Coming into the event, the widespread expectation was for Apple to release a lower-cost iPhone that would increase the company’s addressable market.
Apple didn’t release a low-cost iPhone. It kept its pricing scheme the same it’s been for years. It’s selling the iPhone 5C for $US99. Off contract, in the U.S., the 5C is $US549. In China it’s ~$733.
The high price tag for China is what’s really disappointing to people. At $US733, the phone is twice the price of solid mid-range Android phones. It’s also more than most people can afford in China.
Apple is losing market share in China. It’s the seventh place phone company in China with just 5% of the market, according to Reuters.
Developed markets like the US are reaching a point of saturation for smartphone sales. If Apple is going to continue to grow it needs markets like China to buy lots of iPhones. At $US733 a pop, the iPhone 5C is not going to appeal to a broad number of Chinese consumers.
While Apple’s decision to stick with its pricing scheme is surprising, it shouldn’t be — Apple has been pretty clear that market share is not a metric it cares about.
“For us, winning has never been about making the most,” said Tim Cook at the D11 Conference. “That’s never been the cornerstone of Apple.”
Cook’s predecessor, Steve Jobs, was famous for saying one thing, then doing another. As a result, many people chose not to believe Cook. They thought that Apple would release a low-cost iPhone regardless of what he was saying.
Well, it turns out Cook said what he meant.
Is Cook being foolish, though? Is he, as our Henry Blodget put it, being short-term greedy?
I think there are two reasons people are so fixated on Apple’s smartphone market share — they believe Apple is about to be destroyed by Android like it was destroyed by Windows and they see Apple has $US145 billion in cash, so it shouldn’t be trying to protect its profits.
Let’s tackle the second one first. I’ve been trying to figure out why people are so mad at Apple for not doing a cheaper phone. I think it’s a combination of factors.
Most technology companies today are lowering prices for consumers. Amazon, for instance, introduced a super cheap tablet. Google gives away its operating system, and has always made its products free. Facebook and Twitter don’t charge.
Amazon’s philosophy in particular resonates with people. It operates on almost no profits. Any money it makes is either reinvested in the business, or passed onto the consumer through low prices. In an era of economic instability, and income disparity, Amazon’s willingness to redistribute its wealth seems breathtakingly fresh.
Apple, on the other hand, has the exact opposite philosophy. The company has $US146 billion in cash. It plans to return $US100 billion to shareholders, which is the equivalent of saying it doesn’t have any good ideas for the money to improve the company’s products.
By not discounting the iPhone, Apple ends up looking like a stingy rich guy. It has billions and billions, but it won’t share any with you. Imagine going out to eat with a friend who you know is worth millions, but won’t pick up the check even though you’re on minimum wage. It wouldn’t feel so good, would it?
At Apple’s iPhone event, it said it was on the cusp of selling its 700 millionth iOS device. If, instead of giving $US100 billion to shareholders, it had passed that savings onto consumers, that would equate to $US142.86 off each iPad, iPhone, or iPod Touch.
But Apple doesn’t want to do that. It wants to create a premium product worth a premium price.
Its focus on iPhone profits leads people (like Henry Blodget) to say that Apple is going to be clobbered in mobile just like it was in the PC industry. However, most people are misremembering what really happened in the PC industry.
In the ’80s Apple lost because its products were expensive, and not very good. The company never had any market share. As its not-great, expensive products hit the market, Microsoft’s good-enough operating system was hitting all sorts of computers. Developers flocked to Microsoft’s PC software, leaving Apple in the dust.
This time, Apple is producing the best hardware and the best software, and in the U.S. at least, its pricing is even with Android.
Developers have not yet ditched support for iOS, despite Android’s market share lead. In fact, the opposite happens. They choose iOS over Android as the starting point for development of applications.
Twitter, for instance, decided to make its video sharing app, Vine, an iOS exclusive initially. Instagram found its success early on by focusing on just iPhone.
The reason developers still choose iOS is that it has active, engaged users. They actually download apps and spend money with their phones.
The metrics Apple says it cares about are usage, commerce, and customer satisfaction. As long as those are strong, Apple believes it can thrive.
Producing a cheap iPhone wouldn’t do anything to help improve a single one of those metrics.
But, what about the platform game? Isn’t Apple going to be a niche player with no power? Maybe.
Consider this, though: Android with its dominating market share has failed to make NFC a widespread technology. Google tried putting NFC in phones, it tried to build Google Wallet but none of it has caught on.
Why? Because Apple has ignored NFC. If Apple really supported NFC, you can bet it would be a bigger technology.
NFC is a small example, but it illustrates a bigger point. Apple is still the industry leader, despite a sliver of the smartphone market.
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