The cheap iPhone problem

Everyone wants Apple to release a cheaper iPhone, but there are some realities in building and bringing a device to market. Benedict Evans takes a look at it.

  • Analysts want Apple to release a cheaper iPhone. … Analysts say Apple is doomed because of smaller profit margins.

    • No, you don’t understand. Obviously Apple can just magically make a great phone for $100 and sell it for $200.

      See, analysts have figured it out, cheaper iPhone and higher profit margin. Your move, Apple.

  • How is the ‘cheap’ iPhone not an iTouch with a cellular radio. Just like the iPad. According to iSuppli (grain of salt!), the iPhone 5 high end cellular radio package is $34.

    This would knock the margin on the iTouch from about 30% to 20%, as Benedict notes. Or would it, if the price of the “iPod Touch with Cellular” is $50 more than the plain iPod Touch? Just like the iPad pricing reflects the cost + markup of the extra cellular circuitry.

    Yes, it will cannibalize the iPhone, but Apple well knows it’s better to cannibalize your own products than let your competitors do it. Also, Apple will make some compelling reasons to upgrade from an iTone (TM) to an iPhone.

    • battery and antenna etc. It’s significantly more expensive than just the chipset.

      • Battery is just next gen battery. No cost difference, just less life, maybe.

        Antenna. Mfg costs are negligible. There’s already a window in the current iPod Touches.

      • JohnDoey

        They added a Bluetooth antenna to iPod nano. They can add a 3G antenna to iPod touch.

    • What’s supposed to be the difference between a bona fide iPhone and a notional iPod touch equipped with cellular? Am I overlooking a huge chasm between the two?

      • Right now, nothing. What Apple will sell, most likely something significant.

        I’m not going to suppose what that might be.

      • JohnDoey

        Yes, you are overlooking the huge chasm.

        Today’s iPod touch falls off the network when there is no Wi-Fi — a 3G/2G iPod touch would fall off the network when there is no 3G/2G. Today’s iPhone does not. It can fall off of 3G/4G/2G and still make regular cellular voice calls and send regular SMS texts, which you can sort of think of as “1G”. If the 3G get too slow, the 3G iPod touch would not be able to make calls at all.

        Also, the 3G iPod touch would almost certainly lack 911 emergency calls.

        In other words, a 3G iPod touch would not literally be a phone. It would be a little computer only, equivalent to a netbook with a 3G chip. However, for many users that might be all the phone they need, and it could sell for half price. But there will also be a significant number of users who have to have a voice/texts phone as well.

        iPod touch also has a much worse camera and camcorder, and photography is a huge iPhone feature. Many users would still want the high-end iPhone.

        Right now the big problem is that if you live somewhere where phones are subsidized by the carrier, it’s fairly easy to get an iPhone because it can be as little as $0 and the very latest model is only $199. But if you live somewhere where you have to buy the phone outright, it is a $600 item that is out of reach for many people. So they are buying $300 Android phones more heavily in those locales. That is why Android is so much more popular in Europe than in the US.

        So Apple is losing those $300 sales right now, but they could easily take at least half of them.

        • Pardon my ignorance, but I didn’t distinguish between different types of radio for mobile phone use. I’d assumed any beefed-up iPod touch would get roughly whatever transceiver capability a near-current iPhone has.

          If a 3G iPod touch isn’t literally a phone, then I don’t imagine how any consumer would be convinced to want one.

          • First of all; there is a difference between the radio for voice and the radio for data, even if it’s a small one.

            I understand your confusion about why someone would want to buy something like that — I find it hard to grasp, too.

            The only way I can explain this to myself is by thinking about how people perceive these devices today and what they might look like in the future.

            Here’s why/how: I hear this quite often from people—regular people, not the nerdy type—that they’d see value in something as small as the iPod touch with 3G added.

            From what I can tell their thinking is that this device would serve only as an entertainment an information appliance, while calls and the occasional old school SMS would go be sent with a small phone.

            Why? Because many of them make calls less and less often.

            What they often ignore is that this’d be another device to take care of and they often don’t think far enough in terms of keeping the phone and the “3G iPod Touch” in sync contacts wise.

            On the other hand a device like this could have very specialised specs, imagine:

            • 4″ screen, 16:10, IPS
            • durable exterior (not military grade durable)
            • a crazy long battery life

            I could see myself using a combination like this, but only Fringe style, e.g. a 4″ to 5″ screen and the phone would be nothing more than a dedicated and unobtrusive headset.

            For that to be useful a) voice recognition would have to become close to infallible, b) this this would still need a close to persistent data connection to keep my contacts data in sync, and c) we’d need new battery technology for something this small.

          • Interesting.

  • We already have a cheap iPhone. They’re made of cheap plastic, most can’t be upgraded, they offer a crappy camera, apps contain viruses and malware, they get outdated about every 6 weeks with a newer version of the hardware, they’re available here and not there for no apparent reason…

    They’re called Android phones.

    • JohnDoey

      That is true. But if a 3G radio was put inside iPod touch, that would be the equivalent of an Android phone. Put 3G inside an iPod nano, now you have a feature phone. And Apple has a complete lineup.

  • JohnDoey

    The only problem is that Apple sells mobiles that lack 3G: iPod touch and iPod nano. Put 3G in them and Apple instantly has a full line-up of phones from $149 up to $799.