John Paczkowski

Recent Posts by John Paczkowski

Belt-Tightening in Europe Bolsters Case for Cheaper iPhone

Unnerved by the continued fragility of their economy, Europeans are cutting back spending on mobile devices. And that could pose problems for companies peddling pricey, marquee handsets.

This according to France Telecom CEO Stephane Richard, who told Bloomberg that his customers are increasingly searching out cheaper wireless plans and less expensive handsets. With consumers demanding lower prices, Richard says, smartphone manufacturers like Apple may have to consider offering new devices targeted at the price-sensitive end of the market.

“We are in a period of changing consumer behavior,” Richard said. “Selling a phone for $600 is getting more and more difficult.”

Richard stopped short of calling for Apple to introduce a cheaper version of the iPhone, but his implication could hardly be more clear. The premium smartphone market is reaching saturation, and if the company wants to sustain growth and increase market share it should consider rolling out a lower-end version of its flagship handset.

“There are fewer early adopters, and probably with the next release of the iPhone this will be evident,” Richard said. “Except for a few hundred thousand people who will buy the latest iPhone — except for that category of people — the majority of the market will be difficult.”

Interesting theory. But a few hundred thousand people? The iPhone 3GS sold more than one million units during its first weekend at market. The iPhone 4 sold more than 1.7 million. And the iPhone 4S sold more than double that. And the iPhone 5 sold more than five million. That trend doesn’t exactly support Richard’s prediction.
And clearly Apple has done pretty well for itself peddling premium hardware — even in a down economy. The record revenue of over $54 billion and sales of over 75 million iOS devices it reported last quarter are evidence of that.

That said, Richard’s comments add an interesting twist to the chorus of calls for a low-end iPhone that we’ve been hearing. Richard is arguing, as many have, that Apple needs a budget handset for emerging markets like China and India, but he’s arguing that it needs one for established markets as well.

And there might be something to that.

While peddling legacy iPhones to price-sensitive customers has allowed Apple to tap into the budget handset market, it would likely be a lot more successful with a device designed specifically for it. As I wrote earlier this year,

“What’s more appealing, paying bargain-basement prices for a two-year-old iPhone? Or purchasing an inexpensive version of the latest model? Think of the low-end iPhone like the iPad mini, and the logic of that argument becomes quite clear. The iPad mini has become very popular, very quickly.”

A low-end iPhone could very well follow a similar trajectory. Which is why Apple has been considering one since at least 2009 and may even ship it before the year is out.

“The days of easy iPhone sales are over,” Jefferies analyst Peter Misek told AllThingsD. “Competitors have closed the gap in technology while Chinese and Indian white label vendors powered by Android have demolished pricing in some markets. Apple needs to have a breakthrough to grow earnings again; otherwise, profits likely peaked on a run-rate basis in Q4 of last year.”

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The problem with the Billionaire Savior phase of the newspaper collapse has always been that billionaires don’t tend to like the kind of authority-questioning journalism that upsets the status quo.

— Ryan Chittum, writing in the Columbia Journalism Review about the promise of Pierre Omidyar’s new media venture with Glenn Greenwald