Take a look at this chart, which shows one smartphone company’s entire range of models and the different prices at which it offers them. Which company sells all these different phones?
It can’t be Apple, because Apple only sells a few different types of iPhone — right?
It looks more like the kind of range Samsung, or any other Android maker might offer. Android phones compete on price, so manufacturers tend to offer them at prices and sizes to suit all pockets.
And yet …
According to Credit Suisse analyst Kulbinder Garcha and his team, Apple now offers 23 — twenty-three! — different models of iPhone. New ones. Old ones. Different sizes. Different memory capacities.
Apple’s launch event for the iPhone SE last week was widely regarded as a bit of a yawn by the tech press because we didn’t see anything new. My colleague Steve Kovach said it best: “Think of the iPhone SE as the iPhone 6s stuffed in the body of an iPhone 5s.” It’s a phone from two years ago with last year’s tech inside it, in other words.
That is the kind of thing Samsung used to do.
The investment analyst community noticed that while the hardware wasn’t new, there was one major aspect of the press event that was totally fresh: Apple is now selling a genuinely cheap iPhone, or at least an iPhone where a lower price is a key part of its selling point.
For years, competing on price has been a heresy for Apple. The logic on the Apple fanboy blogs goes like this: Only Apple makes the iPhone, and the iPhone experience is unique and better than Android. Therefore Apple can charge more for the iPhone, which is why Apple takes all the industry’s smartphone profits. Android makers rarely make (much) profits because they cannot provide a unique experience, and thus are forced to compete on price. Apple thus takes all the high-end users who can afford an iPhone, and Android has everyone else.
Yet here we have Apple apparently competing on price.
Matti Littunen and Joseph Evans of Enders Analysis wrote today:
At a time of investor concern over slowing down iPhone unit sales, the SE marks the first shift in Apple’s strategic calculus for the iPhone from gross margins to unit volumes … The profit margin of the device, seeming to be uncharacteristically low for Apple, suggests that Apple’s previous reliance on older models and second-hand devices to compete against Android among price-conscious users was no longer enough.
Steven Milunovich of UBS noticed the same thing. Apple strategy was now to “offer better technology at the lower price points.”
That is a massive change for Apple.
Ben Thompson, who writes the Stratechery newsletter, says Apple is trying to offer a phone that is technically superior to a mid-range Android at a price that is the same as a mid-range Android. It will appeal to users “who happen to live in the developing world and simply don’t have that much money. This group doesn’t want hand-me-down phones, they want the best, they just need to be able to afford it.”
Until recently, Android dominated the developing world and that was Samsung’s strategy. Samsung was criticised for this. When Samsung sold multiple phones at multiple prices people said they were “throwing everything at the wall and seeing what sticks.”
Now Apple is doing something similar. Thompson called Apple’s new pricing strategy the “expansion of the high end.” (It’s always interesting that tech writers describe Apple’s strategies in positive ways but use negative-sounding verbiage for Samsung.) I am doing the sophistication of Thompson’s analysis a disfavor here, but even he admits “I know this sounds like I’m splitting hairs.”
Apple has copied Samsung’s strategy before, of course. It was Samsung’s Galaxy phones that popularised large-screen phablet phones, and Apple only followed in 2013 with iPhone 6 Plus. Samsung also launched a smartwatch before Apple did. So Apple following Samsung isn’t new.
There is a reason Apple has suddenly become concerned about selling phones to people who can’t afford $700 (£700 in UK retail) for a new device. The great era of smartphone sales growth is over, and the only new customers left are those in poorer countries or poorer demographics.
That is where unit sales growth will come from now, as this chart from Credit Suisse shows:
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