What Apple Stands For
Let's make this clear: Apple is not Samsung. The story that many have focussed on in the mobile space over the last year has been the rise of Samsung. What so few media outlets can be bothered to say, however, is that Samsung's growth has not come at the expense of the iPhone. On the contrary, the iPhone 5's sales have been excellent. What Samsung has done is eat up the market share of everyone else. It has dominated the market below a certain price point. Above that price point, it is still very much behind the iPhone.
People who take a cursory look at the mobile market – and sadly, this includes many mainstream media outlets – see Samsung's market share percentage and think that makes them the industry leader. That could not be more inaccurate. The share of the market Apple owns may be smaller in unit sales than Samsung, but the units they sell are of far greater value. It's akin to comparing Kia's marketshare to that of Jaguar Land Rover. They might sell more, but they have to sell 3-4 units to make the same profit.
This is what Apple has always done. Look at PC sales. Apple lags way behind the market in terms of units sold, but it dominates above a certain price point – the price point for which Apple chooses to make computers and the point at which all the profit exists. Steve Jobs famously said that Apple 'can't ship junk.' They'd rather make beautiful hardware and sell only to the top end of the market than lower standards and try to mop up the far less profitable lower end of the market. Wouldn't you?
Apple doesn't sell a computer for less than £499. Their cheapest laptop is £849. They could sell a laptop for £299 and try to compete for the single-digit profit margin such a price point offers, but they don't want to. Why? Because doing so would mean making a piece of 'junk.' To illustrate how hard it is to make a profitable computer in that space look no further than the speculation that Samsung is pulling out of the laptop market.
What Apple Was Never Going To Do
Given this fact about Apple, why would anyone expect them to make a 'cheap' iPhone? The iPhone has succeeded in being something very difficult to achieve; it's an affordable yet aspirational product. A cheap iPhone would make it more affordable but less aspirational. It would also mean making an inferior piece of hardware (in fairness, some might argue they did that with the iPhone 5C but it's still a very high-quality piece of hardware).
As much as some people would love to see a £249 iPhone, that was an expectation borne out of a lack of understanding of what Apple does. Criticism of Apple for not releasing a £249 iPhone is as absurd as criticising Jaguar Land Rover for not releasing a £20,000 Range Rover. The only difference is that instead of a Range Rover probably being out of most people's price range forever, the iPhone is affordable enough that anyone that really wants one can get one.
Problems Facing Apple
Apple is going through a purple patch that has lasted several years now. There's good reason for them to feel very happy about their current position. That doesn't mean, though, that there aren't threats facing the company. I see two main threats that Apple faces.
- The emergence of the Asian market. Nearly two thirds of the world's population lives in Asia. The Chinese and Indian economies have been booming for years and they are at the point now where iPhone-class products are in demand. To ignore this emerging market would leave the door open for huge profits to be made by competitors and in the long term, huge leverage over the global market to be earned. Thusfar, the iPhone has not bowled over the Chinese market the way it did the North American and European ones, for whatever reason.
- Cheap phones got good. For a long time, the iPhone stood head and shoulders above the competition. Everyone with any sense wanted one, even if they couldn't afford one. Now, even cheaper phones made by the likes of Samsung are good enough. 'Good enough' is a dangerous thing in technology. Our human race has a depressing knack of being satisfied with 'good enough', eschewing 'great' for the most meagre of savings.
The iPhone 5C is Apple's response to these threats, not to Samsung's perceived encroachment in existing markets. When you set up a company you are often advised to carry out a SWOT analysis. This means writing down your Strengths, Weaknesses, Opportunities and Threats.
- Apple's strengths are industrial design, software engineering, vertical integration and logistics.
- Their opportunities are obvious: to be in Asia what they are in the Western world to an enormous market with tremendous potential for growth.
- Their weaknesses are that they must compete above a certain level in the market and that their products as of last week only came in two colours.
- Their threats are as above and in many ways the same as their opportunities.
Apple is bringing its strengths to bear on the Asian market and trying to mitigate its weaknesses and threats.
The iPhone 5C makes the second tier iPhone more appealing. Now it's a brand new product you are getting if you buy it, not last year's model. It's vibrant and fun. That should appeal in Asia and to the youth markets in the US and Europe. It's easier to produce which allows Apple to meet demand in a much larger market.
It's cheap enough to appeal the way the previous year's model used to to some, but it's expensive enough to remain an aspirational yet affordable product in the Asian market.
What Have They Done Before?
We've seen this before. The original iPod was white or black. It was hugely expensive. As time went on Apple brought the price down as manufacturing made that possible but it stopped at a certain point – a sweet spot where it was cheap enough that anyone could get one if they really wanted one, but it was expensive enough to retain perceived value to customers. They then released cheaper, less capable ranges of iPods in the iPod Mini, then iPod Nano and iPod Shuffle. These came in a variety of colours and were hugely successful. With the iPod range seemingly reaching the end of its life, or at least its life as a major product, it has never been a 'cheap' product in any sense of the word.
What Apple Should Get Credit For
The iPhone 5S' fingerprint sensor will grab the headlines and understandably so. If Apple has executed on this well then it could remove one of the few frustrations of using a smartphone. How many hours do you spend over the lifetime of a phone typing in its passcode? It's that little bit of annoyance removed every single time you pick up the device. I think that's bigger than some realise at this point.
The fingerprint sensor also has other tremendous security implications. A huge number of people – Apple say as much as 50% – don't have any passcode on their phone. With the power of a modern smartphone, that's crazy. Also, how many people have short, easily-broken iTunes passwords because they don't want to remember a huge long secure code each time they make a purchase in the App Store or iTunes Store? With the fingerprint sensor allowing verification there too, people can set huge long passwords for these things without any added inconvenience.
Another thing Apple should get credit for is going 64-bit. Nobody was pushing them to do this. It opens up the road ahead of iOS devices and it shows Apple's engineering ambition. I think that deserves credit.
We should be careful not to overlook that iOS7 is also part of this release. This is a significant, root and branch re-write of iOS. In many ways it is the biggest change people buying one of these new devices will see. When you combine the iPhone 5C with iOS7, you see this is no small release for Apple.
Time will tell if this set of products works or not, but at this point I think Apple and fans of their work should be pretty excited going forward. Criticism follows Apple's every move because they're uncompromising and different. I see no substance to the criticism this announcement is getting. People say I always say that, but I'll keep saying it until Apple stops selling hundreds of millions of devices.
…but I digress.