On Rumors Of A Lower Cost iPhone

The intertubes are buzzing with rumors of a lower-cost iPhone. There’s obviously too much smoke for there not to be fire here, so something is coming out of Cupertino this fall in the phone space. While it has been suggested that Apple is sacrificing profit margins to make this “budget iPhone”, I think that theory has largely been shown the door. None of this, in my opinion, definitively answers the question of why Apple would create a custom-built low-cost iPhone.

My theory? Feature parity.

If you live in the US and wanted to get a $0 iPhone last year you bought the iPhone 3GS on a 2-year term. This means you are still using an iPhone without a Retina Display, without a 4-inch screen, without a front-facing camera, without Bluetooth 4.0. And if you live in Canada it’s even worse, with our 3-year wireless terms.[1]

Put that together with this snippet from Andrew Cunningham’s coverage of Apple’s Q3 2013 earning call:

According to Apple CFO Peter Oppenheimer and CEO Tim Cook, the dip in margins is due in part to strong sales for the iPhone 4 and iPhone 4S, which have lower margins than the high-end iPhone 5.

This all means, of course, that when a new technology or service comes out; Apple’s customers are increasingly not benefitting from that, thus the advantage that comes from being an Apple customer is reduced and fragmentation, which plagues the Android platform, increases for iOS also.

By releasing a new array of hardware from top to bottom with each release cycle Apple can better ensure current and future compatibility[2] as well as faster roll out of marquee features[3].

Additionally — and I’m not putting any money on this — if Apple were to drop back to 18-month release cycles, and it’s customers were to opt for 6-month early upgrades with their carriers, that means Apple could put the newest, best technology in the hands of anyone who was even remotely interested with every single release. And it’s not like that release cycle is unprecedented in the iPhone realm.

  1. Thankfully this is finally ending soon.  ↩

  2. Including the low-end models which have typically fallen off a cliff in terms of compatibility with new OS features.  ↩

  3. Features like Siri — which was withheld to make the top-end iPhone more appealing at the time — not withstanding.  ↩