Why iPhone 4C didn't make sense but iPhone 5C just might

It's my understanding Apple's been considering the release of a less expensive iPhone 5c-type product since at least 2009/2010, but the economics and conditions back then made them go with - and stick with - the older-model-at-reduced-price model instead. Rumors are building that this year might be the year they change strategies and flip that particular product switch. So why now? The simplest answer would seem to be that the economics and conditions have changed. Like I said back in January, for Apple, less expensive doesn't mean cheap. However, less expensive can mean a larger, more unified addressable market. John Gruber on Daring Fireball caught an important part I missed:

All told, I think Apple could build and sell an iPod Touch-caliber iPhone 5c for $399, possibly as low as $349.Would this cannibalize sales of the actual iPod Touch? Perhaps, but modern-era Apple has never been afraid of cannibalizing its own products.

One of the other differences between then and now - in addition to emerging markets, more price-sensitive first-time smartphone buyers, downward pressure on the iPhone ASP due to the previous strategy, and perhaps a desire to unify the platform faster around 4-inch screens and Lightning ports - is the continued decline of the iPod lineup.

The iPhone originally succeeded because it was a better experience than all the smartphones that came before, and a variety of customer types were willing to pay for it. And now they have. And now Apple, like everyone else, is chasing the next billion first-time smartphone adopters, and just like with the iPods nano and shuffle, the Mac Mini, and the iPad mini, the lower the cost of entry, the more of that market Apple can on-board, immerse in their ecosystem, and potentially retain and expand upon going forward.

The iPod touch used to be the cheapest gateway to iOS and the App Store. As that fades, the iPad mini, and something like an iPhone 5c need to take its place. (Apple has historically been very good at having "what's next" ready to climb as "what was" becomes to decline.)

Ben Bajarin explains it much more succinctly than I ever could over on Tech.pinions:

Any move Apple makes to go downstream is a strategic move to acquire customers who seek value but not at premium price points and get them into Apple’s ecosystem.

So what makes 2013 a better year to release a less expensive iPhone 5c than 2010 was to release a less expensive iPhone 4C? The type of product Apple can produce to fit that slot is likely far better, and far more in keeping with their standards, than anything they could have produced in 2010. (i.e., the iPhone 3GS was better than an iPhone 4C could have been), their older product line continues to decline and new ones can now take its place (i.e. iPad mini and iPhone 5c could do the job better now than iPod touch), and the type of customer Apple was targeting back then is likely different than the ones that comprise the biggest opportunity today (i.e. less expensive on contract vs. less expensive overall).

The economics and conditions have changed, and, if the iPhone 5c rumors prove true, Apple has, as usual, changed to address them. It's not a reaction, it's a plan. After all, that relentless fearlessness in face of the future has, historically, been one of Apple's greatest strengths.

Note: I conflated part of this into yesterday's difference between iOS and Android developers piece but I thought the specifics of addressable market deserved it's own thing.

Rene Ritchie

Rene Ritchie is one of the most respected Apple analysts in the business, reaching a combined audience of over 40 million readers a month. His YouTube channel, Vector, has over 90 thousand subscribers and 14 million views and his podcasts, including Debug, have been downloaded over 20 million times. He also regularly co-hosts MacBreak Weekly for the TWiT network and co-hosted CES Live! and Talk Mobile. Based in Montreal, Rene is a former director of product marketing, web developer, and graphic designer. He's authored several books and appeared on numerous television and radio segments to discuss Apple and the technology industry. When not working, he likes to cook, grapple, and spend time with his friends and family.

  • Selling OLD model phones (e.g., 4, 4S) as lower-cost/entry-level iPhones is smart, but selling a NEW phone, presumably the 5c, as the lower-cost/entry-level seems smarter yet. New is better than old, right? In that that model, 4, 4s, and maybe even the 5 could all hit end of line. Regardless, the main question I have is what differentiates 5c and 5s? Camera, screen, finger print thingy, one more thing new feature? 5c could be easily dominate sales. Should be interesting.
  • We're going to see an iphone market that has the majority of sales being the C kind. I remember reading articles over the past months where the iphone 4 and 4S comprise almost half of all current iphone sales now. I imagine the 5C would just dominate like the Mini is doing for ipads. So, in a world of where the iphone 5C sells much more than the 5S, one has to wonder about what this means for apps. That's beyond me, so I'll keep reading iMore.
  • Plus price point wise it starts at a less expensive point to manufacture. So long term, over same period, the 4S would still be more expensive to produce that a 4C would have.. same concept here.. the 5S, possibly even the old 5, will always be more expensive to produce than a 5C so long game it's a better move cost wise. Labor alone on a plastic version should be much less intensive. It also gives them a mode to ensure everyone is using the 4" screen and lightning connector; finally unifying the entire line.
  • 128 GB, thinner, lighter, faster, metal, camera, scanner, silver and gold.
  • The iPod touch used to be the cheapest gateway to iOS and the App Store. ... Still is. No contract. Subtract $1,000. Annually.
  • Yes, Steve. Totally agree here. Also, the iPod Touch is the preferred device for children. Every kid I know in the 10-year age group or below starts out with an iPod Touch. Parents generally don't want them having a cellular device until they're older. The Touch is super-portable, affordable, and does everything they need.
  • That used to be the case, even with my kids. Now, they get "hand me down" iPhones. Once you switch to a new phone, the old phone becomes deactivated. If they do become old enough to want a phone, just activate the old device. The decline of the iPod market is essential due to the "iPhone hand me downs".
  • Yes, and I know many people that would have an iPhone except for the fact that it does not support AWS. Which means that Mobilicity and Wind Mobile (both in Canada) is not an option when these two offer unlimited everything for $30 or $40 / month. So they go with Android. I'm not sure how widespread AWS around the world, but if it is, I would expect the 5C to support AWS (now that some of the Qualcomm chips are not so power hungry).
  • If Apple gets the price right on this I could see the 5C being hugely popular. I know people will point to the mini in arguing Apple can charge $450 or $499 for this device. But the mini is a premium device in terms of material and build quality. Colors plastic doesn't give off the same premium feel. If Apple could price this at $399 or less off contract it would sell loads.
  • Price point is always key when trying to open up a new market (or, rather, step into one already dominated by less-than-premium devices).
  • I agree, and Apple's track record on getting the price right has been great.
  • Something in my gut (or maybe it's just wishful thinking... I'll concede it could be) tells me the 5C isn't real (or the 5S, for that matter), and that Apple is tossing out a few red herrings to throw potential leakers off their scent, and we should also not underestimate the lengths to which forgers will go to claim knowledge of iFruit's intentions. I could very likely be dead-wrong come autumn, but the massive overhaul of iOS smacks of something new and exciting for iPhone rather than just technicolor breadcrumbs for developing markets.
  • I, for one, hope you're right. I think the whole concept of an iPhone 5C (does it stand for 'color' or 'cheap'?) flies in the face of what Apple's brand is: quality + excellence + user experience + ecosystem = loyalty + profit margins. On one hand, I could understand if C = 'color", but how many people do you know that actually carry a "naked" case-free iPhone? Not too many. Which gets be back to 'cheap'. What will Apple do to make this thing cheaper than it's up-market brother? Shrink the screen size (more fragmentation for developers)? Give it a lousy camera? Make it WiFi/VoIP only (iPod)? Non-retina screen? Tiny memory? PLASTIC body!? I really, really don't get it. You just don't buy a new Apple product with the knowledge that it's a ripoff of something else. You can make a 'mini' version of something as long as that 'mini' thing still specs out, but you can't blatantly sell an inferior product as the next big anything. One perhaps interesting thought that I haven't heard anybody talk about is if the C stood for "child/ren" and came with a lot of built-in features for parents (monitoring, access and purchase control, etc.) and children (games, social, safety). THIS I could see making sense.
  • I initially felt the same, but at least in my case I could quickly debunk it as merely loving the superior quality of iPhones so much that I was adamant to accept anything below that standard. plastic, yuck. I do carry my iPhone5 naked (i'm talking about the device.) and even though now it's evidently seldom to do so, with the 5C surely a change would come about, and I can already see colourful iPhones in everyone's hands. As mentioned above I forecast it would be a great first device for kids/teens, android users that always railed against iSnobs but secretly fancied Apple, and as long as the quality is still top-notch (for a plastic shell) even heaps of iPhone users. The 5C will provide us with a user experience just as good as the iphone5, it should run iOS7 smoothly and look trendy. So why give it stick even before it has been announced? Most of Apple's devices have featured a colourful line at some point, and in regard to the plastic> the first iPhones had it, it's not completely out of line to bring it back for a new phone sub-category, is it?
  • re: "The economics and conditions have changed..." Sure, things are always changing. But I think the major reason for the 5C this year is that Apple is only now attempting to address the non-subsidized market. Not a factor in the U.S., where iPhone is the biggest-selling smartphone. But it is a major factor in Europe, for example. Yes, Apple could have sold the 1-year and 2-year old iPhone at discounted non-subisidized prices. But those phones still cost exactly the same to manufacture (in terms of labor cost) as they did when they were brand new. No, labor isn't the major cost component. Yes, all the costs do add up. And selling older iPhones unsubsidized, at competitive prices, would have cut into Apple's margins too deeply.
  • I want all models of iPhone in various colors!
  • Macbook Pro - Macbook Air
    Mac Pro - iMac- Mac Mini
    iPad - iPad Mini
    iPhone - iPhone C Makes sense. The key is getting people to drink the coolaid. While some Android implementations are getting really sophisticated, I think Apple's ace in the whole is the ecosystem itself. "Just works" should really be the design and sales mantra that everyone thinks of when they hear "Apple". Getting people to experience "just works" requires that Apple sell devices that fit the entry level phone market. Building a price firewall around the product only eliminates chances of selling your other products and services.
  • Anyone seen this? It even mentions $300 price.: http://www.onlinegadgetstore.com/6916-siri-feature-wont-included-lowcost...
  • Another point is, that with a 5C they can sell old tech as a new product, like the iPad mini which is essentially the tech from the iPad 2 but for the mainstream consumer is a new product. So instead of selling 1 or 2 year old phones, they can release a new model every year, but still benefit from the lower cost of last years components.
  • I would guess that apple sells the iphone 5c only in it´s own Applestores
    * Apple keeps the marge from mobile company's
    * this would add a appreciable amount of visitors to the stores
    * for the mobile company everything remains as is - nobody deals in AT&T "... should I take the cheaper one?" and takes the only one - the 5S
    * there would be some balance throughout the market, and it would be easier to fulfill the demand of Iphones in first two or three months - two different company's producing the 5S and 5C I think it would be a good idea for the US and Europe, perhaps different in APAC area .
  • Nokia Sells the cheapest phones out there and lots of people are are switching to Nokia. If Apple wants to compete, They better be selling the iphone 5c for about 400 dollars. You need competition in order to win. The Lumia 521 is going for 138 dollars and it performs great.
  • Nokia is losing market share, so evidently lots of people are not switching.
  • Not sure what you're talking about. Nokia isn't exactly an example of product or strategy that anybody should be following right now.
  • A well written article, but in my own opinion introducing the iphone 5C to cater the needs of emerging markets and still operate a closed system whereby you only gain access to your file through itunes will be a major set back for Apple. In emerging markets PCs are still considerably expensive "Africa to be precise" consumers who have always loved the iphone and ios for its beauty and simplicity will simply stay away because of the "iphone-itunes" palava.
  • I live in Japan where the only two carriers with the iPhone (SoftBank and AU) resolutely refuse to unlock even old off-contract 3GS, 4 and 4S units. If you are a family with three or four iPhones, there is no way to afford $2500 for off-contract unlocked iPhone 5 or 5S units from Apple outside Japan, so we are trapped in SoftBank's (and AU) subsidized prison with outrageous global roaming charges and awful service coverage outside the major cities. If Apple comes up with an off-contract unlocked 5C for $350, I'll be the first in line to order four from Apple Store Hawaii and then I'll be moving my numbers from SoftBank to DoCoMo.
  • LTE makes all the difference. And the four-inch screen. Otherwise, the 4S and 4 are great as the cheaper entry-level phones. So the 5C makes sense.
  • I don't know if it's my English, but I don't understand what the writer is trying to say with "The type of product Apple can produce to fit that slot is likely far better, and far more in keeping with their standards, than anything they could have produced in 2010. " My take is that back in 2010, the smartphone market was still burgeoning. With such a huge untapped market, it made more sense for Apple to focus on the more affluent (and profitable) section of that market, and so all their resources went into designing the iphone4. It simply didn't make sense to release a cheaper iphone which would simply eat into their profits. Today, that market is more or less saturating, and competition is stiffer than ever. As a result, it makes more sense now to release a cheaper iphone to defend its market share.
  • It means just what it says.... including the example of the iPhone 4c. The bottom line is that anybody can produce a less expensive device than their flagship product. That challenge is to do that and also produce a product that people will get excited about. Based on the tech that was available a few years ago, it's unlikely that Apple could have made that happen. Lets think about this in another way. If Apple were to follow tradition, the iPhone 4s would become the lower end, less expensive phone next month. People are excited about the notion of an iPhone 5c that has a larger screen, lightning connector, etc. If the phone is a better performer than the 4s, then overall Apple will have a much more competitive product at that low end. I will be in the market for a 5s (higher end device) in September. Likewise, for people like me, there is no risk of cannibalization, etc. In the end, there is really only an upside to Apple having a more competitive phone lineup, even at the risk of some cannibalization. For every high end iPhone that is cannibalized, how many Android devices will also lose sales to this device?
  • Were I Apple I would offer two, and perhaps three, models of the iPhone 5c differentiated by connective ability. 1. A VoIP-only phone with all the bells and whistles but working only on Wi-Fi. This could replace/supplement the iPod Touch.
    2. A VoIP-only phone like the above, but with step-up to LTE, as is on offer with the iPads. And maybe, just maybe, a version enabling traditional voice service. FaceTime for iOS 7 will offer voice-only calls. It is a small step from there to Apple offering capabilities like visual voicemail, but for VoIP. And a number of third-party services already offer to provide free mobile phone numbers suitable for data-phone calls to both mobiles and land lines. Phones like these would help explain Apple's recent focus on selling more phones in Apple stores and online. Some carriers will initially be reluctant. With some others Apple will have carved out deals in advance. For the USA, my bet would be AT&T once again.