Apple’s 5C Invasion Strategy

All the speculation around the iPhone 5C was that it was designed to be Apple’s product to infiltrate the lower tiers of the market and begin to take share from Android.

You may or may not know that in several markets like the US, Japan, and parts of Europe, the iPhone dominates the premium section of the iPhone market. This market makes up roughly 10-15% of the global smartphone market. Obviously Android dominates the other and much larger sections of the smartphone market. So the speculation around the 5C was that it was designed to help extend Apple’s product line beyond the 10-15% of the high-end segment. So does the 5C do this? I believe the answer is yes but it is not clear exactly by how much.

I know that is a foggy answer but this is a complex problem. If you study Apple like I do you know that what matters to Apple is not just market share but the right market share. Apple wants customers that add value to their ecosystem. Meaning that they spend money on apps, media, accessories, etc. The ultra-low-end part of the market does not do this. The larger middle-tier of the market does this to a degree. The market that Apple currently dominates does do this and in large volumes.

Apple has brought a current generation iPhone line-up in the 5C at lower-costs than previous current generation iPhones. This is why in the US market the lowest-priced iPhone with a new two year contract is $99. Now in many other markets Apple does not set the price of the phone. The carrier buys the phone then prices it at whatever they want. So this means a carrier in other parts of the world can buy the iPhone 5C then charge any price they want. They can make it free, $49, $69, etc.

So to answer the question we need to anticipate the value of the iPhone to a carrier by way of driving data services. If you follow the iPhone’s market share by way of web consumption (data) then you will know it is the undisputed leader when it comes to driving data usage on carrier networks. This is a big deal and I believe that carriers in markets outside the US understand this value and will price the 5C aggressively in order to attract the more valuable customers to their network.

So what about China?

This is the big wildcard. Apple for the first time included China as a launch day country. This is significant and the Chinese customers will appreciate this in that is shows them Apple is not treating them like second class citizens. Of course to really tackle China Apple needs to have China Mobile as a distributor.

This deal is inevitable in my opinion, especially since the new iPhones support TD-LTE which is the standard for China Mobile network. Cost aside, my firms forecast and from many others I saw, anticipated that a China Mobile deal alone could lead to 3-5% extra market share in China for the iPhone.

Is the cost high for the iPhone 5C in China? Yes, but keep in mind that all imports suffer a massive import tax. This will always keep the cost of iPhones higher than any local brands in China. This fact alone complicates the competitive landscape in China more than many realize.

All of that being said, I’ll say this about what Apple announced today. In light of the competition, they have never been up against an actual iPhone lineup. Competitors have been competing against only one current generation phone. Yes Apple offered legacy devices in the market but I can’t overstate the importance to new buyers and upgrades on current generation devices. This holiday will be the first time that Apple’s competitors will be going up this strong of a current generation iPhone lineup. With that I will add that Apple’s brand and marketing should not be underestimated by the competition.

Many of my analyst colleagues doubt that Apple’s moves today take them beyond the 10-15% they currently own. I disagree. Colors will be of interest to many segments of the market. The gold iPhone will be a huge hit in China due to what the color represents. Pair that with the project Red case and the Chinese will go crazy.

I’m not going to project or forecast what amount of extra share Apple can garner from the new lineup. But I will not be surprised if this takes them beyond the 10-15% and into the 20% if not higher. I certainly believe that in markets where the iPhone is priced even just 100-200 dollars more than a competing mid-tier Android device that the iPhone will fair well. In fact in all but pre-pay markets we estimate the iPhone to take share from the 350-400 dollar mid-tier Android devices.

There are number of data points we are tracking to validate this. Google Play app store revenue in Japan for example as well as the sales figures of Samsung and others in key regions. Lastly, we estimate that by the end of the year iOS will have gained enough ground on Android to now have more than 50% us market share.