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The iPhone nano

written by Michael J. Tomlin

The Fallacy of Market Share

There's a belief by analysts that in order to stay relevant and survive in any market, you need to maintain a significant share of unit sales in that market. And by this measurement alone you can gauge the health of a company in that market. The logic used here is that if you become too small, people will lose faith in your ability to succeed in the long term. Any investment in that product would then be wasted - not worth anyone's time.

What they fail to understand is that the iPhone is only one part of a much larger ecosystem built around a platform that is propped up by many, many different companies and individuals who have a vested interested in making sure it remains viable and thriving. Ironically, this even includes Google who makes more off of iOS than they do their own Android OS, which is what iOS is usually compared against.

Cheap, Cheap, Cheap

The problem that is touched upon in the previously mentioned article is that Apple doesn't do cheap for cheap's sake. They absolutely refuse to make and sell a "cheap" product and I agree with the author, that Tim Cook would have to face the music for doing so. But, I don't think Apple needs to make a cheaper iPhone to enter the contract-free, pre-paid market. Instead they can design and build a phone for a different market, with different features, at a different price. There's nothing cheap about any of that; building a solid device for a specific segment of the market that has a different use-case. It can be less expensive than an iPhone, but it wouldn't be a cheap iPhone.

So… What Market?

Apple already has three models in the smart phone market, at three different price points. Their plan has been to keep older models around and sell them at lower prices. Makes sense. Many Android OEMs do sort of the same thing (new models with old components), but they also use older versions of Android, whereas, Apple won't sell anything that doesn't run the latest version of its OS.

OEMs have started (Samsung has for a while) using Android in their feature phones - and coincidentally calling them smart phones to prop up their market share numbers. This is the market where Apple can build a phone that is much less expensive than an iPhone, but still maintain their level of quality. The funny thing is, I have yet to hear anyone discuss the possibility of Apple building a feature phone. Isn't this market ripe for Apple? Everything that is out there is a piece of crap - no wonder people are moving to smart phones in droves. Interfaces are abysmal and using them is just plain awful.

Feature iPhone

The iPhone nano would have to be extremely limited in capabilities (compared to a regular iPhone), but still have access to Apple's well established ecosystem. Think of it as being similar in comparing the iPod nano to the iPod touch.

Some have speculated a cheaper iPhone would have to sell for $99 to $149, but come on, this is Apple. $149 will be the low end of any pricing strategy. I would guess, $149 to $199. The current iPod nano sells for $149 with 16GB of storage. If they can push costs of components and manufacturing down by using components across several products, I can see them eventually dropping the price of the iPod nano to $129 and then selling the iPhone nano for $149 and possibly offering a 16GB version for $199.

The potential market for an iPhone nano is orders of magnitude higher than what they get from the iPod nano alone. They sold what, 10-12 million nanos last year versus the 600-700 million feature phones sold. In the first year Apple could sell upwards of 60-70 million iPhone nanos, if not many more.

The Opposite Stance

One could say that Apple is not interested in the mobile phone market at all. Their entrance into this market was due to mobile computing trends and which market would have the biggest pay-off.

Steve Jobs said they were interested in building a tablet, not a phone, but when he saw what was being done with the UI, he thought that it could work in a smaller device as well. The tablet plans were shelved and they began working on a much smaller device; more specifically, a phone.

Why a phone? They could have just released the iPod touch and completely stayed out of the phone market. The problem was that all signs pointed to a singular mobile device. A device that you could do everything with. Up to that point in time, everything only meant somethings and only one or two well. A few devices got a few things right, but everything else just kind of sucked. Apple was smart enough to see their iPod business shrinking as more and more people switched to these mobile phones. If they wanted to make an impact in mobile computing, they would have to start with a "phone."

As an opposite perspective on the article above, I don't think Apple really cares about the phone market. Their main interest is in mobile computing and if it takes a "phone" to push that agenda, then why not? And if we look back at was has happened, we can see they made the right decision. They leveraged their iTunes+iPod platform and built a mobile platform on top of it, creating one of the most thriving ecosystems we've ever seen in the consumer market.

obviouslogic