In a recent article on FastCompany, Kit Eaton talked about why the continued sale success of the older generation iPhone and iPad could be a sign that Apple will be bringing out a ‘Lite’ version of the iPhone 5. So can we predict what Apple will do in the future with the iPhone by looking at past performance and the overall market?
For Apple to continue to grow they need to feed their current economic model with increasing sales of their hardware, which again will improve sales of media and apps through their other channels, so getting the product lifecycle correct is key. With the popularity of the iPhone and the iPad they have been able to bring out new versions with what many would deem as moderate improvements, resulting in loyal following upgrading, as well as new customers adopting either the new model or the older one at a reduced price. As Kit points out in his article, the iPhone 3GS is still outselling many of the competing Android handsets, showing that so far Android is primarily taking marketshare from the likes of Nokia.
With reduced component cost and economies of scale this means that Apple can continue earning money from the older handsets, while building up the overall customer base and then moving them up to newer models.
One factor to consider in this success is where the overall market is moving.
Image source: Unwiredinsight
Based on the above smartphone growth predictions on a global scale we are still very much in a growth face, so in theory if situation stays as it is Apple should still see growth in iPhone sales. What this graph does not tell us anything about though is which parts of the market have the biggest growth potential to come, which will have a significant impact on the strategy any company chooses to adapt in the coming years.
If we compare that with smartphone OS market share (US) we can see that Apple marketshare overall has stayed pretty constant with Android seeing heavy growth.
One can argue that the overall growth in the smartphone market is taking us from an early adopter stage towards majority, especially in developed markets. For Apple this results in two things; (1) offering older iPhone models at lower cost will result in more adoption due to its brand recognition, and (2) that growth in upgrades compared to overall customer base is likely to slow down ( as a percentage).
One of the key successes for Android has been the wide range of handsets that have been targeted towards the late adoptors/early majority. Basically delivering a handsets for most type of users. Although the top range of Android handsets can rival the iPhone in technical specifications, the brand power of Apple has stopped migration of their customers to Android.
So how might this information impact on Apple and their next move for the iPhone? In my opinion this will be all about innovation management. Managing the customer and product lifecycle side by side.
With their economy of scale Apple can continue to keep up with the technical specifications of Android handsets while keeping production costs lower. This means that their strategy of delivering improved models for those that are always looking to stay ahead of the market, while reducing cost for those that want to become Apple iPhone owners. They can further leverage their brand position to pick up the late majority with older handsets, as the large number of Android handsets make the market more cluttered and more difficult for consumers to navigate. The clarity in strategy and position from Apple will help them as the opposite is happening in the market overall.
The technical specifications of the smartphones will become something that mostly early adoptors will look for, as the specifications will already be beyond what most people will require from a smartphone, so it will be the innovation in content and usage of the smartphones that will drive success more than technical specifications.
Cloud storage and media streaming is likely the next big thing for smartphones as it will free up storage requirements (and hardware costs) on the device itself, while giving users access to their data and media on the go regardless of device (in theory). The result is likely to be lower price of handsets themselves while manufacturers will actually improve their profit margins, as well as being able to charge for cloud storage and access through networks.
As for the upgrade cycle for the iPhone, this can at least partly be managed by innovation in usage of the device based on the iOS firmware. Take for example what Apple did with releasing new features like AirPlay and AirPrint, but only making the iOS needed available for the latest versions of their hardware. Creating a customer need for a new feature will drive the upgrade cycle.
So what does this spell for the next generation(s) of the iPhone, including speculations around the iPhone 5 and a ‘Lite’ version to target the growth areas of Android handsets? My predictions would be that the iPhone 5 at the moment is likely to be a technical upgrade from the current iPhone 4, with possibly a slightly larger screen. As for the ‘Lite’ version, Kit’s argument is sound and he might be right. Replacing the most costly components of the iPhone 4 to reduce the price even further makes sense, but targeting the cloud with a lower cost version might just work against them in that part of the market, as it is more of an early adoptor feature.
One thing is for sure, being the first to deliver on a customer need (or creating a customer need) has worked really well for Apple so far, without which the rest would not really matter much.