September 24, 2013

Apple’s New iPhone Lineup

You’ve probably heard that Apple has announced (and released, in some parts of the world) two new iPhones: the 5c and the 5s.

The iPhone 5c is the long rumored plastic iPhone, the one analysts thought would be cheap but wasn’t. Meanwhile, the iPhone 5s is exactly what everyone expected, which means that it’s a spec bump on the original iPhone 5, with some new features (64-bit processor, motion chip, fingerprint scanner). These products have been covered immensely elsewhere, so I’ll just point you to Apple’s product pages for more information.

(Note how Apple writes the c and s in the iPhone model numbers in lowercase. They’re doing the same with iPhone 4s, which is still around.)

Today's iPhone models
Today’s iPhone models

With the launch of the iPhone 5c and 5s, Apple made a huge change in their product lineup.

Traditionally, Apple would introduce a new iPhone model, offer the previous model as a midrange alternative, and keep the even older model around as a prepaid and/or cheap/free contract option. In other words, the introduction of iPhone 5s should have bumped the iPhone 5 to midrange, whereas iPhone 4s would become the cheapest option.

Instead we got the iPhone 5c, which basically is an iPhone 5 with a larger battery, in plastic instead of aluminium. The new lineup is:

  • iPhone 5s is the top of the line model
  • iPhone 5c is the midrange model
  • iPhone 4s is the cheap or free with contract model

Apple have decided to remove iPhone 5 altogether.

Why does this matter?

Introducing the iPhone 5c means that Apple is introducting a new model for midrange buyers, instead of just offering last year’s offering at a lower price. Most people don’t want to buy old stuff, they want something new, so introducing a brand new model makes sense. That Apple no doubt have optimized the manufacturing process, as compared to the iPhone 5 (and 5s), for a higher profit margin is no doubt part of the decision to do this. But there’s something larger at play, a shift in the iPhone lineup strategy.

Next year, when Apple will introduce iPhone 6, traditionally the iPhone 5s would see a price cut, thus becoming the mid-range model. I don’t think this’ll happen. I think Apple will drop the iPhone 5s altogether, much like they did with the iPhone 5 just now, and instead bump the specs of iPhone 5c, calling it the iPhone 6c. The iPhone 5c would be the cheap with contract model (and the iPhone 4s will be dropped altogether). So this is the lineup after next year’s iPhone event:

  • iPhone 6 is the top of the line, brand new, model
  • iPhone 6c is the midrange, brand new, model
  • iPhone 5c is the cheap with contract model

Why would they do this, and why does it matter? It’s simple customer psychology. If you’re not going to spend a lot of money for the brand new top of the line model, would you rather buy a brand new model or a price-cut version of last year’s top of the line?

Look at the interest for iPhone 5c right now. There’s no way a price-cut on the iPhone 5 would garner the same buzz. Now fast-forward to iPhone 6c, also a brand new model and not just a price-cut on last year’s offering, and you’ll see why Apple would want to maintain this momentum, this interest in its midrange offering and not only in the top of the line model.

The iPhone lineup hasn’t changed on the inside of these devices. Had history prevailed, the iPhone 5 would be the mid-range today, but instead we got the iPhone 5c, which may look completely different, but essentially is the same phone as the iPhone 5. Spec-wise, Apple have stayed true to their iPhone upgrade schedule. On the outside it’s a completely different story though.

This is huge. Every phone manufacturer out there should be worried, because their models that traditionally competed with Apple’s midrange models, the last year price-cut iPhones, will now compete with a dedicated midrange iPhone. One that will see an upgrade every year, thus not feel old and last year’s.

Well played, and about bloody time, Apple!

Thoughts? Let @tdh know on Twitter, or find me elsewhere. There is also a newsletter.