Critical.
Authoritative.
Strategic.
Subscribe to CIO Magazine »

Will Apple introduce a lower-priced iPhone?

The plan for one now "is progressing" and could result in a product launch later this year, claims Wall Street Journal
  • (Network World)
  • 10 January, 2013 21:00

Apple is moving ahead with plans for a less expensive iPhone, possibly with a plastic instead of metal body, according to a new report. But new retail options for consumers already are making even the flagship iPhone 5 more affordable.

Citing "people briefed on the matter," The Wall Street Journal this week reports that while the idea for a less expensive iPhone model has been talked about at Apple for years, the plan for one now "is progressing" and could result in a product launch later this year, according to one of the people briefed.

BLOG POST: Why a cheaper iPhone model makes economic sense

The speculation is that Apple could hold down costs by switching from the all-aluminum unibody, re-introduced with the iPhone 5 in September after moving away from the all-metal original 2007 iPhone, to a material such as polycarbonate plastic. Nokia's Lumia smartphone line uses the same material and has won praise for its build quality. The iPhone 5 is rare: Nearly all smartphones still use some kind of plastic or plastic and glass combination for their bodies.

As more vendors have introduced more advanced smartphones, Apple's share of the global smartphone market has declined. According to the IDC figures cited by the Journal, Apple's share of the worldwide smartphone shipments in the 2012 third quarter was 14.6%, down from a peak of 23% in the fourth quarter of 2011 and the 2012 first quarter. By contrast, Samsung Electronics' share rose sharply from 8.8% to 31.3% from the 2010 third quarter to the 2012 third quarter.

Samsung's Galaxy S smartphone line has been one of the few single models to challenge the iPhone's sales. Samsung, and other smartphone vendors, offer a wide range of smartphone designs and capabilities, using different materials, different processors, varying amounts of RAM and storage and other tradeoffs to cover a wide range of prices.

This drop in Apple's market share is widely interpreted as creating pressure for Apple to make the iPhone more affordable, meaning to create new models that carry a lower retail price tag. That's especially the case in non-U.S. markets, where carriers do not subsidize the phones they offer, so customers have to pay the full retail price.

So far, Apple's customary response, with its carrier partners, has been to lower the prices (both on- and off-contract) of two earlier iPhone models with each new iPhone release. Today, for example, iPhone 5 with a two-year contract is priced at $199, $299 and $399 (for 16GB, 32GB and 64GB models). Without a contract, the prices are $649, $749 and $849.

The iPhone 4S 16GB model now sells for $99 with contract, and $549 without. The 8GB iPhone 4 is $0 with contract, and $450 without.

Neither Apple nor the carriers have revealed sales numbers for the older iPhone models.

And there are other alternatives emerging as Apple forges links with prepaid carriers, such as Virgin Mobile, and with mass retailers such as Walmart. On Jan. 11 Walmart, in its exclusive partnership with Straight Talk, a mobile virtual network operator that's a unit of TracFone, will offer the 16GB iPhone 5 for $649 (the same price as Apple's website) but with an installment plan that lets you pay it off at $25 per month, and an unlimited voice/text/data plan for $45 per month. Together, the total monthly price is lower than the cheapest monthly plan most major carriers offer with a subsidized iPhone 5. Also part of this offering: the 8GB iPhone 4, at $449, with the same installment and monthly contracts.

Walmart also currently offers the iPhone 5 online with a two-year AT&T, Sprint or Verizon contract (or upgrade) at $187, slightly less than the Apple Web price of $199. But if you buy the phone at a Walmart store with a Walmart Wireless Center, the retailer will discount another $60, so the final price with contract is $127.

And subscribers won't have to settle for a second-class network. In this July 2012 9to5Mac review by Mike Beasley, who tested his iPhone 4S on Straight Talk, the MVNO is relying on AT&T's nationwide HSPA+ network. "[S]o you get full-speed access to nationwide HSPA+, unlimited calling, texting, MMS, and data for less than the cost of a far more limited plan with a post-paid carrier (as well as the convenience of never having to sign a contract)," Beasley concluded. "There are a few downsides to using an unofficial carrier, such as the lack of visual voicemail for those who rely heavily on that feature, but the benefits and price seem to far outweigh the downsides."

Outside the U.S., the iPhone pricing issues are complicated by the fact that 3G networks, though expanding rapidly, are not yet ubiquitous in markets such as China and India. So even where people are willing, even eager, to pay Apple's retail price for the iPhone, they can't use it without a 3G network. In a March 2012 blog post, industry analyst Horace Dediu called this "one of the most important constraints on the purchase of iPhones ..."

A related issue has been the relatively few carriers offering the iPhone, though that's been increasing rapidly each year, with iPhone 5 the most widely released iPhone model, in terms of the number of countries and carriers.

Apple's phone and tablet pricing has been long and heatedly debated. Critics have argued that Apple's prices make its products luxury goods, and these will fall prey to competitors who offer "good enough" smartphones or tablets at cheaper prices, says technology blogger John Gruber in a December post reviewing why the conventional wisdom predicted the utter failure of Apple's retail store initiative.

Gruber argues that Apple's critics make a number of questionable assumptions. One is the "insistence that broad mass market appeal and an insistence upon superior design are mutually exclusive. Apple's brand stands for both quality and inclusiveness," Gruber wrote. "It's a luxury brand for the masses. ... What Apple understands and its critics did not (and still do not) is that many people, from all walks of life, simply appreciate nice things."

In his review of the iPhone 5, Gruber returned to this same point: that Apple's emphasis on "quality" is seen by customers as a tangible good. "[With the] iPhone 5 in my hand, this talk [by Apple] of micron-precision, fine watch craftsmanship, and the computerized selection of best-match inlays sounds not the least bit ... blustery. It simply sounds like an explanation of the level of obsession that it takes to create a mass-produced device that feels this, well, nice," he wrote. "[T]here is no benchmark, no tech spec, to measure nice. But you can feel it. And that is what resonates with millions of people around the world."

There is some data to support Gruber's more impressionistic argument. One year ago, Asymco's Horace Dediu examined Apple's historic prices for a range of products. Charted out, the data shows remarkably consistent prices, moving inside a very narrow range.

"Apple's products are often seen as being priced 'at a premium," Dediu wrote. "This is mostly a matter of perception, but in certain categories Apple's products are priced above the industry average (though probably still affordable to sufficiently large populations). As a result, when competitors launch lower-priced products there is a tendency to expect Apple to react and reduce its prices to compete."

His conclusion, referring to the chart of prices, was that that expectation is always wrong. "However, the data we have from Apple on their pricing shows no concessions to competitive price pressure," he concluded. "The evidence I see is that Apple does not change pricing but rather stakes out a specific price point as resonating with consumers given their positioning. They then doggedly stick to it. Competitors tend to exploit open price points or try to position with specs on the same spots Apple occupies. That's not a game I observe being played by Apple."

Apple could still decide that segmenting the iPhone market with a lower-priced version is desirable, or necessary, even if such a move depresses the company's historically high margins. But for the past six years, Apple has been undeniably successful in creating a premium, global mass brand that with each iPhone, and iPad, iteration seems to be more firmly and widely embraced by global consumers.

John Cox covers wireless networking and mobile computing for Network World. |Twitter: @johnwcoxnwwEmail: john_cox@nww.com

Read more about anti-malware in Network World's Anti-malware section.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

More about: Apple, Apple., Galaxy, IDC, Nokia, Samsung, Samsung Electronics, Sprint, Verizon, Verizon, Virgin Mobile, Wall Street
Comments are now closed.
Related Coverage
Related Whitepapers
Latest Stories
Community Comments
Tags: Networking, wireless, The Wall Street Journal, wall street journal, less expensive iphone, cheaper iphone, apple pricing, iphone pricing, smartphone pricing, Apple, consumer electronics, Nokia, smartphones
Latest Blog Posts
Whitepapers
  • Empowering Modern Finance - The CFO as Technology Evangelist
    The CFO as Technology Evangelist is a research report commissioned by Oracle and Accenture, in collaboration with Longitude Research, that explores how modern CFOs and finance executives are adopting emerging technologies within their finance functions to enable the development of new capabilities and to transform the role of finance.
    Learn more »
  • Oracle Fusion Financials Cloud Service
    Modern organizations are under intense pressure to provide accurate, reliable, and speedy financial information to business decision-makers. Furthermore, complying with global standards has become more of a headache than ever before. How do you know if financial management in the cloud is right for you? This data sheet takes an inside look at Oracle Fusion Financials Cloud Service, exploring key product features as well as financial management benefits your organization can realize quickly, including: Lower transaction processing costs and fewer data entry errors; Automated financial processing; Effective management control; Real-time visibility to financial results; Improved compliance; and more Get everything you need to meet financial compliance and improve your bottom line.
    Learn more »
  • ERP Selection: Finding the Right Fit
    Finding a needle in a hay stack is hard, but the task pales in comparison to finding a specific needle in a pile of needles. Selecting the ideal Enterprise Resource Planning (ERP) solution can feel just as daunting. ERP represents a serious investment for any organisation and is vital to future success. This report explores the strategies organisations are employing to find the right ERP fit that will give them the tools they need to thrive.
    Learn more »
All whitepapers
rhs_login_lockGet exclusive access to Invitation only events CIO, reports & analysis.
Salary Calculator

Supplied by

View the full Peoplebank ICT Salary & Employment Index