Analyst Gene Munster often has some crazy ideas. Earlier this week he suggested an Apple Television device for next year, today it’s a solution to the problem of tiny marketshare in growing markets like India and China—a cheap iPhone.
Business Insider published Gene Munster’s thoughts this morning—Apple Will Launch A Cheap iPhone In Two Years—and outlines the essential problem like this:
In the U.S., if you buy a new iPhone 5 it costs $200 because the carrier is footing the majority of the bill for you. You pay $200, but Apple collects ~$600. That carrier covers that $400 gap, and hopes to make the money on your data charges.
That system doesn’t work in places like India and China. And that’s why Apple’s market share is tiny in those countries.
If it doesn’t want to lose access to the next three billion smartphone buyers, it needs to solve this problem.
So lots of us will go for the $200 phone, subsidized over two (or three here in Canada) years by a carrier, that model doesn’t work everywhere, India and China being the two places this falls down. Sure Apple is selling devices there, but not in the volumes they’d like to, would an iPhone that is just $200 period fix that problem? Maybe, but that’s isn’t the biggest challenge Apple would face:
If Apple is going to sell a $200 phone, it’s going to take a major change in corporate philosophy. But, the company has a new CEO in Tim Cook. He might think different about Apple’s pricing. From BI
It isn’t just the margins that would have to change, it’s the whole build process. According to estimates it costs $167.50 to make an iPhone 5, that doesn’t consider shipping, marketing, packaging, and other costs. So the cost of an iPhone 5 is probably close to $200, but you can’t sell devices at cost and survive, you have to make a profit on each one.
I think this is where Apple is going to face a challenge in terms of innovation, build quality, components, and, yes, company philosophy. Would a $200 iPhone have a plastic case? Would it be non-Retina? Would it use a micro-USB port?
I believe that Apple could pull it off, but it is going to be a matter of company will, and while this is certainly a business challenge Apple is facing, I think Apple is facing greater challenges with iOS 6-7 and the design malaise that we’ve seen recently. Those issues will need to be fixed first before Apple can hit this challenge head on.
Can Apple pull it off? And the bigger question—should they?
Antique coffee mill by McKay Savage from Flickr