It looks like I was wrong. The iPhone 5C isn't designed to grab massive marketshare for Apple. It just refines the thing Apple is best at- generating huge profits.
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The iPhone 5C isn’t about marketshare after all

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Earlier in the week, I posted an article about the possibility that Apple was shifting its primary sales focus away from per device profit, and more toward grabbing more marketshare with devices that generate less revenue per sale. In hindsight after Apple’s big reveal, I was dead wrong. It was just a theory, and one that seemed to make sense at the time. It was an opinion that many other tech bloggers and pundits shared. But that doesn’t make it any less wrong.

The short version of what I thought would happen was that Apple would release a colorful new iPhone that would sell for much less than usual for an iOS device off contract. This phone would be more competitive in the rest of the developed world, as well as China and India, where the majority of users pay full price for unlocked phones. I wasn’t predicting a “cheap” iPhone, mind you. I knew it would be a high quality, well made device that would just have fewer features and cost less. In short, I was thinking of an iPhone that would replace the iPhone 4S at the low end of the line, while Apple would sell the iPhone 5 in the middle, and the new 5S at the high end.

As we now know, Apple had something very different in mind. The iPhone 5C is obviously not about marketshare. It is actually about taking Apple’s current profit per device strategy even further. The 5C actually ended up replacing the 5 in the middle of the lineup, $100 cheaper than the 5S with a two year contract, and priced at a higher than expected $549 off contract for the 16 GB model. This news was a big letdown to a lot of people anxious for a more affordable iPhone, but I believe that Apple will make a killing off the 5C in the end. Here are the reasons why:

 

1. 47 percent

iPhone4-4S-5

This is the percentage of total iPhone’s sold that the iPhone 4 and 4S accounted for over the last year. 47% is an awfully big number. One that surprised me when I saw it. It shows just how many value conscious users there are out there. Why is this number important?

 

2. Advertising

Advertising a year old device while you are selling a new model breaks every rule in the ad game. So, it’s no surprise that Apple has never done it. No one does. But the iPhone 5C changes all that. It’s not last year’s phone. While in reality, it is just the guts of an iPhone 5 with a colored plastic housing, a better front-facing camera, and increased battery life, the iPhone 5C manages to stand alone as a new device with a different look, feel, and target audience.

Because the iPhone 5C is a new model released alongside the 5S as an alternate option, Apple can now advertise it without the risk of ridicule. And advertise it they will. Remember all those colorful iPod ads we used to see? Yep, they’ll be back soon. The 5C will be the colorful, fun model with commercials to match. The 5S will continue to get the more serious, emotional spots we’ve been seeing more of lately. With the sales and market reach of the iPod Touch steadily dropping every year, this is a very smart business decision.

This is also where we get to the importance of that 47% sales number. That percentage of total iPhone sales was without one bit of advertising. How is that going to play out now? What does this mean for the 5S? My prediction is that the 5C will bury the 5S and 4S in sales. The ads, combined with the color choices, and the fact that Apple is wisely offering both 16 and 32 GB sizes will insure that the 5C has very long legs.

If you doubt Apple’s resolve or plan, just check out the screenshot of Apple’s current home page.

Apple-home-page-iphone5c

I think that says it all.

 

3. The Price of Production

So why will Apple intentionally cannibalize its own high end offering with a cheaper device? It isn’t about marketshare, like I originally thought. It’s about making more money, pure and simple.

Think about it. Apple has made last year’s model available as their second device for a while now, and even started offering 2 year’s ago’s free on contract with the launch of the iPhone 4S. The reasoning for this is simple. Apple has had a chance to refine their supply chain and production process after making a device for a year or two. The economies of scale and increased efficiency make the older models cheaper to produce, making the cheaper price tag possible while still bringing in plenty of profits.

The iPhone 5C just takes this same strategy to the next level. Apple is still taking advantage of the same things by using the slightly tweaked guts of the iPhone 5. However, the big change is that they are going to noticeably cut the bill of material cost down with the plastic shell. A phone that costs less to produce, but still sells at the same middle of the lineup price of $99 for the 16 GB model will be a boon to Apple’s profits.

On the production side, remember all those reports from last year about the expense and difficulty of the metal anodization process of the 5’s metal back and the reject rate of the chamfered edges? The 5S still has these issues, but also has a higher price tag to support them. The less expensive, but still high quality plastic back of the 5C will definitely cost less to manufacture, and should have a much lower failure rate. The lower fail rate means less waste and more efficiency. This will help the 5C become more profitable more quickly. It will also stave off those early shortages that are such a familiar part of iPhone launches.

5cOneEach year’s “last year’s” model has always brought in profit, and the iPhone 4S was no different last time around. Now, Apple is just maximizing the 5C’s profitability by cutting production costs and bolstering it with advertising. The end result should prove to be a sales juggernaut, which is a big win for Apple.

Since the 5C will be easier to produce, there should be little to no wait for users want to get a new phone. Since it’s cheaper, it will sell like hotcakes and bring in more profit per device. The 5S may still be the top tier model with a faster processor and new fingerprint sensor, but the 5C marks a big shift in how Apple does things. I got that much right in my previous article, even if it had nothing to do with chasing marketshare. Instead, for the first time, Apple’s middle offering seems to be the flagship for the iPhone product line. Like I said before, Apple’s current home page says it all.

What do you think about the 5C? Are you getting one? Do you think it will be a huge hit, or a big miss. Feel free to share your thoughts in the comments below, in the forums, or hit me up on Twitter @jhrogersii, or on Google+. I would love to hear from you.

 

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  • Xennex1170

    If anything it may cut down on the disappointment kids may feel for getting an ‘older’ model phone. 😀