Home » Is a Cheaper iPhone a Good Move for Apple?

Is a Cheaper iPhone a Good Move for Apple?

Estimated reading time: 5 minutes

It seems no news cycle is complete in the mobile technology field without a proper discussion of the latest and greatest buzz surrounding Apple Inc. and the iPhone. In the last few weeks the mobile field has watched with anticipation as Blackberry makes a comeback bid with the Z10 and Q10 smartphones running the Blackberry 10 OS. Critics have raved about the unveiling of the Samsung Galaxy S 4 and HTC One. And how could we forget the new HTC First, better known as the Facebook phone.

Yet with all these exciting new devices headed to a retailer near you in the coming weeks, a lot of the focus in the industry remains squarely on Apple. Rumors have been swirling for months now that Apple has been working on a cheaper iPhone that would give Apple a presence in the entry and mid-range smartphone market. The conversation has turned in recent days from whether or not this is rumor or reality, to whether or not this is a good move for Apple.

Why a Cheaper iPhone is Good

Apple’s iPhone was once the king of the smartphone industry, both in terms of quality and in terms of sales. As other manufacturers have caught up in terms of quality handsets and the Android ecosystem has caught up in terms of depth and variety, Apple’s position as the top dog has been erased.

The Samsung Galaxy S III dethroned the iPhone as the top selling individual device in late 2012, and the Android OS has double the market share in the U.S. (and globally) compared to iOS. The single biggest reason for Apple’s fall has been an uneven field of competition.

Apple cannot win the battle against Android the way it is currently fighting the mobile war. Android OS is available from multiple manufacturers producing top of the line devices and cheaper, entry-level devices. Apple on the other hand has only the iPhone and it comes at one pricing point, $199.

In the largest markets (U.S. and Europe) and emerging markets (India, Brazil, and China), Android handsets are making huge strides because consumers have the option to choose between top of the line devices and entry-level devices that are more affordable. A cheaper iPhone would give Apple a wider presence in both markets by offering a trimmed-down device to those who aren’t obsessed with the latest and greatest devices in large markets, while providing a more affordable iOS option to average citizens in emerging markets.

In releasing a cheaper iPhone, Apple would be looking to boost sales numbers around the globe and gain market share back from Android. Additionally, a second line of devices would give Apple another revenue stream beyond the top of the line iPhone.

Why a Cheaper iPhone is Bad

There are very good business-oriented arguments on both sides of this debate. Surely it seems silly to argue against expanding growth and revenue, but what if that comes at the cost of brand image and revenue percentage? Countless business analysts have come out in recent weeks and warned that while a cheaper iPhone could indeed bring new growth and a new revenue stream for Apple, the risk might not be worth the reward.

The iPhone 5 brings Apple a profit margin of $295 per unit sold; a stunning profit margin but one that is expected given the quality of the handsets Apple currently churns out with each iPhone. Analysts have estimated that in order to develop a cheaper iPhone that is still of acceptable quality, Apple would have to spend no less than $180 per device. This would drive down Apple’s profit margin per unit to an estimated $70.

Beyond a significantly decreased profit margin, releasing a cheaper iPhone puts Apple at risk of damaging a brand image that has been more than a decade in the making. Since Apple emerged from the brink of bankruptcy in the late 1990s, the brand image has been one of high-end devices that come with high price-tags, but also represent the best quality on the market.

Each generation of the iPhone has represented the best of the best when it comes to handset design, performance, reliability, user interface, and capabilities. Apple’s devices have developed a cult following over the years largely because of the quality and effort put into them.

Last, but certainly not least, because of the quality design of previous generations of the iPhone there really isn’t a need for Apple to develop a cheaper iPhone. Because the iPhone 4 and 4S, in particular, were so well-designed they are still around and still viewed as a quality device by many consumers in larger markets such as the U.S. and Europe.

When the tech-obsessed consumer trades their old iPhone in for an iPhone 5, the fiscally conservative consumers are getting their hands on a refurbished iPhone 4 or 4S from carriers, sometimes for as little as $0 with a contract. There is no need for Apple to flood large or emerging markets with a device below their normal standards just to compete with cheap Android devices when a refurbished iPhone 4 or 4S is already of better quality and available for the same price or less.

In the End – Cheap Iphone is good or is bad?

Whether it is a good idea or not, it appears that Apple is already on its way toward releasing a cheaper iPhone. Reports from around the Internet suggest that this device could hit the market between June and August 2013. Still, Apple should consider scrapping these plans and continuing its focus on building the best handsets available, and let the longevity of their devices speak for itself.

It is worth noting that recent data from the U.S. suggests that budget-conscious American consumers have been opting for refurbished iPhone 4 and 4S models over low-budget Android devices because the quality from Apple is superior to those of entry-level Android models. This is just one possible explanation for Apple’s slight gain in market share in the U.S. recently while Android has flattened out, and could be a sign that a cheap iPhone simply isn’t necessary.