On Monday, Apple introduced two new products that are quite important to their overall strategy and will have an impact on achieving two key goals in the future.
First up is the iPhone SE. From a design standpoint, it is almost identical to the 5c but with all of the updated technology features in their newer iPhone 6 and 6s line. But this iPhone is important to Apple for two key reasons. First, it comes in at $399, which makes it the lowest cost premium phone they have ever brought to market. Our research shows there is actually pent-up demand for this in China and many countries where a 4 inch model is still prized by many. We estimate this could add another 40 to 50 million per year to their overall iPhone sales.
However, I see this as Apple’s first serious entry into the mid-market for smartphones and, more importantly, this is the smartphone they will use to begin a major initiative to gain market share in India. I realize that, at $399, it is still way overpriced for India and most emerging markets but it delivers a psychology breakthrough in people’s thinking in these markets. This new price brings it into the realm of serious aspirational interest. Apple’s brand is highly prized in emerging markets but the higher priced models made an iPhone a prize they could never have.
Now, with the iPhone SE, it starts them thinking perhaps at some point they could actually own an iPhone. The people in these markets are smart enough to know that while this new iPhone is still priced too high, Apple can ride the supply chain down and within a year perhaps drop it another $100. This would make it even more affordable in emerging markets. I see India as Apple’s new China. Apple’s growth in mature markets is steady. In China there is still room to grow market share, but India is a greenfield for them that was untouchable with current iPhone models at their higher end prices.
Indeed, Apple is about to open a 5th Ave class store in India and will soon have satellite stores throughout the country as it moves to expand its presence in this market. If Apple is going to grow iPhone market share, it will have to come from emerging markets and India will be the next major market they go after.
The second product of note is the 9.7 inch model of the iPad Pro. This too is important for Apple’s future. Although the 13 inch iPad Pro has struck a chord in markets where drawing, graphics and high degrees of mobility are critical to the business process, it was still too large for some people. A 9.7” iPad Pro deliverers the same features of a larger iPad Pro but in a smaller package.
But what is unique with the launch of this product and an emphasis on the larger and smaller iPad Pro is that for the first time Apple has publicly targeted the Windows PC world. More specifically, the folks who have PCs over five years old. Intel and other PC makers have stated there are at least 600 million PCs still in use that are over five years old. To the traditional PC crowd, this has been their target market for some time.
However, it is now also a target market for Apple. When Phil Schiller launched the new, smaller iPad Pro, he made it clear Apple is now going to go after the PC crowd and will use the iPad Pro to target PC replacers in the same way Microsoft and their partners are using similar 2-in-1 models. This is a big shift in Apple’s strategy. For years, they did not embrace the 2-in-1 concept but Microsoft’s Surface and other competitor’s models in which a tablet/keyboard combo has been positioned to compete with traditional laptops has shown there is interest in this form factor.
Now that Apple has declared they too plan to expand their position and marketing clout to potential PC upgraders, they will be a worthy competitor to Microsoft and the other PC players who also covet people who are thinking of upgrading. How successful they will be when competing head on with a Windows solution vs and iOS version will be a big question but the fact Apple has 1 million iPad apps available should help them at least get the attention of the switchers.
These two products are very strategic to Apple’s expansion of their hardware, software and ecosystem. I expect Apple to put serious marketing dollars into them and make these new products an important part of their expansion plans. The iPhone SE allows them to offer a premium smartphone play at a more affordable price and I think starts them down a broader path to going after emerging markets more aggressively in the next three years. The smaller iPad Pro creates another workhorse option in the line that makes it even more attractive to both business and consumer users. Together they are quite important to Apple’s future.
Hi Tim, I wonder whether iPhone trade in program targeted 3rd world countries as well. An older refurbished iPhone can also be a reasonably good introduction to someone who never had an iPhone. Also it would be interesting to hear or read the statistics on how many iPads on the market are more than 5 years old. My parents have an iPad2, which is 4.5 years old for example and it is still “good enough” for them for TV watching.
The number of 5+ year old iPads still in use is probably pretty close to 0. The original iPad launch 6 years ago and I believe Apple sold 15 million that first year. It was discontinued a year later and can only run iOS 5 or earlier. I doubt many are still in use.
The iPad2 launched March 2011, so technically there could be some 5+ year old iPad2’s still in use. I think they sold about 5 million in the 1st quarter after release and about about 40 million the first year. Though it runs the latest iOS, it does not run it well (and can not support all features). A fair number are likely still in use, but I suspect a low percentage will make it past 5 years.
“The iPad2 launched March 2011, so technically there could be some 5+ year old iPad2’s still in use”
20% of all ipads in use were ipad 2’s as of last fall. If you aren’t running memory intensive games, they’re still quite capable. The ones that we had before we upgraded due to gaming requirements are still being quite happily used by our god daughter and her cousin — the batteries are still perfectly good and they play light games and surf the web perfectly well..
Still being functional and still being widely used are two different things. Whether a device is still usable after 5 years has as much to do with usage as the underlying hardware. I have worked on a number of projects that involved a large number of iPad2’s. Even though they still does everything we need them to do, devices bought in 2011 have degraded (both battery and storage) and suffer noticeable wear and tear. That said, we have changed our replacement cycle assumptions from 30 to 54 months.
Keep in mind that the iPad2 was still being sold in 2014 and received a slight but not insignificant hardware upgrade in 2012 so not all iPad2’s are the same. A lot of still in use iPad2’s are still only 2-3 years old.
We are already seeing recycled iPhones showing up in emerging markets and parts of India. But when they are more like status symbols, new models are important. Actually, refurbished iPhones are a big market and you may be surprised that the largest purchaser of these recycled iPhone’s is Uber. These are what they give all of their drivers around the world.
May be not now, but in several years when the hardware become more commoditized phones will sell like cars by a model number and a year. No Toyota Camry 6 for example. And there is a significant market for used cars.
I think Apple has to juggle 2 conflicting objectives:
1- get their existing customers, who are a very loyal bunch, to spend ever more on devices (and on ancillary services/content/hardware, but that’s not the topic here)
2- grow their user base and making sure they don’t leave.
The 10″ iPad Pro is very straightforward: spend more, then even more for the accessories.
The iPse is intriguing. It’s actually not outrageously expensive in the absolute (about 2x a midrange Android, similar to Sony’s high-end and similar-size Z5 Compact). My take on it is Apple is feeling some price pressure and couldn’t maintain their usual prices. I’m curious if the margin on the se is below usual. ASP sure is.
The main risk with that is some of their customers still on an iP4x or iP5x will get a cheap iPse instead of an iP6S.
Android users with Trump hands rejoice: now you’ll probably get a 4.5″ S7 mini, the A3 is good but probably too mid-range internally to go up against the iPse; its design is nice though.
“My take on it is Apple is feeling some price pressure and couldn’t maintain their usual prices.” It is possible, but I would rather put my money on a bigger market share preference. After Apple gets you as a customer:
1. There are more money for them from selling services
2. When you are in it is hard to get out, since you are tied to the ecosystem. For example most of my purchased Books containing notes are on iBooks now and movies are on Apple TV and it is hard to switch.
You left off #3: once you become a happy satisfied Apple customer, you will want to buy from Apple again when your old device dies/breaks/gets retired.
“and it is hard to switch.”
1. Install itunes 10.5 on a spare computer or in a VM. Authorize it to play your content. Download your ibooks and videos to it.
2. Install Requiem 3.3.6.
3. Remove apple’s DRM. Enjoy your books and movies where ever you please.
Mmmm,
1- that’s illegal in many countries
2- the linked blurb only mentions books, how do you do it for movies ?
1. Who cares? You’ve bought it, you have the right to view it on whatever device you want. Take a vacation somewhere where it’s legal to remove digital locks and remove the DRM while you’re there if you’re worried the NSA is going to report you to the copyright police. Or you could just torrent a DRM free copy of the content you’ve legitimately purchased. Or you could stop worrying about obeying stupid laws that criminalize you for doing something that is in no way wrong or harmful and that are utterly unenforceable.
2. I am told that it does videos. Never actually tested it myself as I rip DVDs rather than buy digital video. Apprentice alf site is just where I found download links, and apprentice alf is all about ebooks. Sorry for confusion.
I am all Apple now (Apple TV/iPad/iPhone/MacAir/Time Machine) and enjoy a seamless fluidity of the content across all my devices. For me a paid content is a small price to pay for the absence of quirks. So for now I profess “If it aint’t broken – don’t fix it” approach.
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