John Paczkowski

Recent Posts by John Paczkowski

Does Apple Really Need a Less-Expensive iPhone Right Now?

iPhone5c_croppedApple’s decision to give its colorful new iPhone 5c a premium price far in excess of the $400 to $500 price range analysts had expected has been met with skepticism in the market, and the company’s stock price has suffered some as a result.

Read through the volley of research notes that followed the debut of the 5c, and a common theme emerges: Apple should have used the device to establish a new iPhone price band low enough to drive growth in big, price-sensitive markets like China. But it chose not to, essentially doubling down on the market’s increasingly more saturated higher end, and protecting its high margins. And, in doing so, it has — for the time being — forfeited the market’s massive not-at-all-saturated lower end to Android.

The market views that as a strategic misstep. But Apple clearly doesn’t. Because, for Apple, winning has never been about shipping the most product.

“That’s never been a cornerstone of Apple,” CEO Tim Cook said at D11 earlier this year. “Arguably, we make the best PC, we don’t make the most. We make the best music player, we wound up making the most. We make the best tablet, we’re making the most there today. We make the best phone, we’re not making the most phones. … iPad has the highest customer satisfaction of any tablet. iPhone has the highest customer satisfaction of any phone and it has won JD Powers nine times in a row now. So that’s what we’re about. We’re about enriching customer’s lives and making great products, not making the most.”

Okay. But if Apple’s not going to cut prices (and corners) in a land grab for market share, how does it propose to succeed in a country like China, which it has said repeatedly is one of its most important markets? Perhaps by simply staying the course, and inking that long-in-the offing China Mobile deal.

With the iPhone 5c, Apple may have an upper-middle-tier product with enough aspirational appeal to draw budget-conscious consumers into a higher price range. Add to that the addressable market it stands to gain simply by inking that widely rumored distribution deal with China Mobile — the world’s largest wireless carrier, and perhaps Apple decided it’s simply not yet the time to move down-market.

Why bother chasing lower-margin phone sales when there’s still a significant opportunity in high-margin ones? Why bother fielding a less-expensive iPhone when you know you’re about to bring the device to China Mobile’s 700 million subscribers, not to mention the 60 million consumers on Japan’s NTT DoCoMo? Don’t forget, Apple continues to sell the two-year-old iPhone 4S for a lower price than its new marquee phones.

“It could be that Apple is willing to stake out the high end and wait for the emerging global middle market to be able to afford its phones,” UBS’s Steve Milunovich. “While the 5C is too expensive for most developing markets, there still is an aspiration to own Apple products. … Exclusiveness creates its own demand.”

Perhaps even enough to obviate the need for that less-expensive iPhone for which the market seems to be pining. We’ll find out soon enough.


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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