The New Kid on the Block

Since its debut yesterday virtually everyone has lauded Apple for introducing the iPhone 5C. (I refuse to acknowledge Apple’s ridiculous naming convention; 5c? Please. If I wanted to look like a five year old I could forget to proofread my articles on my own. And I’m not the only one miffed at Apple’s new standard: Lex Friedman, in a tweet yesterday: “If Apple is lowercasing the S and C..., I’m going to start capitalizing the ”i“: IPhone 5s. That’s better.”) Hailed as the elusive midrange offering from a traditionally high-end company, Apple received great praise over a move many see as a way to increase device sales by capturing the low end. I have a number of issues with that sentiment.

In an article from June titled Apple’s Wildcard, I questioned the existence of a market Apple could address with a budget iPhone. I reasoned that between latest model, last year’s offering, and the iPod Touch, no middle ground existed which a cheaper iPhone could occupy. After nearly three more weeks of 5C rumors though, I tempered my initial thoughts in The Halfway Phone, where instead of denying the existence of such a market, I put forth the hope that Apple would avoid it. Two months later, as I followed along with The Verge’s live stream of the press event, I was not disappointed when Apple released a marketing gimmick called the IPhone 5c.

Throughout its life in the Apple rumor mill, speculators tried to strike a balance between predicting a phone cheap enough to attract a low end somehow not addressed by Apple’s existing strategy and imagining a device too expensive to justify its existence alongside the flagship offering. With Apple’s current portfolio placing the newest model at $650 unsubsidized and $199 on a two-year contract, last year’s option at $550 and $99 respectively, and the previous year’s offering on sale for $450 and $0, Apple had two options: price a phone at or around $350 unsubsidized, thereby creating the budget iPhone necessary to enter markets the other models’ price points prohibited, or replace one of its existing tiers. Apple chose the latter route, deigning to give its existing customer base a “new” — and I use the word lightly here — option to consider rather than trying to compete on the low-end.

Rather than follow the established trend, wherein Apple shifts its mobile lineup to contain the latest model on top, last year’s device in the middle, and the year prior’s phone at the “low-end”, Apple chose to make a slight addendum in the form of the 5C. With the 5S marketed as Apple’s premium offering and the 4S now free with contract, instead of placing the 5 as the midrange offering Apple took that device’s components, repackaged them in a brightly-colored case, and turned the resulting device into a new category: the “iPhone 5c [sic]”. From a technical perspective, the actual product line changed almost imperceptibly with the advent of the “new” offering; had Apple forgone the 5C, it would have sold the same three devices, albeit with slightly less color. Not only the same phones from a technical standpoint, but from a pricing one as well: as always, the latest model retails for $649 unsubsidized, and $199 on a two-year contract. The iPhone 5C, replacing the iPhone 5, sells for $549 and $99, respectively, while the 4S comes in at $449 and $0. This should sound familiar; Apple follows this pattern every year, and this year brought no surprises.

Many explain the advent of the 5C as Apple combatting stigma against old phones. As of September twentieth, those purchasing an iPhone but unwilling to pay a premium do not have to settle for last year’s technology. Or so the reasoning goes, but I can’t help but consider this, too, a flawed strategy. The first data point in what will likely become a trend shows that with each new model, last year’s high-end components get repackaged in to that year’s version of the 5C. Next year, when Apple announces the iPhone 6, the 6C will likely be nothing more interesting than the 5S’s internals ported to those colorful shells. Some may argue that the 6C will contain lesser versions of the 6’s components, but that is the very function Apple’s existing strategy serves. Further, shifting the product line with each successive iPhone launch gives manufacturing setups increased longevity and thus yield greater profits, a benefit this approach would destroy as with each release Apple would be forced to modify its manufacturing process yet again.

If not as a technical boon, a strategy to capture the low end, or a manner through which to combat a perceived stigma against older devices, why did Apple launch the 5C as a new brand? I believe Benedict Evans said it best in a tweet:

“Posit: yesterday Apple cut the price of the iPhone by $100, at same margin, and made it cooler. Also launched entirely new high-end phone.

Benedict made his point very clear, but for the dimwits I will elaborate. Essentially, and I hinted at this earlier, the 5C is nothing more than a marketing gimmick. After bumping the 5 down a price tier as was expected, Apple simultaneously raised its margins on the device and made it massively more appealing to the mass market. The company will go on to sell droves of this model, and with even greater margins than before, it will make a ton of money. Therein lies the genius of this approach, and the reason Apple went to all the trouble to create this additional product category. The people who will buy a 5S knew they wanted that phone as soon as Tim Cook announced it; the 5C is decidedly not for them. For everyone else though, those deciding between a 5, 4S, or an Android phone, Apple took away any lingering uncertainty with the 5C.

Unfortunately, just before I finished this article, I came across Tom Warren’s piece on The Verge titled The iPhone 5c isn’t a cheap iPhone, it’s just a colorful one in which he makes most of the same points I did here and a few others to boot. If you found this post at all interesting, I strongly recommend checking his out as well.