Interesting analysis by Dediu as usual (I'm a big fan and listen to his podcast regularly). I think a lot of people (including Horace and yours truly) are surprised by the 5C pricing strategy -- it's not 5C(heap) but 5C(olor). I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. (A matter of taste, of course.) If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me.
It's notable there's no black (or 'slate') 5C. I guess if one wants a more 'dignified' (again, a matter of taste) one has to go 5S.
I commend to all the interesting Steve Jobs quote found at the end of the comment by markwilcox:
"What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share." - Steve Jobs.
As a long-time Apple fan and former shareholder I'll be very interested to see how this pans out.
One of the things people always forget is Apple's brand. The best place to see this exemplified is Ginza, Tokyo where the store is right next to Louis Vuitton, Prada, Chanel etc. It sees itself as a premium, fashionable brand.
Pricing it low would have the effect of short term financial gain but at the expense of commoditising the iPhone's brand. Which would make people far less willing to spend the extra money on the 5S (which has the larger margins).
Notice that Jobs didn't say "companies should always make rational profits and go for market share". Under Jobs, the first several generations of iPhone were exceptional for how much market share they left on the table by being exclusive to a single carrier in many major markets.
> I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. (A matter of taste, of course.) If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me.
I genuinely think this opinion might be the result of a filter bubble or its "real life" equivalent. I don't care for the bright colors personally, but I think the white 5c looks excellent (a black one would be even better). I still prefer the metal casing (plus the tech specs are important to me), so I'll choose the 5s if I decide to upgrade, but I can absolutely understand why a huge portion of potential buyers would prefer the plastic case, especially people who aren't particularly concerned with having the most blazing new chip or the fingerprint sensor. In fact, even among gadget geeks, I can see many choosing the plastic design specifically because it is plastic. I have heard a lot of disappointment about the fragility of metal iPhones since the debut of the iPhone 4.
He didnt really follow the essence of that quote with NeXT then, did he ?
Which means, going for market share makes sense for some companies, but not for all of them. Imo competing in the lower end of the market isnt going to do them nor their brand much good. Their focus on the premium segment seems to still be the right directio to me.
I have 0 knowledge in business world and how things work but wasn't Jobs basically Apple itself? Even if he does not have single-handedly vote percentage to make things reality for Apple, his reputation is not enough to force things?
"Apple is recognizing that the market is actually “segmentable”. This is the notion that one size does not fit all–a radical idea for the brand."
Apple has always had products for higher end and lower end markets as soon as that product becomes established. iPod video (I know that's not the formal name) came out at roughly the same time as the Nano and shuffle. MacBook Pro had MacBook. iPad and iPad mini. Mac Pro and iMac. This isn't new, it's just the first time it's been so deliberate and noticeable.
> This is the notion that one size does not fit all–a radical idea for the brand.
It's hardly even that though, at least relative to the product lineups of competitors. For one, the size itself is virtually identical. As the author mentions, the 5c differs very little from the 5 apart from the plastic colorful case. Apple could reasonably maintain to assert the philosophy of "one size fits all," because the form factor and feature set of all their models are still virtually identical, just like they were before the introduction of the 5c.
Also, "iPod Video" actually was the formal name used for the fifth-generation iPod.
The iPhone 5 has become relatively less stale in the total mobile phone market compared to what the iPhone 4/4S became. The current model of the phone can still compete, it's good enough. Apple recognizes this, but also knows that it needs to innovate to keep its early adopters happy. And so they split their product to tailor to these two market segments -- those who need innovation, and those who would be perfectly happy with the current specs. These two market segments do not differ greatly in their purchasing power. Splitting the product wasn't to create a mid-tier and high-tier phone for the respective price points. It was a targeted refresh of the product for two equally valuable market segments.
I suspect that as the mobile phone landscape changes, the iPhone 5C will begin feeling more obsolete, and it will then be relegated to the level of n-1 offering, and all attention will then go to the iPhone 6, which should presumably be a huge leap in innovation and design.
To me, what this looks like is a final submission by Apple to the economics of their own supply-chain.
Apple has never been able to make enough iPhones of each successive generation for people to get their hands on during the first few months after release. Whereas, once they've ramped up production, they tend to have all these parts left over in the pipeline[1] that they have to sell off as N-1 gen hardware to price-sensitive late adopters. (This is also why the iPod Touch was originally created, to serve as a sink for N-2-gen parts.)
Now, Apple are trying to shift the purchase frenzy to the N-1 gen, and position their new gen-N tech -- whose production hasn't yet been ramped up -- as something for early-adopters only. In other words, to switch from an (N-1, N) view of the world, to an (N, N+1) view.
Everything in the S will filter down to the C of the next gen. They'll get their pipelines saturated with 5S parts just in time to wrap them in plastic and call them 6C parts. As long as more people buy Cs than Ss, this works out perfectly.
---
[1] By "in the pipeline", I mean the more general "economically incentivized to produce units of, instead of units of the new model, by contractual obligations to factories, training costs of factory workers, etc." Apple actually keeps their literal pipeline of hardware-produced-but-not-yet-shipped-as-a-product quite low.
> The current model of the phone can still compete, it's good enough.
Screen sizing is the only place the iPhone might show weakness. Apple is holding the line on smaller phones... we'll see if it continues to work out for them.
This is classic innovators dilemma. Apple cannot release a true low-end, mid-range, or even "low high-end" phone because it risks eating into the iPhone's legendary profit margins.
Smartphones are becoming cheaper; Apple cannot hang on to the iPhone's profit margins forever. As it ignores the trend it risks creating a generation of smartphone users not in the Apple ecosystem. It's happening right now.
Such a big deal is being made of this initial pricing strategy for the 5C when it's really such a transient situation.
Apple is going in with a high price on the 5C to keep the brand solid and scoop up profits from early adopters who will just have to have the latest pretty colored iPhone.
My guess is that the 5C's price will erode much faster than the 5S. Apple will do its best to balance the mix to ensure that the product is sold and out there.
This is exactly what I came here to say. This is another case of Apple skating to where the puck is going to be in maybe 2 or 3 years time.
There is no point in Apple introducing a brand new truly low cost iPhone because such a device would by necessity only be in the market for a short time before it would get obsoleted. The 5C is set to be manufactured for the next 3 years, so they will extract maximum scale effects and maximum sales volume over the lifetime of the device.
The 'C' may well stand for 'Cheap', but not now. It stands for where it will be positioned over it's lifetime. Other manufacturers bring out a new device and only care about it for maybe 6 months, after which they're on to the new thing and ready to forget the old one ever existed. Apple thinks really long term about their device's full economic life cycle.
For example the iPad Mini was criticism for being too expensive, but that was taking a short term view. I fully expect the current mini to continue to be manufactured at a lower price point for another year, cutting off the air supply to the cut price Android tablet market, but Apple is in no hurry to get to that point.
I disagree. Apple traditionally doesn't budge very far from the price points they establish. When the MacBook is getting long in the tooth, they would rather replace it with a model refresh than let the price sink.
IMO what we're seeing is only relevant in the developed world. The 5C is being priced as the slightly-cheaper-but-not-by-much alternative to the 5S. But this isn't why the 5C exists - IMO the 5C exists largely because of the developing world, where Apple has the freedom to separate the price points by a much wider gap than in the US/EU.
I'd expect that the 5C-5S price difference to be much more dramatic in China than in the US.
The article text states the exact opposite of its own headline:
“Under the old model the n-1 variant was meant to be a modest volume contributor to the portfolio, being essentially a cognitive illusion which encouraged buyers to stick with iPhone n at the expense of competitors. However, the new n-1 product (the 5C) has a distinct positioning that makes it seem fresh and not a lesser, stale version of the flagship. It is designed to appeal as a legitimate upgrade for iPhone 4/4S users. It is, in other words, _not_ meant as an illusion, and not focusing attention on the flagship[3]. Rather, it is meant to be a genuine, core product.”
IOW, the iPhone 4 vs 4S was cognitive illusion, the iPhone 5C vs 5S is not cognitive illusion. So, C is not for Cognitive Illusion.
I think the reading was that this model is to address the old cognitive illusion. That is, the old n-1 model rested on a cognitive illusion to work. The argument here is that this model is to take that place. (Make sense?)
Obviously Apple is trying to turn the iPhone 5C into the plastic Macbook of 2006 - the best-selling laptop ever.
The MacBook was also more expensive than the competition, however consumers (even students) paid up.
Arguably the price difference wasn't as extreme, but I'd be surprised if Apple didn't lower the price to $499 or less, and announce a white+black models of 5C very soon.
However, I'd argue that the main reason consumers bought the Macbook was not the Apple brand, but the vast gap between OS X and Windows XP. They bought into the operating system, and that's what drove sales of other Apple products from then on, because after all, that iPhone/iPod works better with a Mac.
Fast-forward to now, Apple's competitor isn't MS Windows. It's Android, which doesn't cost a premium the way Windows did, and is arguably not inferior to iOS.
OS X was more "open" compared to Windows, and not just due to its Unix underpinnings. It didn't come with pre-packaged software and DRM restrictions, but it did come with better software. It didn't force you to consume content the Microsoft way, it embraced developers creating great apps like VLC without charging them.
No more. iOS is a walled garden, even more so than Windows ever was. Sure Google isn't a saint in that regard, and yet Android encourages competition. It has no issue with Amazon's Kindle app selling e-books. It has no issue with developers writing apps to replace "core functions". It knows that selling 10 units with a 10% margin is better than selling 1 unit with a 20% margin. It's thinking long-term.
I still love Apple for its design and attention to product detail, but if their greed and hubris continues to escalate, history may just repeat itself.
Why is nobody talking about the camera improvements, the speed improvements, and the fact that this is the first 64 bit phone? The improvements to the 5S are actually dramatic, you just can't see them yet.
As Hacker News users we can all consider ourselves in the top N percent for technology product interest, so the iPhone 5C seems weird to us. It's plastic? It's how much? In those colours? With those specs? I was talking to my girlfriend and some friends who are distinctly not interested in the wonderful world of tech and to them the iPhone 5C does genuinely seem fresh (although pricing was a bit split). Apple's positioning the device to recapture the interest of a market who's been saturated with many devices.
I consider myself in that same top N percent for technology product interest, but I'm not at all confused about the 5c. Most smartphones, even flagship smartphones, are plastic, and some have spectacular build quality. The price is extremely competitive. I think the only complaints about price are influenced by the rumor that the 5c would be the free subsidized tier. Ignoring that and looking at the 5c on its own terms, it's certainly a competitive $100 subsidized phone.
Wouldn't pricing a new iPhone (regardless of version) too low have a negative effect on the perceived value?
If the iPhone 5C had the same core components as the 5S I would get it instead because the plastic is probably more durable and I'd like a colorful device as a change of pace from the white and silver Apple products I own currently.
A small point that's usually overlooked: assuming you're on AT&T, there's a ~$35 upgrade fee, $30 for a case, sales tax, and maybe an extra charging cable or other accessory. A $99 phone is more like $200 for the average person, so the comparison should be closer to $200 vs $300 rather than $100 vs $200.
You're not required to buy a case and accessories at the AT&T store. If someone is price conscious, they will know they can get it cheaper elsewhere. And I suspect a lot of people won't put cases on them since the shell is plastic and the color of the phone is a selling point.
Could just be a sales strategy. "The 5C looks tacky, the 5S looks much better and is only $100 more expensive!" And teenagers will probably go for the 5C, breeding a new generation that likes tacky smooth glossy plastic in bright pastel colors.
I actually think the colored iPhones look nice; I'm tired of carrying around a phone that looks like it was designed for a lawyer or a wall-street jerk.
And the 5S might have an amazing camera, but otherwise I don't see why I'm supposed to want it.
I think this opens them up to new experimentation at the top of the market. The 5C becomes the everyday model that suits the average consumer. The 5S will become the experimental super phone. Following on from this I would not be at all surprised to see a larger screen phone join the 5S as a high end lower volume model for those who can afford/want it.
Is it possible that Apple will settle for lower market share as long as they retain a majority of the profits? I mean look at the PC market where Apple sells relatively few units but controls nearly half of the profit. What does it matter if you only control 10% of the market if you control 90% of the profit in the long run.
Of course the issue in this argument is the App store. You could argue that by building a huge user base could allow you to shift your profits from hardware to software in the long run.
Agree that the purpose of the 5C is to keep margins up rather than grow market share.
The interesting relationship isn't between the price of the 5C and the 5S, it's between the price of the 4S and 5C. It seems to be targeting people who would have bought a 4S, not people who wouldn't have bought an iPhone at all.
Interesting analysis.
This shift in the number of flagship products might also give a fresh start to the brand in the mind of iPhone users. Now that everybody has an iPhone, "Think different" might regain some credibility if you start using the new, more than good enough iPhone 5S.
Not really strange at all that the specs don't differ much besides the case. Apple has always done this. Make a minor change like flash memory size, and charge a heck of a lot more for the higher end version than the difference actually costs to produce. They retain an easy to develop for ecosystem by not having much difference and gain economies of scale on production. Whoever this is doesn't really know much about the computer industry. He probably doesn't even realize desktop processors are often produced as one model and cheaper ones just clocked down to create artificial differences which retaining efficiencies of only having to make one thing.
Actually, Horace Dediu is a pretty well respected writer who does know what he's talking about. Go read some of his past posts, they're pretty insightful.
[+] [-] Cbasedlifeform|12 years ago|reply
It's notable there's no black (or 'slate') 5C. I guess if one wants a more 'dignified' (again, a matter of taste) one has to go 5S.
I commend to all the interesting Steve Jobs quote found at the end of the comment by markwilcox:
"What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share." - Steve Jobs.
As a long-time Apple fan and former shareholder I'll be very interested to see how this pans out.
[+] [-] threeseed|12 years ago|reply
Pricing it low would have the effect of short term financial gain but at the expense of commoditising the iPhone's brand. Which would make people far less willing to spend the extra money on the 5S (which has the larger margins).
[+] [-] saturdaysaint|12 years ago|reply
[+] [-] coldtea|12 years ago|reply
That's a western male perspective. In Asia (including India), adults will jump to get those colors. (And women in the West too).
[+] [-] baddox|12 years ago|reply
I genuinely think this opinion might be the result of a filter bubble or its "real life" equivalent. I don't care for the bright colors personally, but I think the white 5c looks excellent (a black one would be even better). I still prefer the metal casing (plus the tech specs are important to me), so I'll choose the 5s if I decide to upgrade, but I can absolutely understand why a huge portion of potential buyers would prefer the plastic case, especially people who aren't particularly concerned with having the most blazing new chip or the fingerprint sensor. In fact, even among gadget geeks, I can see many choosing the plastic design specifically because it is plastic. I have heard a lot of disappointment about the fragility of metal iPhones since the debut of the iPhone 4.
[+] [-] pohl|12 years ago|reply
Conjecture: these will be the free-with-contract phones next year, and something else will occupy the $100 slot.
[+] [-] kayoone|12 years ago|reply
[+] [-] kunil|12 years ago|reply
[+] [-] juandopazo|12 years ago|reply
[+] [-] austenallred|12 years ago|reply
Apple has always had products for higher end and lower end markets as soon as that product becomes established. iPod video (I know that's not the formal name) came out at roughly the same time as the Nano and shuffle. MacBook Pro had MacBook. iPad and iPad mini. Mac Pro and iMac. This isn't new, it's just the first time it's been so deliberate and noticeable.
[+] [-] JimmaDaRustla|12 years ago|reply
[+] [-] baddox|12 years ago|reply
It's hardly even that though, at least relative to the product lineups of competitors. For one, the size itself is virtually identical. As the author mentions, the 5c differs very little from the 5 apart from the plastic colorful case. Apple could reasonably maintain to assert the philosophy of "one size fits all," because the form factor and feature set of all their models are still virtually identical, just like they were before the introduction of the 5c.
Also, "iPod Video" actually was the formal name used for the fifth-generation iPod.
[+] [-] kyro|12 years ago|reply
I suspect that as the mobile phone landscape changes, the iPhone 5C will begin feeling more obsolete, and it will then be relegated to the level of n-1 offering, and all attention will then go to the iPhone 6, which should presumably be a huge leap in innovation and design.
[+] [-] derefr|12 years ago|reply
Apple has never been able to make enough iPhones of each successive generation for people to get their hands on during the first few months after release. Whereas, once they've ramped up production, they tend to have all these parts left over in the pipeline[1] that they have to sell off as N-1 gen hardware to price-sensitive late adopters. (This is also why the iPod Touch was originally created, to serve as a sink for N-2-gen parts.)
Now, Apple are trying to shift the purchase frenzy to the N-1 gen, and position their new gen-N tech -- whose production hasn't yet been ramped up -- as something for early-adopters only. In other words, to switch from an (N-1, N) view of the world, to an (N, N+1) view.
Everything in the S will filter down to the C of the next gen. They'll get their pipelines saturated with 5S parts just in time to wrap them in plastic and call them 6C parts. As long as more people buy Cs than Ss, this works out perfectly.
---
[1] By "in the pipeline", I mean the more general "economically incentivized to produce units of, instead of units of the new model, by contractual obligations to factories, training costs of factory workers, etc." Apple actually keeps their literal pipeline of hardware-produced-but-not-yet-shipped-as-a-product quite low.
[+] [-] smackfu|12 years ago|reply
Screen sizing is the only place the iPhone might show weakness. Apple is holding the line on smaller phones... we'll see if it continues to work out for them.
[+] [-] Touche|12 years ago|reply
Smartphones are becoming cheaper; Apple cannot hang on to the iPhone's profit margins forever. As it ignores the trend it risks creating a generation of smartphone users not in the Apple ecosystem. It's happening right now.
[+] [-] crusso|12 years ago|reply
Apple is going in with a high price on the 5C to keep the brand solid and scoop up profits from early adopters who will just have to have the latest pretty colored iPhone.
My guess is that the 5C's price will erode much faster than the 5S. Apple will do its best to balance the mix to ensure that the product is sold and out there.
[+] [-] simonh|12 years ago|reply
There is no point in Apple introducing a brand new truly low cost iPhone because such a device would by necessity only be in the market for a short time before it would get obsoleted. The 5C is set to be manufactured for the next 3 years, so they will extract maximum scale effects and maximum sales volume over the lifetime of the device.
The 'C' may well stand for 'Cheap', but not now. It stands for where it will be positioned over it's lifetime. Other manufacturers bring out a new device and only care about it for maybe 6 months, after which they're on to the new thing and ready to forget the old one ever existed. Apple thinks really long term about their device's full economic life cycle.
For example the iPad Mini was criticism for being too expensive, but that was taking a short term view. I fully expect the current mini to continue to be manufactured at a lower price point for another year, cutting off the air supply to the cut price Android tablet market, but Apple is in no hurry to get to that point.
[+] [-] potatolicious|12 years ago|reply
IMO what we're seeing is only relevant in the developed world. The 5C is being priced as the slightly-cheaper-but-not-by-much alternative to the 5S. But this isn't why the 5C exists - IMO the 5C exists largely because of the developing world, where Apple has the freedom to separate the price points by a much wider gap than in the US/EU.
I'd expect that the 5C-5S price difference to be much more dramatic in China than in the US.
[+] [-] Terretta|12 years ago|reply
“Under the old model the n-1 variant was meant to be a modest volume contributor to the portfolio, being essentially a cognitive illusion which encouraged buyers to stick with iPhone n at the expense of competitors. However, the new n-1 product (the 5C) has a distinct positioning that makes it seem fresh and not a lesser, stale version of the flagship. It is designed to appeal as a legitimate upgrade for iPhone 4/4S users. It is, in other words, _not_ meant as an illusion, and not focusing attention on the flagship[3]. Rather, it is meant to be a genuine, core product.”
IOW, the iPhone 4 vs 4S was cognitive illusion, the iPhone 5C vs 5S is not cognitive illusion. So, C is not for Cognitive Illusion.
Opposite headline is better link bait, though.
[+] [-] taeric|12 years ago|reply
[+] [-] superuser2|12 years ago|reply
[+] [-] akrymski|12 years ago|reply
The MacBook was also more expensive than the competition, however consumers (even students) paid up.
Arguably the price difference wasn't as extreme, but I'd be surprised if Apple didn't lower the price to $499 or less, and announce a white+black models of 5C very soon.
However, I'd argue that the main reason consumers bought the Macbook was not the Apple brand, but the vast gap between OS X and Windows XP. They bought into the operating system, and that's what drove sales of other Apple products from then on, because after all, that iPhone/iPod works better with a Mac.
Fast-forward to now, Apple's competitor isn't MS Windows. It's Android, which doesn't cost a premium the way Windows did, and is arguably not inferior to iOS.
OS X was more "open" compared to Windows, and not just due to its Unix underpinnings. It didn't come with pre-packaged software and DRM restrictions, but it did come with better software. It didn't force you to consume content the Microsoft way, it embraced developers creating great apps like VLC without charging them.
No more. iOS is a walled garden, even more so than Windows ever was. Sure Google isn't a saint in that regard, and yet Android encourages competition. It has no issue with Amazon's Kindle app selling e-books. It has no issue with developers writing apps to replace "core functions". It knows that selling 10 units with a 10% margin is better than selling 1 unit with a 20% margin. It's thinking long-term.
I still love Apple for its design and attention to product detail, but if their greed and hubris continues to escalate, history may just repeat itself.
[+] [-] hacknat|12 years ago|reply
[+] [-] timdellinger|12 years ago|reply
[+] [-] nicholassmith|12 years ago|reply
[+] [-] baddox|12 years ago|reply
[+] [-] JTon|12 years ago|reply
[+] [-] weisser|12 years ago|reply
If the iPhone 5C had the same core components as the 5S I would get it instead because the plastic is probably more durable and I'd like a colorful device as a change of pace from the white and silver Apple products I own currently.
[+] [-] whichdan|12 years ago|reply
[+] [-] joonix|12 years ago|reply
[+] [-] Cthulhu_|12 years ago|reply
[+] [-] jes5199|12 years ago|reply
And the 5S might have an amazing camera, but otherwise I don't see why I'm supposed to want it.
[+] [-] iwasakabukiman|12 years ago|reply
[+] [-] colinm|12 years ago|reply
[+] [-] CmonDev|12 years ago|reply
[+] [-] freakyterrorist|12 years ago|reply
[+] [-] zeckalpha|12 years ago|reply
[+] [-] threeseed|12 years ago|reply
It is a deliberate move and the key is now to understand why they did it.
[+] [-] ckayatek|12 years ago|reply
Of course the issue in this argument is the App store. You could argue that by building a huge user base could allow you to shift your profits from hardware to software in the long run.
[+] [-] chrisdevereux|12 years ago|reply
The interesting relationship isn't between the price of the 5C and the 5S, it's between the price of the 4S and 5C. It seems to be targeting people who would have bought a 4S, not people who wouldn't have bought an iPhone at all.
[+] [-] pioul|12 years ago|reply
[+] [-] lnanek2|12 years ago|reply
[+] [-] iwasakabukiman|12 years ago|reply
[+] [-] mpg33|12 years ago|reply