On Rumors Of A Lower Cost iPhone

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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.  ↩

Gang-Jumped By Paid App Upgrades

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Gedeon Maheux:

Perhaps a better way to answer the question might be, how willing would you be to re-purchase your favorite apps if they are optimized for iOS 7? Look at your device’s home screen and go down the list of apps you use most and ask yourself if you could live without it once you upgrade. I think that most users (at least those that matter to developers) would answer that they would gladly pay again if it means having the latest and greatest version of their favorite apps, at least I would hope so.

If I take a quick look at my home screen I’ll find:

  • Byword (with IAP) - $10
  • Craigslist - $2
  • Downcast - $2
  • Felix - $3
  • Reeder - $5
  • SkyMotion - $3
  • Tweetbot - $9
  • 1Password Pro - $14
  • Assorted games ~$30

Each of those apps was well worth the money and I use most of them daily (Reeder is more of an addiction than an app). But if all of those developers just on the iOS 7-is-the-time-to-release-a-paid-upgrade train then I’m out almost $80. That inches closer to $100 if you count my second page apps. Each on their own in worth the money, but all of them together would break the bank.

I believe in paying for good software, really I do, but I’d appreciate if all the devs of apps I use didn’t take advantage of the new iOS launch to make my entire phone out of date.

Overpaying For Mobile

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Eric Silvka posted an article today talking about how US carriers are gouging their mobile customers with their upgrade programs, then concludes with the following paragraph:

In all cases, customers would seem to be able to save some money by purchasing a contract-free phone upfront for $650 and then reselling it on their own terms whenever they wish to upgrade, almost certainly saving hundreds of dollars in the process.

You think this is bad? You should see what Canadian wireless carriers have been getting away with for years[1] — the CRTC is finally reigning them in this December, though.

  1. And keep in mind, those prices are on 3-year terms. I bought my iPhone 3G on a 3-year term and still paid $199 for it. I actually called my service provider — Fido and asked why I was paying the same subsidy as Americans who are on 2-year terms. I was told that Apple mandated those contract lengths. So I called Apple, they told me my carrier was a liar. Armed with that information I called Fido back and told them what Apple said to me. Then I was informed that it was, in fact, Fido themselves who set the contract lengths. When I recovered from the shock I asked for the number to the corporate headquarters so I could ask someone about why 3-year terms were necessary — the CSRs have no access to any such number and it’s not on their website, just an email address. I took it upon myself to email them daily for about two months… no reply. I gave up. With 6 months left on my contract I lined up on launch day for a brand new iPhone 4S (that’s right my early upgrade from my iPhone 3G was a 4S). After signing my contract and coming home I got my confirmation email. Turns out I did not extend my contract to 3 years, I extended it by 3 years! Meaning my contract is up in April of 2015. 2015! I signed a 3.5-year contract to get an iPhone 4S 6 months early. Absolutely incredible.  ↩

The App Store's Upgrade Model

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Federico Viticci today pointed to Apple’s brand-spanking-new[1] Logic Pro X’s price and took it as “another data point” when trying to figure out what Apple intends — and intends others — to do about the App Stores’ upgrade model. I agree entirely, but what was more interesting to me was the article he linked to from last year by Gabe Glick:

Developers and longtime computer users may be used to the shareware, time trial, pay-full-price-once-upgrade-cheaply-forever model of buying and selling software, but regular people, the mass market that Apple continues to court first and foremost, aren’t. Adding demos (“I thought this app was free, but now it’s telling me I have to pay to keep using it? What a ripoff!”) and paid upgrades (“Wait, I bought this app last year and now I have to pay again to keep using it? Screw that!”) would introduce a layer of confusion and make buying an app a more arduous process, which would result in people buying fewer apps.

Gabe goes on to contend that the above are, he speculates, Apple’s motives. I disagree. The objections put forward seem unlikely to me.

“I thought this app was free, but now it’s telling me I have to pay to keep using it? What a ripoff!”

This first theorized objection is the stronger of the two in my mind. But, the iBookstore allows Samples. That model seems to be working for iBooks, I’m sure if Apple allowed App Store demos that would encourage people to try out more apps — possibly even more expensive apps — which might lead to more sales, and maybe even stem the race to the bottom.

“Wait, I bought this app last year and now I have to pay again to keep using it? Screw that!”

Anyone who has ever bought computer software knows that when you get new software (upgrade or otherwise) you need to pay for it. And besides, you don’t have to upgrade — you can keep using what you’ve been using, no extra charge. I think the real issue is support and bug-fixes for older software. That — it seems — would become a thing of the past.

Let me be clear — I don’t mean to say anything negative against Gabe or his piece for Macstories. He’s trying to come up with a theory as to why Apple is not giving developers the opportunity to offer an easy paid upgrade or trial mechanism in the App Store. The reasons, to me, are as opaque as the approval process of the App Store itself. It seems, at least to this observer, that Apple just doesn’t care — they don’t make their real money off software anyway.

  1. And totally GAS-inducing.  ↩

Apple's Manifesto

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Apple’s new ‘Designed By Apple’[1] and ‘Our Signature’ ads are garnering a lot of attention — in both positive and negative[2] lights. But what I think people have largely overlooked since John Moltz pointed out that Samsung is/was a client of Ace Metrix (The source often cited when deriding Apple’s latest ads), is that these new spots harken back to Apple’s ‘Here’s To The Crazy Ones’ ad from the late 90s.

Lee Clow, the big dog at Apple’s advertising agency, recently said — rather off-handedly — that “Crazy Ones” was made to ‘buy time’ between Jobs’ re-arrival and the iMac[3], but I sincerely doubt that’s the whole story.

I believe the entire ‘Think Different’ campaign was a manifesto; an anthem; a rallying cry. Apple had rediscovered itself. It had dusted off its original identity and it wanted to let everyone know. It wasn’t just for Apple as so many have claimed — it was also for it’s customers. Apple wanted to let people know that they shouldn’t listen to all the negativity, that good things were coming, and that those things would be decidedly different[4].

I believe these new ads serve the same function. With every two-bit “analyst” crawling out of the woodwork to talk about how Apple is losing it’s cool, or waining in public support, or that innovation at Apple is dead since the death of founder and resurrector, Steve Jobs, it has become time once again to rally the troops.

This is Tim Cook’s Apple. And while it may not have some of Jobs’ alleged design tendencies, it still believes those things it clung to in the late 90s when death was knocking at the door. Apple doesn’t ship a product just for the sake of shipping it[5] — each product has a purpose, it fills a need. And Apple will not be rushed to market before it’s ready. And Apple’s string of successes seem to indicate that they know what they’re doing.

I, for one, love the ads and am excited for the fall.

  1. Apple seems to be drawing a lot of heat about their claim that these products are “Designed by Apple in California” — as though they are trying to draw attention away from their place of manufacture. And while I’ve no doubt that Apple would be pleased if these ads reminded people that much of what they do does not take advantage of China’s manufacturing prowess, I think the emphasis is all wrong. Jason Zimdars put it very well in a piece he wrote back in 2010 (emphasis his):

    [I]t wasn’t “Made by Apple in California,” it was Designed. I can’t think of another company that holds design in higher esteem or even one that touts every product as designed, not made. This might be the best expression of the company’s mission available. ↩

  2. A lot of people are basing their conclusion that these ads are a ‘flop’ on a report by Ace Metrix, a company that numbers Samsung among their clients. ↩
  3. And OS X. ↩
  4. And not just different for different’s sake. Apple took a radical approach to make computers into functionally integrated, simple, and beautiful appliances — in terms of hardware and software. ↩
  5. iPod Socks not withstanding. ↩

Making Life Better

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Sarah Hampson recently castigated Apple for subtly insinuating that “iPhones [are] the meaning of life” in it’s latest TV spots, Our Signature and Designed By Apple. Before making her ‘meaning of life’ and hubris claims Hampson quotes this portion of the Designed By Apple ad:

Who will it help?

Will it make life better?

Does it deserve to exist?

We spend a lot of time on a few great things until every idea we touch enhances each life it touches.

Now The Macalope already had his mythical way with this piece, but I just wanted to add an additional comment about this article and these commercials.

Apple does strive to make my life better through technology. Not to infiltrate, but to enhance. If I let technology get in the way of my life that’s no more Apple’s fault than it’s beer’s fault someone becomes an alcoholic. I need to own that part.

But my Apple computers let me connect with family and friends via the internet on a platform that never crashes and doesn’t pester me to update constantly. My Airport wireless router allows me to do so wirelessly, without worrying about where the nearest ethernet jack is. My Apple TV lets me wind down with my favourite TV programs on demand, and after that program is over my Photo Stream screensaver kicks in and shows me photo after photo of my infant son. Dozens of times my wife and I will just sit and reminisce over our family photos until the Apple TV turns itself off. My iPad enables me to play games with my wife and quickly plan and print set lists for when I’m invited to lead worship for a church or youth group. And my iPhone — probably my favourite of the bunch. Not just for quick information or interactive maps-in-my-pocket as the Macalope suggests, but because I know I have a decent camera (photo and 1080p HD video) in my pocket at all times, which lets me capture moments like this video of my son giggling with his mom on film and keep them forever.

Apple is constantly trying to make technology more transparent. To get it out of the way and allow what it can do, not what it is to shine through. If that’s not making one’s life better, I honestly don’t know what is.

Premium Experiences

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It is very clear to anyone with even a cursory knowledge of Apple’s workings that they believe iCloud is the lynchpin of their future success (and that ‘cloud computing’ is the future of computing in general). I would be hard-pressed to disagree. This seems to have been obvious to Steve Jobs since around the early 90s.

You can tell because Apple created an internet-first operating system with Mac OS X[1] in tandem with its first cloud effort — iTools.

At WWDC 2002 Apple officially end-of-life’d Mac OS 9 by holding a mock funeral[2] and one month later at Macworld New York they transformed iTools into .Mac, which would become MobileMe and eventually iCloud.

I believe that the dream was always to have the setup Jobs described during his 1997 WWDC Q&A session. That’s what iCloud aspires to be. All your stuff, everywhere, all the time. Whether on a PC or a post-PC.

But then I got this email from Apple:

Your iCloud storage is full. As a reminder, when you exceed your storage plan your devices can no longer back up or save documents to iCloud.

You will continue to receive email for a limited time, but if you do not free up space or upgrade your storage plan soon, you will no longer be able to send or receive new messages with your iCloud email address.

Okay, I’ll have to figure out how to go about addressing this issue (they do link to a kb article). But then, just 60 seconds later I received this message from Apple:

You have now exceeded your iCloud storage, including an additional amount provided to allow you to continue receiving email. As a result, you will not be able to send or receive new email messages with your iCloud email address until you free up storage space or buy more storage.

Now for something that’s supposed to “just work” this is quite a message to receive. I have an iPhone, an iPad, and some Documents in the Cloud — just what Apple expects the average user will have — users like our parents and/or technologically disadvantaged friends.[3]

For something that requires immediate and decisive intervention it should be brain-dead simple to do, but based on the number of how-to articles out there it clearly is not.

Apple needs to take the necessary steps to correct this or it will lead to unhappy and confused customers — who cannot send email — trying to make heads or tails of what is in their iCloud storage and what they can do to correct the situation. I’m not offering any answers or solutions, but for a premium brand — which I believe Apple is — this is decidedly not a premium experience.

  1. Based on Steve’s work on NeXTSTEP in the 80s and early 90s. It was incredible to see how OS X-like it was.  ↩

  2. Maybe that’s what Microsoft was hoping for when they tried the same thing with the iPhone.  ↩

  3. You have no idea how many times I’ve explained to someone how to get mail messages older than 3 days back in their iOS inbox, or events older than 3 months in the iOS Calendar. 3 months isn’t so bad, but 3 days, really? What possible reason would anyone have for making that the default?  ↩

iBooks & Price-Fixing

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Justice Denise L. Cote, in her recent ruling on Apple's eBook price-fixing trial:

The agency model presented one significant problem. Apple wanted its iBookstore to be a rousing success. For that to happen, Apple needed not only content but also customers. Apple realized that if it moved to an agency model with the Publishers, Apple would be at a competitive disadvantage so long as Amazon remained on the wholesale model and could price New Releases and NYT Bestsellers at $9.99, or even lower to compete with Apple. Since it was inevitable that the Publishers wouldraise e-book prices when given the opportunity –- indeed, Apple expected the Publishers to raise the prices to the tier caps -- e-books priced at $9.99 by Amazon would doom the iBookstore. Why would a consumer buy an e-book in the iBookstore for $14.99 when it could download it from Amazon for $9.99? To ensure that the iBookstore would be competitive at higher prices, Apple concluded that it needed to eliminate all retail price competition. Thus, the final component of its agency model required the Publishers to move all of their e-tailers to agency. Apple expected that this proposal would appeal to the Publishers. After all, it would allow them to “fix” their “problem” with Amazon’s pricing. (p39,40)

Can I just come out an say what a load this whole thing is? Amazon was promoting and executing an unsustainable business model, not unlike what Google did with Reader.

Chris Meadows:

Amazon sells it at below wholesale, as a “loss leader”—breaking even or losing money on the deal to promote sales of the Kindle and grow its share of the market. (Giving away the blades to sell the razor, as it were.)

 

Thus, if a hardcover book has a suggested retail price of $24.95, Amazon pays the publisher about $12.50 for the e-book version—and loses about $2.50 when it turns around and sells it for $9.99.

As Cote herself notes, Apple's iBookstore was doomed to be a failure if Amazon was going to continue undercutting any other competitor who planned to make a profit. That means only others who were willing to be so-called "loss-leaders" would have any hope of competing, which is why Amazon had ~90% of the ebook market in 2009. And this unsustainable model had a very real dark side lurking for either consumers or publishers, as Laura Miller writes:

Obviously, however deep its pockets, Amazon would not be able to go on selling e-books at a loss indefinitely. But once Amazon was cemented in place as the uncontested sovereign of e-book retail, it could do whatever it wanted: force publishers to reduce their own prices, and/or raise prices on consumers.

Apple wasn't willing to be a loss-leader, and they knew what the future was for publishers if Amazon went uncontested for long enough. So they told the publishers that they intended to take 30% and still sell their books equal to the lowest price available - that of Amazon. They pushed the publishers in that direction and made them aware of Amazon's most likely end-game (being forced to sell books for less, often much less, and take a severe cut in profits). Here Alex Hern is in agreement with Laura Miller:

[I]nvestors expect Amazon's profit to increase at some point in the future. But there's only two ways that could happen: either Amazon vastly increases its revenue, or it vastly increases its profit margin.

 

It sounds almost conspiratorial, but the only way the company can really do this – and its actions indicate that it knows it – is by becoming the only player in town. Amazon's success to date has been built around winning every price war going, but once it gains control of a field, then it wins that price war by default.

There's nothing inherent in the Agency model that prevents any of the publishers from going cheaper and trying to undercut their competition. Apple essentially ensured that retailers could sell books at a profit and made sure that the publishers didn't shoot the price (at least on the iBookstore) through the roof.

When it comes to companies like Amazon, there's just no accounting for Jeff Bezos' gleeful willingness to sell at a loss — a long-term strategy that they would have gotten away with if it weren't for those meddling kids!

Generic... Eventually

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Jonathan Stempel:

"We no longer see a need to pursue our case," Apple spokeswoman Kristin Huguet said. "With more than 900,000 apps and 50 billion downloads, customers know where they can purchase their favorite apps."

The way Apple abandoned this case is basically a slap across the face of Amazon. Their 'appstore' is so inconsequential that Apple need not waste it's resources any further trying to stop them from piggybacking on Apple's branding success.

Nonetheless, the original defence for the usage of 'appstore' was that the term had become so generic that customers would not be mislead. I find this line of thinking to be laughable! One company can steal another's ideas and implementations (Samsung, I'm looking at you) and then simply wait until trial, at which point the IP in question has become so diluted that it is, in fact, generic. Does no one else see how crazy this is?

I know I find that infuriating as an on-looker. I cannot imagine how it would feel as the inventor of the idea.

EDIT: Repaired the article.

Gruber Versus

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This, um, conversation (to use the word generously) is interesting. And I just wanted to pipe in on it myself.

Gruber starts off his piece quoting Larry Page from Google I/O as saying:

Every story I read about Google is ‘us versus some other company’ or some stupid thing, and I just don’t find that very interesting. We should be building great things that don’t exist. Being negative isn’t how we make progress. Most important things are not zero sum, there is a lot of opportunity out there.

And then proceeds to break down Page's argument with a quick and concise two-paragraph response. Fair enough. But the plot thickens when Ian Betteridge quotes Steve Jobs as saying:

“We have to let go of this notion that for Apple to win, Microsoft has to lose,” Jobs said. “We have to embrace the notion that for Apple to win, Apple has to do a really good job. If others are going to help us, that’s great. Because we need all the help we can get. […] The era of setting this up as a competition between Apple and Microsoft is over.”

And then Betteridge turns Gruber's argument back on itself showing (at least in Batteridge's view) how Gruber holds Apple and Google to different standards. The comments from Betteridge's detractors all seem to be focused around zero-sum and how Jobs' quote needs to be placed in context. I think this is a red herring distracting us from Gruber's actual argument.

Everyone is comparing these two segments:

Jobs:

The era of setting this up as a competition between Apple and Microsoft is over.

Page:

Most important things are not zero sum, there is a lot of opportunity out there.

This is the wrong segment to focus on. No one is arguing that Jobs ever said any market is "zero-sum", or at least I'm not and I doubt John Gruber is either. I think the crux of the argument should be focus around these two segments:

Jobs:

We have to embrace the notion that for Apple to win, Apple has to do a really good job.

Page:

We should be building great things that don’t exist.

Apple collectively and Jobs specifically have never maid the claim that they single-handedly invented any market. Rather, they reinvented the personal music player (iPod), music purchase (iTunes Music Store), cell phone (iPhone), tablet (iPad), and, arguably, laptop design (MacBook Air) industries. Whereas Google is claiming to be making things never seen before. And if the essence of the argument is found where it ought to be, Gruber's commentary takes weight and Betteridge's falls flat.

Objectivity In Journalism

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Back in November MG Siegler posted a piece entitled Never Apologize For Having An Opinion - Especially When You're Right. Of course this is yet another response to the strange trend of false objectivity.

I think before one can make blanket statements about anyone's opinion being valuable (worth my time to read) we have to note the very important different between opinion and presupposition.

Take, for example; this joke of a piece by Connor Simpson(emphasis mine):

The legal war between Samsung and Apple is going really well and they're both behaving like civil, reasonable adults. Ha, no, not really. Apple just threw a tantrum because they were ordered to tell Samsung a bunch of secrets that could potentially help Samsung keep their products on the shelves.

'Tantrum'? Did Apple throw an Annie Edison-style fit? The word 'crusade' is trotted out later in the piece. The whole thing has a decidedly anti-Apple slant, but there's no basis given for any of it. The author just seems to hate Apple from the outset. Not only is this kind of opinion is useless, it ruins any possible reporting that may have actually occurred in the piece.

In no way am I trying to say Siegler was wrong, but his comments need to be taken in context. If something's awesome, say so. If something stinks, say so. But let's do our best to rise above our presuppositions and make useful judgments based on whatever it is we're examining at the time.

Not all opinions are created equal.

Differences in 'Open'

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Stephen Fry

Google and some of the smaller Android OEMs might well sleep uneasily in their beds… Word is Samsung already have a prototype OS well into development.

This is why Google's 'open' approach in mobile and Microsoft's 'open' approach in computing are completely different. Microsoft never had to worry about this.

But I'd wager Google would still count these things as Android 'activations'.

iTunes Holdouts and the Love of Money

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Some artists have given in to the iTunes Store juggernaut (Metallica, The Beatles, AC/DC), others still hold out (Garth Brooks, Def Leppard, Bob Seger), and some can't decide (Kid Rock). But what they all agreed on, at least at some point, was that they did not want their albums sold off piecemeal. Why? Because, as Garth Brooks put it:

I don't want singles 'cause you make an album for a reason, an album is a reflection of who the artist is at that time.

Sorry Garth, as much as I love your music (and I do, Much Too Young, for example, has a permanent spot on my playlist) this excuse is bunk. And I'll give two good reasons to back up my assertion that the whole "album as a reflection of an artist" thing is bunk.

  1. Hits
  2. Ultimate Hits

These compilations do not represent who you were at the time you recorded the albums because the tracks span many years, and I suppose some argument could be made for hand-selecting a cohesive career retrospective, but these albums are simply collections of your most popular songs. And this isn't to pick on Garth Brooks exclusively, Bob Seger and Def Leppard are just as guilty.

Don't make some artistic stand, just call it what it is, Apple uses iTunes content to make iPods more attractive because they want the money that selling those iPods brings in. But artists also want the money whole albums bring in. It's all a money game. And right now everyone's losing.

Update: As Paul Rumens notes in the comments, Def Leppard are arguing with the label, not Apple.

Market Fundamentals

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Dmitry Fadeyev:

If this is the view of the market that Microsoft subscribe[s] to, then Windows 8 is the answer to that...It’s an OS that assumes that most computing will be done on devices that resemble powerful tablets with detachable keyboards, not on the laptops and the desktops of today. It’s an OS that tries to serve everyone at once, to cover all use cases and all markets....

But this only holds if the original premise is correct, that the tablet is the evolution of the laptop, and I just don’t think that’s right. Where the division lies is not a[t] the desktop and the mobile level, or between the laptop and the tablet, but between professional use (i.e. content creation), and light/entertainment use (i.e content consumption). While tablets are not necessarily used purely for content consumption, their limitations (small screen size and lack of a hardware keyboard) mean that this will always be their main use.

This is what Apple has demonstrated an uncanny understanding of since 2007, and it's why they're making money hand over fist.

Fight Piracy with Indignation

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Megan McArdle:

You are not forced into piracy because you can't get a television show at the exact moment when you want to see it; you are choosing piracy.

If that's not wrong, then hey, no need to write long articles about how they've really backed you into a corner. If you think it is wrong, then act like a grownup and wait until you can buy it legally. And really, if you wouldn't write an op-ed urging storeowners to stay open 24/7 lest they drive their customers to a little light B&E, then please don't write essentially the same thing about cable networks.

This isn't the issue, at least I don't think it is. And the comparison, while ethically accurate, is irrelevant. Downloading via torrent files is free and very easy. Not only that, but the threat of repercussion is very, very small given the payoff (HD content available within hours of original airing).

Now I do not mean to say that stealing is okay, because it obviously is not, but taking a moral stand and talking about 'acting like a grownup', while noble, is useless.

What needs to happen is that, like the introduction of the iTunes Music Store, studios need to compete with piracy, not ignore it. Make it obscenely easy to be honest. Provide content to your customers at accessible prices and as soon as possible. I believe most folks want to be honest, but they aren't passionate about it.

In short; get off your high-horse of righteousness and get down in the pit to fight piracy on it's own turf.

(via Jim Dalrymple)