Why a less expensive iPhone might make more sense
If Apple sticks to their current pattern, there'll be an iPhone 5S later this year, and the iPhone 5 will drop to $100 on-contract, the iPhone 4S will drop to free on-contract, and the iPhone 4 will be retired. If Apple sticks to their current pattern, there'll be an iPhone 6 in 2014, and the iPhone 5S will drop to $100 on-contract, the iPhone 5 will drop to free on-contract, and the iPhone 4S will be retired.
Rumor has it Apple has explored the idea of less expensive iPhones for years, but ultimately decided to drop the price of previous generation iPhones instead. It allowed them to eventually get to zero dollars on-contract, it let them exploit economies of scale, but it didn't service the needs of emerging markets where phones aren't typically sold on-contract, and even the zero dollar option costs $450. It also relied on newer models being sufficiently distinct in hardware to justify their higher price points. The iPhone 4 has Retina and a new, glass and metal casing. The iPhone 4S was more of a challenge, with little visual distinction, and marketing focused a little on speed and camera, and a lot on Siri. The iPhone 5 had a bigger, 4-inch, 16:9 screen, and LTE.
Even with speed and size as obvious distinctions, the iPhone 5 still faced stiff competition from... the iPhone 4S and iPhone 4. For many people, that design, that screen size, that radio technology is good enough. And at those lower price points, it's great.
Apple CEO Tim Cook, during the Q1 2013 conference call, said the iPhone 4 and iPhone 4S haven't yet cannibalized iPhone 5 sales. More specifically, he said the product mix this year, with the iPhone 5 as the flagship, was essentially the same as last year, when the iPhone 4S was the flagship. That -- maintaining the average selling price for the iPhone -- is important for Apple's inventors who value the bottom line. But what happens later this year, or next? What happens when the 4-inch LTE iPhone 5 is $100? When it's $0?
When considering the idea of a less expensive iPhone, and what could encourage Apple to pull the trigger on it, established -- or maturing -- markets could be as much of a factor as emerging markets. Arnold Kim of MacRumors and I discussed this on last week's episode of the iMore show. It's not impossible to imagine a world where the flagship iPhone, be it iPhone 5S or iPhone 6, is the flagship iPhone, and the less expensive iPhones aren't just older models sold at incremental $100 discounts, but iPhones specifically designed to be less expensive.
Again, less expensive doesn't mean cheap, Apple doesn't do cheap. They don't do crappy netbooks or budget tablets. They do the Mac mini and the iPad mini, the iPod nano and the iPod shuffle.
Whether they return to plastic backs offered in their reserved-for-lower-end color palettes, and keep less expensive, less expansive, components inside like chipsets, radios, and cameras, or once again zag instead of zig, as much as a less expensive iPhone could increase Apple's addressable customer base in emerging markets on carriers like China Mobile, it could also decrease the pressure on Apple's premium phone business in established markets on carriers like AT&T and Verizon.
If Apple sticks to their current pattern, at some point this year you'll be able to walk into a store and choose between an iPhone 5S for $199+, an almost indistinguishable looking iPhone 5 for $99, and a decent iPhone 4S (iPhone mini) for $0. If Apple sticks to their current pattern, at some point next year you'll be able to walk into a store and choose between an iPhone 6 for $199+, a presumably different looking iPhone 5S for $99, and an almost indistinguishable looking iPhone 5 for $0.
But Apple doesn't always stick to their current patterns. And if they don't, maybe at some point in the future you'll be able to walk into a store and choose between the flagship iPhone 5S or iPhone 6 at $199+ on-contract, or a distinctly different iPhone that's less expensive both on-contract and off.