Someone once pointed out that Apple's (NASDAQ:AAPL) obsessive secrecy was wasted on the iPad, since even a year after it launched most of the competition had no idea what the iPad was or why anyone would buy it.
I was reminded of this while puzzling over Apple's new iPhone launch, because much the same issue applies. What, exactly, has Apple just done?
We know perfectly well what it has not done: it has not released a dramatically cheaper phone that could sell to the prepay market or even to mass-market contract customers outside the USA. This was widely rumoured and I myself thought Apple would go significantly cheaper, but it didn't.
But what did it do?
The obvious answer is that Apple continued the existing strategy. A new high-end iPhone, with new cool tech (camera, 64 bit, fingerprint) that makes it the phone to beat for the next 6-9 months until Android catches up and overtakes it in the annual game of leapfrog. Plus, last year's phone sold at a discount. This time, last year's phone is in a different case (and gets more LTE bands and a bigger battery), but the price is the same, so it's clearly not a step change. The 5C is really just last year's phone. And historically the old models have sold well in the USA [non-LTE iPhones were half of Verizon (NYSE:VZ) Wireless iPhone sales in Q4 and Q1], due to the unique U.S. pricing structure that makes them look cheap, but don't appear to have sold well anywhere else.
For investors, the fundamental question is whether Apple is still a growth stock. This doesn't look like a growth move, and the lack of a China Mobile (NYSE:CHL) announcement (so far) doesn't help, so the stock went down.
But I'm cautious of applying the word 'just' to anything Apple does. "Just" works well when you're looking at a company that launches dozens of products [Samsung (OTC:SSNLF) now, Nokia (NYSE:NOK) in the past] - many of them are experiments, not all are expected to be hits, some are niche. But when you only make a handful of products, all of your moves are carefully considered. All of them have an agenda, and all of them are intended to achieve something. In other words, I'm cautious of applying the word 'just' to anything Apple does. There's generally a plan.
And then we have this.
Apple did not spend the last 12 months running advertising for the iPhone 4S. That was an "old phone", and it was a phone you bought if you wanted an iPhone 5 but couldn't afford it. The 5C is different. It's a new iPhone, and indeed I think it's the main iPhone. The iPhone 5S is the high-end one for people who want the latest tech - the 5C is the one for normal people. The same money now buys you a cool new phone, not a discounted old one.
If you spend all of your time looking at this space you can miss this point. You know that the iPhone 5c is mostly the same as the 5 - 'just' the 5 in a new case, more or less. But consumers neither know nor care. They don't go into the shop and ask how new the chipset is - they look at the phone itself as a buying proposition.
The fundamental characteristic of the mobile and tablet business is that consumers do not buy "feeds and speeds" - they buy experiences, and they buy in person, in the shop, holding the thing in their hand. Feeds and speeds matter, behind the scenes - because they change what experiences are possible, but they're not the deciding factor at purchase in the way that they often were in the PC market.
Hence, if you look at Apple's Youtube channel, there are videos talking about the 5S fingerprint scanner and the 5S camera, but not the new 64 bit chip (though this enables both). The same applies to Apple's (relentlessly hammered in) talking points:
- "iPhone 5C - an advancement of iPhone 5 with an entirely new design that feels great in your hand, and colour that only Apple could do
- iPhone 5S, the most advanced iPhone ever, with our most forward-thinking technologies. "
So the 5C is the new iPhone, and it's $100 cheaper, while if you want the supercool new tech you pay more for the 5S.
What does this mean for sales? In the USA, Apple has effectively halved the price of a new iPhone, from $200 to $100. It already has 40-45% of contract smartphone sales - this move will take another big bite out of U.S. Android sales.
It's worth thinking about what that would do to the Android ecosystem. Apple already has a systemically disproportionate share of the kinds of users who download apps. If, in the USA, where so many developers are concentrated, it went to well over 50% share, that could have a big impact, not so much in support from large companies but from all the cool new startups that do much to drive a platform forward.
Elsewhere, $550 for the 5C is still expensive, especially for the 50% of Europe and 90% of China that's on prepay. Android averages $250 to $300, in contrast, and Xiaomi's new flagship phone is $330. But that doesn't mean it's out of reach for the other 50% of Europe, or for the 2-300m people in China who buy expensive consumer goods.
This is where the real question arises. How much price flexibility will we see? How many more people will pay an extra €5 or €10 a month for the 5C over a cheaper Android? What will happen to sales of the Galaxy S4, which is notionally a higher-end phone at a similar price? How much will the 5C take from sales, not just of $550 Android, but of $400 Android? That answer could make a big difference to Apple's market share. And it's worth noting that even with the previous pricing strategy, Apple's market share was growing steadily.