New iPhone 5C, iPhone 5S reveal shift in strategy for Apple

Written by Max Ehrenfreund

Apple will begin selling two new versions of its signature iPhone later this month, the iPhone 5S and the cheaper iPhone 5C, which comes with a colorful plastic casing. The iPhone 5C is similar to the previous version of the device, the iPhone 5:

It has an A6 chip and the same general form factor as the iPhone 5, except for the fact that it’s made of colored plastic rather than glass and aluminum. Still, early hands-on reports from tech sites such as TechCrunch and The Loop say the plastic feels surprisingly good in hand.

For those looking for a more technical upgrades, the iPhone 5S does have quite a few — most notably a 64-bit processor that should seriously raise the bar for apps in the next couple of years. Apple has also improved the camera sensor, all, it claims, without a negative impact on battery life. The phone also includes a fingerprint scanner in the home button for logging in and making purchases, as well as a new chip that tracks movement for health apps. Hayley Tsukayama

Apple’s offer of a cheaper model represents a shift in strategy in response to changes in the market for phones:

With the introduction of the cheaper phone, the iPhone 5C, Apple is targeting a younger, less-affluent audience. It is also offering a traditional upgrade, the high-end iPhone 5S, for its core audience of gadget lovers.

The entire smartphone industry is grasping at ways to lure buyers for their most expensive — and most profitable — models as U.S. and Western European markets become saturated with established smartphone owners.

“It’s not a growth market as it was five years ago,” said Gartner analyst Carolina Milanesi.

In key markets, Apple, which traditionally releases one premium smartphone model per year, has been losing market share to low-cost smartphone makers such as ZTE, Lenovo and Xiaomi. Estimates from Gartner showed that, in the most recent quarter, Samsung picked up 31.7 percent of the global market, compared with Apple’s 14.2 percent.

The iPhone 5C will come in several new colors, including yellow, blue and pink, which should appeal to younger buyers. It will start at $99 on a two-year contract — the same price point that Apple used to offer for its older phones.

But Apple’s downmarket strategy comes with risks. By offering a lower-cost version of the iPhone, Apple could cheapen its brand or cannibalize demand for its more expensive model, analysts have said.

In this case, the iPhone 5C may not be cheap enough to attract true bargain hunters. In many overseas markets, wireless providers do not subsidize the cost of the phone, which will retail at $549.

Still, because the phone, which is made of plastic rather than glass and aluminum, is cheaper to make, Apple should be able to boost its profit margin, Milanesi said.

“It’s more about margins and longevity than uplifting their place in the market,” she said. Hayley Tsukayama

Apple’s new strategy is similar to the one it employed as the market for personal computers matured 20 years ago:

More than anything, the mobile device business is starting to look an awful lot like another business with which Apple has more than passing familiarity: The personal computer business circa the early 1990s.

Apple had been the great innovator of the 1980s, with its Macintosh computer (first introduced, famously, in 1984) introducing the mouse-and-windows-driven user interface that has become standard. It offered a first-rate user experience and elegant machines, all at a significant price premium. But by 1990, personal computers with Microsoft operating systems and Intel processors had made great strides catching up. They were still clunkier than Macs in important ways, but were way cheaper, had lots more software options, and were good enough for most people.

In mobile phones, Apple was again the great innovator with its original iPhone, and this time it is Google (with its Android mobile device software) and Samsung in the position of rapidly catching up on quality and beating Apple on price.

In the 1990s, Apple dealt with this somewhat similarly, introducing new models to appeal to families and other budget-strapped consumers (my family’s first computer was the newly released Macintosh Classic for Christmas 1990) while also continuing to sell ultra-expensive high-end models that appealed to those who could afford them.

It didn’t go well for Apple at the time. The company could never get prices low enough to truly be price-competitive with Wintel PC’s. That Mac Classic, to the best of my recollection, cost around $1,300, or around $2,500 in today’s dollars, and had a tiny black-and-white screen at a time similarly priced Windows PC’s offered color. At the same time, the premium market that could pay high prices was by definition a small one.

Later in the ’90s, when Apple, once again with Steve Jobs as CEO, introduced the colorful iMac line as its entry-level, accessible machine, the strategy worked better. But even then, Mac computers remained a niche business at a time that PC sales were starting to level off. Bright colors helped win a battle, but that came after Apple had already lost the PC war.

The lesson for mobile phones in 2013: Market segmentation of the sort Apple is trying can work. But if the company is going to continue its gangbuster growth rate of the last several years, it is probably going to take some genuinely new and innovative product, not just some pretty new colors. Neil Irwin

Alexandra Petri worries that the company is running out of ideas:

I like the fingerprint ID sensor, which sounds like it will have a major advantage over all the bio-ID technology I have used before, on old laptops — namely, it actually works. My prior experience with fingerprint ID is that, to log on, you must sit there for half an hour, angrily stroking the keyboard with your middle finger in a way that makes strangers think the computer has done something to anger you. The new technology sounds promising — perhaps too promising, if you believe the doomsayers who insist that biometric techniques are the Mark of the Beast foretold in the Book of Revelation. But if you are, why are you reading this?

I am not a technology critic, except in the sense that I am also a food critic, which is to say — I like it, I consume a lot of it, and sometimes I wear Google Glass while doing so. So I am worried, based on Apple’s new tendency to offer The Same Things As Before, But In More Colors and Cheaper And With Finger-Swipe ID. I understand that you shouldn’t mess with perfection, except by getting it in a different color. This is the rule on which I base all my sweater purchases. But I expected, well, more from Apple, which used to routinely hold an Annual Big Meeting At Which It Revealed That It Had Discovered How To Turn Straw Into Gold And Turn A Square Of Metal And Plastic Into A Magical Wish-Granting Genie. Loosely speaking. Alexandra Petri

The new phones will be available beginning Sept. 20.

 
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