Understanding Apple's new iPhone gameplan

Apple’s new phones are out, and it seems the biggest surprise is that the company has abandoned iPhone 5 line. The new iPhone 5C isn’t the quite the budget phone we were all expecting, and the 5S has enough bells and whistles to encourage churn and upgrades.

Apple’s latest products – the iPhone 5C and the iPhone 5S - have now seen the light of day but are they everything we hoped they would be?

Well yes and no, because Apple has essentially struck to the script with the new iPhones, except of course for the fact that the iPhone 5 is no more.

Instead Apple has replaced the iPhone 5 with the colourful, plastic-cased iPhone 5C, which pretty much packs the same punch as the iPhone 5.

With a 4-inch Retina display, an A6 chip, and the 8 megapixel iSight camera, Apple has labelled the iPhone 5C as “everything the iPhone 5 was and more.”

The iPhone 5C comes with more LTE bands than any other smartphone in the world, which suggests that Apple is positioning the model as its ubiquitous global device. And it’s the global market where the iPhone 5C could make the biggest impact

One bone of contention would be the pricing of the iPhone 5C, which many had expected to be more competitively priced to counter the presence of Samsung and a host of other Android players. Apple has dropped the price a touch but the iPhone 5C isn’t in the same ballpark as the cheaper Android phones.

The iPhone 5C will retail for $US99 for a 16GB version and $US199 for a 32GB version, on a two-year contract. Buying it outright will set you back $US549.

The iPhone 5c will be available in Australia from September 20 for $739 for the 16GB model and $869 for the 32GB model. We will have to wait for the carriers to release their contract plans to see just how good a deal the iPhone 5C provides.

Apple’s iPhone 5C was seemingly never intended to be a budget model because when it comes to price it’s not that much cheaper than Apple’s premium offering the iPhone 5S.

The iPhone 5S is priced in Australia at $869 for the 16GB model, $999 for the 32GB model and a 64GB model is also available for $1,129.

Apple has never played the low margin game and it’s not about to change its tune.

iPhone bling

The C in the iPhone 5C doesn’t scream cheap but rather colours. The iPhone has shed its binary colour scheme. The iPhone 5C comes in blue, green, pink, yellow and white, while the iPhone 5S now comes in a gold (or “champagne”) model to go with silver and space-gray colour schemes.

Ostensibly, it’s a hat tip from Apple to its Chinese fans but it’s also a sign off how tech giant wants to retain its premium mentality and brand exclusivity in the established market.

It’s iPhone bling, a novelty that Apple previously tested with the iPod touch; and was at some point destined to bleed into the iPhone.

Most of all it’s another display of the commoditisation of smartphones, where cosmetic enhancements are deemed more useful in providing the sales lift than any individual breakthrough feature.

Whether the “champagne factor” delivers the expected lift remains to be seen, especially in the mature markets, but it could have an impact on the rapidly expanding Chinese market.

Of course, colour isn’t going to be sole motivator for Apple, it’s the impending deal with the world's largest wireless carrier China Mobile that opens the channels for the iPhone 5C. No word on that deal at the US event overnight, but there is a big event scheduled for later today in China.

The flagship makeover

Fashion sensibilities aside, the iPhone 5S maintains Apple’s tradition of adding incremental features to its flagship while keeping the overall package intact.

The screen size on the iPhone 5S isn’t bigger, there’s no NFC but there is a brand spanking new A7 chip, a 64-bit operating system and the improved security with the Touch ID Fingerprint Sensor.

There’s also an all-new 8 megapixel iSight camera which lifts the stakes slightly if you are an iPhone 5 user.

The iPhone 5S sports a bigger lens, with a F2.2 aperture and a sensor. There is  a new "true tone" dual-LED flash, which provides better lighting and also allows enhanced colour saturation and brightness controls. There is also auto image stabilization which is essentially taking a cue from the functionalities already existing in Samsung’s Galaxy S4 and the HTC One X.

At the heart of these improvements lies the A7 chip and Gartner analyst Van Baker suggests that the camera features and the fingerprint scanner will likely have the greatest appeal for consumers

The iPhone 5S is essentially designed to drive upgrades more than new adopters, Apple is positioning the iPhone 5C for that, but Baker says the suite of features revealed overnight are strong enough to drive a lot of upgrades.

Baker is particularly bullish on the Touch ID technology , which he says  will have broad consumer appeal.

“People hate to put passwords into their phone but they like the idea of having their information secure on the phone. The fingerprint sensor makes it easy to secure the phone assuming it works as advertised,” Baker told Business Spectator.

Steady as she goes

Both the iPhone 5S and the 5C are innovative to some extent but they don’t exactly push any boundaries. They are still iPhones and as Ronald Klingebiel, Assistant Professor of Strategy at Warwick Business School, points out Apple’s strategic direction seems unchanged.

“The lower-end iPhone is to address price competition in an increasingly commoditising market, but the likes of Lenovo and ZTE achieve sufficient quality at much lower cost,” Klingbel says.

Interestingly Klingbel also suggests that the overall smartphone business model could be on the cusp of change. There is a chance that the majority of value capture, which had migrated from the handset to the combination of OS and app store, will move on to apps themselves, reducing the cut for middle men.

“New entrants are gearing up to prise open the tight lock between handsets, operating systems, and app stores: Sailfish, Ubuntu, Firefox, and even Tizen offer next-generation operating systems that support the trend towards interoperable HTML-based apps,” he says.

“This could lead to an unbundling of the industry value chain and reduce Apple’s possibility to extract value from the iOS-app store nexus."

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles