Will the "cheaper" iPhone really be all that cheap? If not, what is the real motivation for splitting
By now, the speculative calculations that I first reported on at the end of June—which predict that the announcement for the next iPhone(s) would occur on September 10—have been widely accepted as fact. Apple, of course, is neither confirming or denying the fact, but the same is true of an increasing parade of leaked photos of gold (or "champagne") toned iPhone 5S and brightly colored iPhone 5C units churning through the rumor mill (and, ostensibly, actual factories.)
The latest consensus is that the 5S will not be a ground-breaking release, but rather an incremental improvement of the sort found in the 3GS and 4S. These, of course, have turned out to be very enduring products for Apple, building upon the breakthroughs but fixing the flaws of their numerical siblings. Given the choice, I would always go for these incremental releases over the debuts.
The big question with the 5S is whether it will include the rumored fingerprint sensor, or whether the placement of a little code in iOS 7 was a red herring pointing to future releases or just throwing a scent off the trail. As cool as the implications may be for how Apple could use such a feature, it's unlikely something that will get fanboys to camp out at Apple stores to be the first to procure.
If the 5S is not the big story here, what about the rumored "inexpensive" 5C? Many experts have concluded that it will not actually be that "cheap." Daring Fireball's John Gruber writes that he thinks, "Apple could build and sell an iPod Touch-caliber iPhone 5C for $399, possibly as low as $349." He counters Analyst Gene Munster's prediction, that Apple will remove some software functions from the 5C (like Siri) to prevent it from cannibalizing the 5S. Gruber thinks that beyond the plastic casing there will be hardware differences like processing speed and camera quality to distinguish them.
The really important point about the 5C, I think, is that it will give Apple a way to defragment its user base and consolidate more and more of its app customers within the new 16:9 format of the iPhone 5. Apple is losing the battle of numbers to Android, in general, and Samsung in particular, but it still has the quality advantage. By this I don't mean the quality of its hardware (which is debatable) but of its audience.
Before the iOS 7 beta was introduced, 93% of iPhone users were on iOS 6. Conversely, the latest version of Android (Jellybean) has only recently surpassed the popular, almost three-year-old version (Gingerbread), and is just above 40% penetration. And iOS users have been well-documented to be more engaged with their devices and, pointedly, spend more money on apps and m-commerce.
iOS developers are moving aggressively into updating their apps for iOS 7 and building new ones to take advantage of its capabilities. Getting as large a share as possible of the global market on the 16:9 format is a key step in preserving the coherence of the audience for those apps. And the sanity of developers!
This is where Apple plays the present against the future. If you look at where its revenues come from, only 7% is from software and the iTunes store. And the apps that developers make is only a portion of that. But historically, it has been the support of the developer community—often going against their own financial best interest—that has distinguished the quality of Apple's platform, first from Windows and now from Android.
So the interesting question is how much revenue will Apple sacrifice in order to build iPhone 5 share globally? Can the iPhone approach Android prices but retain an advantage in terms of user experience quality? The iPhone 5C may not be cheap, but it will be cinematic.
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