iPhone SE: Why Apple's small phone could prove one of its biggest hits

There was a time in consumer technology when companies were falling over themselves to downscale their products. The bulky, brick-like mobile phones of the early ‘80s slowly morphed into hardy plastic handhelds, before transforming into lightweight flip phones and sleek metal and glass smartphones. Components were slimmer, the technology and software more sophisticated than ever before.

Then, in 2011, Samsung released what would come to be the first commercially-successful ‘phablet’ - a portmanteau of phone and tablet - the Galaxy Note, measuring 5.3-inches diagonally. An instant success, the Note range has gone on to sell more than 50 million units worldwide, and kickstarted our obsession with larger phones.

In 2012, Apple was still making iPhones measuring 3.5-inches. By 2013, this had crept up to 4-inches, and by 2014, reached the heady heights of 4.7-inches and 5.5-inches for the iPhone 6 and appropriately-named iPhone 6 Plus respectively. These new phones, Apple claimed, were “Bigger than bigger”, and they sold by the shed load.

The world’s most valuable company held an event on Monday where it revealed a new iPhone. But instead of an ever-larger, ever-thinner iPhone 7, it is a return to the modest 4-inch screens of old and a new name, the iPhone SE.

This £359 new handset is predicted to combine the smaller size of the past with newer technical features including a faster A9 processor, improved 12MP camera and near-field communication (NFC) chip to facilitate payments through the company’s contactless payment system Apple Pay.

The issue lies in the fact these are far from new features, they all exist in the iPhones currently on sale. Any major renovations- such as removing the physical home button or headphone jack - are likely to be saved for the iPhone 7, which isn’t due for release for another six months. So why should we care about a phone that effectively regurgitates past features and formats, with nothing new to show for itself?

The iPhone SE has two very different customers in mind. The first is the current 4-inch iPhone owner who is looking to upgrade, but doesn’t want an enormous replacement. Around 38pc of iPhone owners are using the smaller models which predate the 4.7-inch iPhone 6, according to research from Mixpanel. According to Apple 30m small iPhones were sold in 2015.

This represents a sizeable part of Apple’s user base using phones which are at least three years old, meaning they’re likely to want to upgrade in the near future

The second, and perhaps the most important, is those living in India or China. The SE is far less expensive than the 6 and 6s models. Apple will probably slash the price of the 5s by around 50 per cent, according to KGI Securities analyst Ming-Chi Kuo, presenting Apple fans in developing smartphone economies with a far more affordable way into the Apple eco-system.

The appetite for iPhones in both countries cannot be underestimated, even in the face of China’s rocky economic slowdown and India’s relatively nascent telecoms infrastructure. Apple announced in January that iPhone sales in India rose 76 per cent year-on-year, and the company plans to open its first retail stores there in the near future. China is Apple’s second-largest market by revenue behind the US, and currently holds close to a third of the country’s smartphone market.

Yet past experience tells us that merely lowering prices is not necessarily the answer to selling more iPhones. Apple learned the hard way with the dual launch of the iPhone 5c and 5s, which had a price disparity of $100, that customers were willing to shell out more for the marginally more expensive phone with significantly more attractive features - namely the premium aluminium design and Touch ID fingerprint scanner, over the polycarbonate 5c, which even chief designer Sir Jony Ive called “unapologetically plastic”.

A strategically-priced handset with the performance and benefits of the premium flagship iPhone 6s represents a gateway into the lucrative wider Apple software eco-system of Apple Pay, Apple Music, iTunes and eventually the company’s answer to Netflix. Therefore the iPhone 5s will take on the mantle as the dutiful entry-level model, as the SE racks up respectable sales from emerging markets, and the hardcore faithful wait for the 7 in September.

Apple may not be publicly willing to admit it, but it seems as if it’s shifting its strategy to better accommodate the upgrade market. It knows it has to allay its diminishing handset sales of late, and that not every potential customer is willing to pay full whack for the latest model, irrespective of where they’re living. While the iPhone SE may not be the most glamorous smartphone it’s ever released, there’s no denying that Apple’s decision to return to smaller iPhones could be one of its biggest yet.

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