Should Apple ever release a budget iPhone?

By

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Could a budget iPhone help Apple's smartphone business?
Photo: Ste Smith/Cult of Mac

Friday-Night-Fights-bug-2Speculation surrounding a “budget” iPhone died out when Apple marketing chief Phil Schiller promised it would never happen. But with iPhone 6s demand allegedly falling and the global smartphone market becoming increasingly saturated, could a more affordable phone give Apple a security net? Could it prevent the iPhone business from stagnating in the same way the iPad business has?

Join us in this week’s Friday Night Fight between Cult of Android and Cult of Mac as we bicker like children over these questions and more!

Killian-FNFKillian Bell (Writer, Cult of Android): Despite being Apple’s best smartphones to date, with genuinely innovative features like 3D Touch, the iPhone 6s and 6s Plus don’t appear to be doing quite as well as Apple might have anticipated, with recent reports claiming the company has had to cut back its orders quite significantly.

I don’t doubt for one minute that the upcoming iPhone 7 series won’t change this, but it got me thinking… What if it doesn’t? What if the iPhone business endures a lengthy struggle? Could you ever see Apple releasing a budget device for emerging markets?

I certainly can. It’s a move many analysts predicted Apple would make just a couple of years ago, and in many ways, it would make a lot of sense.

cartoonluke_360.pngLuke Dormehl (Writer, Cult of Mac): Well, first of all I think it’s important to note that this is based on a “What if” premise on your part. There have been plenty of bad hypothetical situations Apple has faced over the years, with some analyst or other predicting doom and gloom, and virtually none of these have ended up happening. We don’t know Apple’s latest quarterly results, and until Apple releases them, this is all just speculation.

What is interesting, at least to me, is the fact that, while analysts may be happily cutting their (unrealistically?) sky high estimates for continued sustained iPhone growth, there are no shortage of companies who actually work on the supply side trying to get a bigger piece of the iPhone pie. This month alone, both Foxconn and Samsung have reportedly made big investments to up their reliance on Apple. That’s not something I would personally be doing as a business owner if I thought the iPhone was a sinking ship.

As to your question then, I certainly think a low-cost handset is something Apple could pursue — but is it the right move? I’m not sure it is. Apple’s one of the very few smartphone companies right now that’s continuing to thrive without being involved in the race-to-the-bottom that is dragging down so many Android cheap device-makers. Just this week we saw a new study showing that, while Google Play is dominating the App Store in sheer quantity of downloads, Apple is still raking in far more cash. Every study we see shows that iOS users spend more than their Android counterparts, are more engaged with their devices, upgrade faster, etc. Apple also has its presence as a “luxury” retailer to maintain. All of these advantages would be compromised if it started making cheaper handsets.

Growth probably could be quicker in markets like India and China if Apple decided to release a cut-price iPhone, but it’s showing improvements in these markets regardless. And how many Western customers want a cut-rate, less-powerful iPhone instead of the premium, flagship devices?

It’s just not in Apple’s DNA to do this — and I think it would be severely shortsighted to make this decision based on even a few slowing quarters for the iPhone, should that happen. Apple’s got the luxury of thinking longer-term than that. And a reflexive move to take on Xiaomi and others wouldn’t be the wisest move they could make.

iPhone 5c is the closest we've ever gotten to a cheap iPhone.
iPhone 5c is the closest we’ve ever gotten to a cheap iPhone.
Photo: Apple

Killian-FNFKillian: Yes, well, as you rightly pointed out, this is a “what if” question. I’m not suggesting Apple should rush to release a budget iPhone just because the iPhone 6s series isn’t performing as well as the company might have hoped (according to the reports). But it is silly to think the iPhone business is unbreakable.

Over the years we’ve seen plenty of tech giants fall from grace because they didn’t react quickly enough to market changes, and Apple isn’t immune to this. Yes, it seems highly unlikely Apple will be the next BlackBerry — but it’s certainly not impossible.

What I’m asking is, if the iPhone 7 couldn’t stop falling iPhone demand, and over the next few years (not quarters) the iPhone business stopped growing and began to stagnate, would Apple release a budget iPhone to grab sales in emerging markets, or would it just accept its fate? It seems insane that it would go with the latter, just to maintain a “luxury” image.

We’ve seen other Apple products fall. I’m not talking about the Bandai Pippin and the 20th Anniversary Mac, which were never big sellers; I’m talking about products like the iPod, which is now on its last legs — and the iPad, which continues to see falling demand.

I know it’s not in Apple’s DNA to produce cheap products, but Apple might be a different company in five to ten years. The worldwide smartphone market is already saturated, so at some point, the iPhone business will stop growing, and Apple is yet to deliver a product that looks like it could fill the iPhone’s shoes. It won’t find that in an Apple car, either.

cartoonluke_360.pngLuke: We won’t get into an argument about the iPod here for fear of derailing the debate, but I’d suggest that falling iPod demand had everything to do with Apple cannibalizing its own product lines by introducing the iPhone, which has now become most people’s de-facto portable music player.

Look, I can’t see five years into the future — and there’s no way of knowing what world events, which have nothing directly to do with Apple, will have affected people’s ability to buy high-end smartphones. Personally, I think that in the short-term, the iPhone is going to be fine. If anything, I think negative analysts are sleeping on how big the company’s Upgrade Program is going to be for people getting their hands on the latest handset. No, that’s not necessarily adding new customers, but it’s getting existing customers — ones who have shown that they’ll spend money — to upgrade more often.

But here’s a question for you, to turn this around: Which company should Apple be modeling itself on then? Because I certainly don’t spot a lot of smartphone OEMs Apple should be envious of. It seems more like, as I mentioned earlier, a race to the bottom. That’s not exactly a sustainable business model, which many other companies have found out.

Of course the iPhone market can’t keep getting bigger indefinitely, but there are other ways for Apple to grow as a company — and trying to eke out a profit by selling cut-price iPhones seems, as far as Apple strategies goes, similar to the legions of people in the 1990s pushing Apple to license Mac OS to budget third-party PC makers. With Macs being the only major PC manufacturer seeing a rise in sales, we’re all glad that didn’t happen here in 2016 — and I suspect we’ll feel the same in 2021 about the decision not to follow your strategy.

Apple is expected to introduce another 4-inch iPhone, but it probably won't be cheap.
Apple is expected to introduce another 4-inch iPhone, but it probably won’t be cheap.
Photo: Apple

Killian-FNFKillian: Yes, I’d agree with your iPod comment. But Apple only had the chance to cannibalize the iPod business because no one else could — no other music player was as good. But with the iPhone, it’s different; Apple has strong competition from rival products that are just as good, if not better. I also agree that the iPhone will be fine for the foreseeable future, and that the Upgrade Program will certainly help sell more devices.

But again, it’s not immune to failure. You can get a lot more for your money if you’re willing to buy something that doesn’t carry the Apple logo, so unless Apple can make the iPhone the best smartphone on the market — not just the best marketed phone — then it’s vulnerable.

I don’t think Apple should model itself on any other company. It is too unique, and too good at what it does already; following a rival would be a step backwards. Apple should do what it is great at and deliver revolutionary new products that can prevent a downfall, and reverse falling demand. Not just slightly improved products that would probably fall flat if they weren’t made by Apple.

Look, I’m not laying out a “strategy” or calling for Apple to change its ways at all. You’re blowing this out of proportion again. I merely asked what you thought about the idea of Apple making a budget iPhone. Yes, it’s doing well in China and India, but it could be doing even better with more affordable devices. I don’t mean sub-$200 pieces of junk, I mean iPhones that are well-designed to cater to those who can’t afford to spend $700 on a smartphone.

Again, the smartphone market is already saturated, and Apple dominates the high end of it. But there’s an opportunity for it to penetrate the low end.

Let’s pass this one over to the readers now. Do you think a budget iPhone could be good for Apple, or is a terrible idea?

Friday Night Fights is a series of weekly death matches between two no-mercy brawlers who will fight to the death — or at least agree to disagree — about which is better: Apple or Google, iOS or Android?

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