentiation.

Thus, the significant event yesterday was that Apple went high-end with a phone. The iPhone 5s has nothing, I repeat, nothing that mass market consumers want. First, it has a 64 bit processor for which there are hardly any programs that require it and won’t be for a few years. Second, it has a mobility processor that has lots of potential but again doesn’t have a killer app and won’t have one for some time. Third, it has a much better camera. To be sure, that is of value to some people but it really is a niche. Finally, it has a fingerprint sensor. Now Apple admitted that only 50% of its customers care at all about security. The fingerprint access will have appeal to the most security conscious who require a passcode every time they unlock their phones (as opposed to most of us, who only require it at 15 minute intervals). Everything about this phone screams that Apple is not expecting to come back next year and say that this was the biggest selling phone of all time like it has with all of its other flagship phones. It is almost amazing that they didn’t call it the “iPhone Pro.”

But there is another clue to this. The colouring. My spouse, who cares little for the latest and greatest (unlike her spouse), has a three year old iPhone 4. She was getting a new phone this year and I thought, it would be the iPhone 5c. I asked her, “so which colour do you want?” She looked at the options and asked if there was anything other than pastels. I said no. Then she asked “well what is that?” (pointing to the iPhone 5s). I said, “That is the high end phone with all the bells and whistles.” Then I got my marching orders, “well, then I want one of those and I want the gold one.”

The iPhone 5s looks very different from the iPhone 4c. Right down to the quality of the covers Apple is pushing. For the iPhone 5c it is rubber. For the iPhone 5s it is leather. People will be able to tell from afar which phone you have. Well, almost. The iPhone 5s looks like the iPhone 5 but for the gold option in the iPhone 5s. If this is all about the high-end niche I expect that the gold iPhone 5s will be the one in short supply on day one. For me, I’m going for slate, 64GB. The question is: what storage level will I order for my wife?

2 Replies to “They're all wrong. Apple's iPhone versioning (redux)”

  1. I think there is more to the story.

    1. They are making their old phone more unattractive. It isn’t the 5 or 5C but the 4S. I assume the parts for that are now cheaper than before, but they reduced the storage to 8GB, which is really low now. And it looks more different now than before. It’s really an entry level iPhone.
    2. They introduced a middle phone, the 5C, that they likely can make for less money. The 5C is essentially the 5 except they can make it cheaper and then refine that design going forward. The old pricing system relied on the old parts becoming cheaper to make and assemble to retain margin.
    3. This says to me they’re trying to drive up margins. They realized they can capture more margin by shifting to the 5C from the 5. That may be because the 5 is relatively expensive to make or because the 5 is advanced enough that forking the product line at this point makes sense. I think it’s both. I also think Apple said this when they mentioned “desktop” quality performance in the new model: if the phones are that powerful, why not think about real segmentation where we can capture more margin across the product range.

    This is how computers are traditionally sold and Apple has been no different: buy this level and you get these features like a better graphics card and faster processor.

  2. I think you underestimate the importance of the fingerprint sensor. People want security but they value convenience more. The fingerprint sensor means it is no longer an either/or.

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