Apple has launched two new devices – a high-end handset, the iPhone 5S, and a more affordable product, the iPhone 5C. Both devices run on iOS 7, the latest version of the operating system. Apple addresses three major challenges with these products.
First, the need to retain the current installed base of users that are slowly moving to products from other vendors attracted by better cameras, larger screens, different user interfaces, or new features.
Secondly, the need to attract the second wave of smartphone adopters in developed markets, who are reluctant to adopt a smartphone. And lastly, the need to address the huge opportunity that emerging markets represent, as they will become the biggest smartphone markets in the world, but where price is a major barrier to smartphone adoption.
Smartphone growth in developed markets has slowed in the last few quarters as they enter the second wave of adoption, while in emerging markets smartphones are at the beginning of the first wave of adoption. For instance, in the second quarter of 2013 the smartphone segment in Western Europe grew only 19% year on year and smartphones represented 75% of total shipments, while in APAC (excluding Japan) smartphones increased 75% from last year’s second quarter, with smartphones accounting for only 53% of the total mobile phones shipped.
In regions such as Western Europe, North America, and Japan the second wave will be driven by users who don’t need a smartphone but will not resist buying one as there will be no feature phones available to purchase in most stores. These users will, however, buy affordable handsets as they don’t see value for money in the most expensive smartphones.
Apple’s strong brand, premium design, the ease of use of iOS, and now a lower price will attract these users to the iPhone 5C. This handset will also be a major driver to consumers with a mid range LTE-enabled device, which is at the core of mobile operators’ strategies.
The iPhone 5C will also be a strategic product for Apple to grow in emerging markets. In APAC (excluding Japan), Apple only grabbed 6.1% of total smartphone shipments in 2Q13. IDC forecasts that smartphone shipments to this region will be close to 1 billion units by 2017 compared to the 500 million units estimated for 2013.
With attractive and more affordable products in this region, Apple will gain market share, but more importantly will be able to grow its installed base, which will translate into future upgrades and potential additional revenues for its iTunes content store, particularly music strongly emphasised in this launch event.
Lastly the iOS7 represents a major improvement from the previous version, giving current users a fresh user interface and an improved experience, particularly the new camera hardware and features. This is an area that consumers understand and value. Apple brings a better camera, sharper pictures, auto adjustments, auto stabilisation, burst mode, slow motion, etc. This closes the gap to competitors that have innovated and improved significantly in this area in the last 12 months.
Apple also brings biometrics to the consumers’ hands. The Touch ID is a feature that most users will find impressive and useful as everyone understands how annoying is to type a pin or password to unlock the phone, or how dangerous it can be having the personal information unprotected in case the phone is stolen or lost. And Apple got it right. Apple needs to continue the innovation in the high end where users are becoming more demanding and more knowledgeable of the different devices available from competitors.
For competitors these two devices represent a significant treat. The likes of HTC, Nokia, Sony or BlackBerry have positioned themselves in the mid range of the market, as they can’t compete with Apple and Samsung in the high end. However, as Apple moves now to lower price bands, the pressure in the mid range of the market will start to be felt.
The iPhone 5S is a major improvement from the iPhone 5 and a strong reason to upgrade as it brings a faster device and new features to end-users. The iPhone 5C will open new markets to Apple both in developed and emerging markets. And it will give users in those markets the change to experience the reasons why Apple is so successful.