A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, help and perspective on the tech industry.
In the next few weeks, Apple is most likely to hold an event at which it will certainly announce a brand-new iPhone, which could be called the iPhone SE. This phone is supposed to be smaller sized (in line along with the iPhone 5 models), gained from similar contents to the iPhone 6 collection and feature a few of the same components.
It’s worth thinking through why Apple may wish to release such a phone, and exactly how it’s most likely to suit in to the overall portfolio of iPhones going forward.
Reporting on the phone has actually focused on the bodily appearance, components and specs, yet there hasn’t been any type of durable sourcing on the reasons for the phone to exist or exactly how it will certainly be positioned in the lineup. As such, it’s worth thinking through why Apple may wish to release such a phone, and exactly how it’s most likely to suit in to the overall portfolio of iPhones going forward.
This is one of two devices most likely to be announced this month by Apple where the questions of pricing and positioning are at least as interesting as the devices themselves. The others device is a brand-new mid-sized iPad, which may well inherit the iPad Pro branding from its larger sibling. yet I’ll leave that for an additional time.
Lessons from the iPhone 5c
The iPhone 5c was announced two-and-a-half years ago and was surrounded by a few of the same speculation in advance as the iPhone SE is today. Some speculated the C stood for China, others that it stood for “cheap,” though, of course, Apple never ever confirmed either. Opinions on the 5c vary, and I suspect that lots of see it as a flop for Apple, though I believe that’s wrong. The iPhone 5c did two points for Apple that were pretty valuable: At the pretty least, it served as a helpful experiment, yet I believe it likewise bolstered sales in the quieter spring and summer months as quickly as iPhone sales tend to lag.
Many owners of smaller sized iPhones have actually merely stuck along with them, which has actually likewise dampened iPhone sales over the last year and a half. By introducing a brand-new four-inch phone, Apple is giving those customers a need to upgrade.
By definition, the sort of individuals interested in a 5c were not those that called for the most recent and greatest device when it was available. So it was a fantastic suit for carrier promotions and others marketing activities in the March-August period. Q2 and Q3 sales are frequently off by concerning a third from sales in Q4 and concerning 25 percent from sales in Q1, so boosting sales in this quarter would certainly suggestions even out the seasonal variability.
The iPhone 5c, of course, launched in the standard fall iPhone slot alongside the iPhone 5s, yet this brand-new rumored phone is apparently to be the very first in years to launch outside that window. I suspect the need is that the 5c sold well throughout merely this time of year, as quickly as sales of the flagships were down, and it will certainly suggestions to bolster sales throughout this off-peak period, merely as the 5c did prior to it. If that’s section of the intent, after that why not launch it in to this window, as quickly as it can easily gain the most attention and feel brand-new and different, pretty compared to getting overshadowed by brand-brand-new top-of-the-line phones?
Bringing four-inch iPhones back
When Apple announced the iPhone 6, I wrote concerning exactly how it closed one of the last remaining competitive windows by introducing iPhones along with larger screens. yet in doing so, Apple likewise opened an additional window by discontinuing brand-new four-inch phones at the same time. I believe Apple wanted to sustain its portfolio simple, and was likewise betting that no meaningful competitor would certainly take advantage of that window, so it could safely ignore the four-inch size free of losing those customers to competitors.
However, just what has actually happened is that lots of of those owners of smaller sized iPhones have actually merely stuck along with them, which has actually likewise dampened iPhone sales over the last year and a half. By introducing a brand-new four-inch phone, Apple is giving those customers a need to upgrade. Of course, lots of of those holdouts have actually opted from having the latest-and-greatest device already, so they’re a good suit for the midyear approach I outlined above. Again, this must suggestions to improve Q2 and Q3 iPhone sales significantly.
Pricing and positioning
If that’s the purpose of this brand-new phone, exactly how must Apple rate it, and where must it suit in the iPhone hierarchy? Here is where I believe a lot of the speculation has actually been wrong. As I’ve already said, I suspect this is far a lot more concerning boosting off-season sales compared to it is concerning introducing a brand-new iPhone at a dramatically lower rate point, for example, for emerging markets. As such, I believe we should think of where this brand-new iPhone would certainly suit within the existing iPhone portfolio. Take a consider that portfolio as it stands today from a pricing perspective:
In what’s effectively a three-by-three matrix, Apple has actually several empty spots, notably in the bottom-left corner, where there’s no brand-new four-inch device. That may suggest a launch rate of $550 for the iPhone SE, to slot in neatly along with the others two brand-new phones. This preserves the $100 rate differential between brand-new phones based on size, which makes some sense.
However, there are a couple of reasons to doubt that strategy. For one thing, this brand-new device won’t have actually all the same top-of-the-line specs as the iPhone 6s line, which that pricing would certainly suggest. For another, this device is launching off-cycle and most likely won’t grab a rate discount come September. As such, Apple can easily most likely afford to sell it for less, and doesn’t wish to put it at the same rate point as the year-old 6s in September. For these reasons, I wonder if Apple may bring the SE in at $450 instead, replacing the 5s in the portfolio immediately, pretty compared to waiting until September to lose that device. It would certainly after that most likely continue to be at that rate point until next March, as quickly as it would certainly presumably be replaced by an additional phone similarly positioned, assuming that Apple deems the experiment a success.
What concerning emerging markets?
The big implication of all this is Apple won’t actually extend the bottom end of the rate spread at all along with this brand-new device. In all likelihood, the SE merely takes the place of a device already in the portfolio from a rate perspective. So, just what concerning emerging markets and the should bring prices down there? For those markets, I expect Apple to keep on its existing strategy of selling older phones, yet along with a brand-new wrinkle: Refurbished devices.
For emerging markets, I expect Apple to keep on its existing strategy of selling older phones, yet along with a brand-new wrinkle: Refurbished devices.
One of the biggest complications along with the old-phones strategy for lower rate points is those phones are most likely to continue to be in-market for several years from the time they’re bought. As such, you could easily end up along with five- or six-year-old phones still in-market. While a handful of such phones will certainly constantly continue to be in use, the risk for Apple is these numbers rise dramatically as it pushes this strategy in emerging markets, which could constrain its ability to move iOS and the iPhone platform forward. So it makes sense for Apple to start shortening the lifecycle of these devices, which is section of the rationale for the brand-new strategy evidenced by the SE.
However, the others section of this strategy has actually to be placing a lot more used phones spine on sale. along with the iPhone Upgrade Program, and the Much less high-profile iPhone Trade-in program, Apple now has actually a couple of channels through which to acquire used yet relatively brand-new iPhones that it can easily refurbish and put spine on sale in emerging markets. Apple has actually long sold refurbished devices such as iPods, iPads and Macs through its website, yet it hasn’t done this along with iPhones until now. Most of those devices will certainly have actually been returned or replaced devices for which Apple gets no revenue, and yet they’ve still been discounted by as much as a couple of hundred dollars. along with the iPhone Upgrade Program, Apple will certainly already have actually received about $400 or a lot more in monthly payments after the very first year from a customer, and so could potentially afford to discount these devices more heavily as quickly as resold.
You could see refurbished year-old devices on sale for several hundred dollars Much less compared to retail rate for brand-new devices. That could easily grab those phones below the $450 floor for new, year-old and two-year-old devices. A rate point of $350 for a year-old device appears entirely realistic, and you could even see $250 for a two-year-old device. That suddenly allows the iPhone to hit rate points it has actually never ever been able to hit before, which in turn could make it a lot more viable in markets adore India.
All this would certainly leave us along with a pricing approach that looks roughly adore this after this month’s announcements:
Going forward, I could actually see the yellow box eliminated over time, along with two-year-old devices being replaced from a rate perspective by the refurbished devices and the smaller sized brand-new devices. We undoubtedly can’t be sure concerning any type of of this, yet I’m pretty much looking forward to Apple’s event in the next few weeks and watching exactly how all this plays out.
Jan Dawson is founder and chief analyst at Jackdaw, a technology research and consulting firm focused on the confluence of consumer devices, software, services and connectivity. throughout his 13 years as a technology analyst, Dawson has actually covered every little thing from DSL to LTE, and from policy and regulation to smartphones and tablets. Prior to founding Jackdaw, Dawson worked at Ovum for a number of years, most recently as chief telecoms analyst, responsible for Ovum’s telecoms research agenda globally. Reach him or her @jandawson.