In an excellent interview with Business Week, Tim Cook explained their thinking for the iPhone 5C:
We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost. Therefore, we can pass that on. And we figured out a way to sell 4S at substantially less than we were selling it for before, and we’re passing it on. So we think there will be a lot more people in our tent, and we can really serve a lot more people. And that feels good.
The iPhone 5C is fascinating to me because nearly everyone—including John Gruber—got it wrong: it isn’t a “cheap” iPhone. Rather, it’s something that’s both much more obvious and surprising.
Implicit in the idea that Apple should release a cheaper iPhone is that it would be a secondary model for people who want an affordable prepaid iPhone and for international markets; that is, an implicit assumption was that the iPhone/iPhone 5S would remain the mainstream iPhone. That isn’t what Apple is doing with the iPhone 5C.
Instead, Apple has taken the strategy they’ve followed since releasing the iPhone 4—take last year’s model and make it available at $99—and created a distinct product from it, and made it the mainstream iPhone.
Rather than move the iPhone down market with the iPhone 5C, Apple moved the “regular” iPhone—this year, the iPhone 5S—up market to become the pro version, and establish the iPhone 5C as the “regular” iPhone. The iPhone 5C is now the iPhone that really is good enough for everyone. The A6 processor is fast, so is LTE, and the iPhone 5′s camera is very, very good. The colors lend it a feeling of accessibility, too; it feels less serious than the iPhone 5′s aluminum design, more fun, and the colors allow for a greater feeling of personalization and whimsy. (The cases only amplify that, misplaced circles aside.) It’s a very good phone at a reasonable $99 price-point, and it’s going to look much better in the store to potential customers than last year’s iPhone model did.1
Apple’s marketing certainly seems to be trumpeting this, too. Apple’s home page features the iPhone 5C, not the 5S, and it’s playing heavily on the 5C’s colors. They featured an iPhone 5C ad, not one for the 5S. Tim Cook and Phil Schiller referred to the iPhone 5S as Apple’s most “forward-looking” iPhone yet. Apple is positioning the iPhone 5C as Apple’s iPhone for everyone, and the iPhone 5S for people who want the best.
That makes some sense on the face of it; it allows Apple to sell a “new” iPhone at $99 with 16GB of storage, but with lower cost of goods sold, which means they can maintain their margin. It may also allow Apple to push the envelope a bit more at the top end because they no longer need to manufacture enough iPhone 5Ss to satisfy nearly everyone purchasing a new iPhone at launch. But if the iPhone is under mortal threat from low-end, commodity Android-powered smartphones, then this decision seems bizarre. It won’t compete with those devices. The iPhone 5C is cheaper, but it’s not much cheaper.
But it starts to make a lot of sense if you think that smartphones aren’t so far along that the low-end, cheap models are good enough compared to the iPhone. If Apple can still provide superior hardware and software that, combined, make for a genuinely better device that is palpable for regular customers, then Apple has no need to bloody itself in the low-end washer machine.
And that’s exactly what Apple seems to think. Tim Cook explains what he thinks makes Apple so special, and what makes this strategy possible:
You look at innovation like the iPhone’s camera and the detail that went into the camera. Most people hear the word camera, and they think of hardware. And hardware is really important to it, you know? With the stuff we did with the flash on this. But it’s software, and it’s the silicon—I mean, it’s everything.
So the way I think about Apple is that the magic of this place really comes up at its best when hardware, software, and services come together. And it’s sort of the intersection of those things is where things get incredibly magical. So facilitating that to happen and getting the collaboration level for that to happen is the magic here.
And one of my proudest moments is when other people see that. They don’t know that they’re seeing that, and that’s also the beauty. They don’t have to do it. But look at these (gesturing to iPhones). These are perfect examples where the hardware and the software and the service begin to blend. In some ways you don’t tell one from the other.
The iPhone’s camera is the perfect example of what Cook is arguing. The iPhone’s camera—a cellphone camera!—is now so good that many people have nearly no need for a dedicated point-and-shoot camera. This is only true, though, because Apple has focused on developing the camera in a way that can’t be captured so well on a specification sheet but really does make for a better camera. Rather than boost their sensor’s megapixel count, Apple has kept it steady at 8 megapixels for three iPhone models, and instead has boosted the sensor’s size. They’ve focused on doing rather incredible things with the iPhone’s Image Signal Processor to make for, and choose, better photos. While these things don’t translate well to selling points for cell carrier sales associates, it does make for a truly better camera, and customers do notice the difference. As a result, the iPhone feels like a device in a class of its own.
The obvious choice was to make a more affordable iPhone. I don’t think Apple is religiously opposed to making a cheaper iPhone, but they will only do so if they can make a convincing product. What Cook is saying is that making truly good products comes first. Eventually, I believe, Apple will do exactly that. That shouldn’t be a surprise; the iPhone 5C is highly reminiscent of my first Apple product, and one of my favorite devices ever: the iPod Mini. The iPod Mini had less storage than even the third-generation iPod (10GB versus the Mini’s 4GB), and wasn’t that much cheaper than the third-generation iPod ($299 versus $249), either. Critics at the time were perplexed; if Apple was going to make a lower-end iPod to compete with more affordable competing devices, the iPod Mini certainly wasn’t it.
But it didn’t matter, because it was a damned good product. For me (as a high school student at the time), the lower price finally made it attainable, and the colors were fun in a way the regular iPod never was. The iPod Mini was incredibly successful, and it wasn’t the end; Apple replaced it with the iPod Nano in 2005 at lower prices, and introduced the iPod Shuffle—a completely different kind of music player—in 2005 as well at even lower prices.
I think the iPhone will follow precisely the same path. That is, I believe Apple will build some kind of “iPhone” product for the low-end eventually, but it may not look like an iPhone at all.2
In that sense, what Apple did was incredibly obvious: it’s what they’ve been doing since Steve Jobs returned to Apple. They don’t identify price-points and product attributes and then create a product to fill it, as most companies do. They create genuinely good, convincing products that solve real needs for people first.
If you’ve been concerned about where Apple is going under Tim Cook, this should be a sign that there’s nothing to be concerned about. Apple’s unrelenting focus on making truly great products is not only still there, but seems to be reinvigorated under Cook’s new management team.
There have been a lot of headlines lately with some variation of “Is Innovation Finished At Apple?” I believe the best may still be ahead of Apple.