I've thought a lot about what Apple plans on doing next week at the iPhone event. Like others, I too was nervous that a cheaper, plastic iPhone, would cannibalize the more expensive iPhone. I think it will dip into sales, no doubt, but I think both iPhone models will sell extremely well and the decision to sell a cheaper iPhone is a win win for Apple. Let me explain why.
Reasons why Apple will sell a LOT of cheaper iPhones
1. People will buy the cheaper iPhone because people don't care about having a plastic phone. We know this for two reasons. A)Millions of people are buying up Samsung phones which are made of plastic. B)Millions of people buy the iPhone 4S and iPhone 5 and then pay anywhere from $25-$50 to put a plastic case on top of their aluminum phone.
2. People like Apple products that are affordable. Apple sold boat loads of the iPod Nano and made a killing off that product. Apple also sells a lot of entry model MacBook Pros.
3. Kids will beg for the iPhone 5C (Don't trust me on that name, that's just the name everyone is using until next Tuesday). Every kid between 8-16 is going to have this cheaper iPhone on their Christmas list. You can't get a brand new, really cool Android phone for free on contract. Apple is about to introduce a new, colorful, really cool iPhone, free on contract. All those parents who have been using the excuse, "the iPhone is too expensive" are going to have to find a new excuse if they want to continue to stave off the pleadings of their children.*
4. This cheaper iPhone is not going to be a "budget" phone in terms of specs. This is Apple, not Samsung. They refuse to sell crap. There is no way they are going to release a new iPhone with a crappy camera or a processor that isn't capable of keeping up with its new operating system, iOS 7. Bad press on the cheaper iPhone will be bad press for the whole iPhone line and that is something Apple can't afford. It won't be state of the art specs (see below) but it will be a dang good phone.
Reasons why Apple will STILL sell a LOT of the iPhone 5S
1. People like having really nice Apple products. Having worked at Apple for 2 1/2 years, I saw lots of people plunk down lots of cheddar for a machine or device that was way more than they needed. I would try to reckon with them but sometimes people just "need" the fastest process, better/bigger screen, or more storage capacity. "Need" is a very relative term. Don't underestimate people's desire for the best and the iPhone 5S will be the best.
2. People like having a phone with state of the art specs. The camera alone will make some people, who may have been willing to consider the cheaper iPhone, opt for the more expensive iPhone in the end. Take my wife for example. I told her about what I believe the cheaper, colorful iPhone will be like and she said, "Oh, I'd just get that one." Then I said, "Well, the camera is going to be quite a bit better on the more expensive iPhone" to which she responded, "Oh, never mind!" Having a good camera on your smartphone matters and the iPhone 5S will arguably have the best in the world.
3. People like having a phone with state of the art specs part 2. The iPhone 5S will have a distinguishing feature, like a fingerprint scanner, that will set it apart from the cheaper iPhone. Apple will do a very good job at marketing this feature and making it very desirable. Having a faster processor is also going to be something people will want. I like to call this future proofing your device.
4. More storage capacity. This is going to be a real kicker. There are lots of people that want 32 or 64 GB of storage on their iPhones. Apple will intentionally not offer the cheaper iPhone with more than 16GB. So some may have been willing to consider the cheaper iPhone but they aren't willing to part with the storage and will opt for the more expensive iPhone. For these people, this will be a $300 jump in price. Steep, but worth it to many.
5. $200 is not expensive. The U.S. market is built on the backs of subsidies. Heck, I would say that somewhere between 50-70% of consumers don't even realize their iPhone is NOT really a $200 device but is actually a $650 device. They understand that they can only get a new iPhone every 24 months but they don't understand why. These subsidies, whether you like them or not, allow consumers to get a high end product like the iPhone 5S at a very affordable $200. $200 for some is a lot of money but for most, especially those paying over $100 a month for the cellular service, $200 is not a lot.
*You argue, "Apple already sells a free iPhone Juice, did you forget the iPhone 4!?" No. I didn't. However, let's be honest, no kid is dying to have the iPhone 4. It is a 3 year old phone. It is really a shame that it is still sold because of how slow it is, not to mention only 8GB of storage and a terrible camera. Selling a BRAND NEW iPhone in an array of different colors is very different from selling a 3 year old product. Kids will go crazy over the new iPhone.
Coming soon I will discuss China and T-Mobile and how the iPhone will affect both.
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