iphone 5c

Apple and a New, Smaller, Potentially Less Expensive iPhone

Recent rumors suggest Apple may be planning to release a new iPhone in 2016 with a return to the smaller 4″ form factor. Some reports suggest this iPhone may target the lower-end of the market, like the iPhone 5c in a way. Other reports indicate it will still have relatively premium pricing — not as premium as the 6s or 6s Plus but also not $300. I imagine this will be an evolving story, but I want to share my thinking about this at a high-level.

Let me be honest, I struggle with this rumor. I’ll also be the first to admit I struggled with the need for Apple to launch a larger screen iPhone, even though I knew the market was trending in that direction. But my struggle is rooted in the basis that the market is trending and moving to larger screen smartphones. I’ve seen a number of research reports suggesting roughly 20-30% of the market is currently interested in a smaller 4″ iPhone. Of course, we know consumers don’t always know what they want until they see it. However, it seems all the data suggests larger screen phones is what the entire smartphone market is shifting to.

There is an argument to be made about price. This I interpret in the same vein of theory which led many to believe Apple needed a less expensive iPhone to get the growth they needed for their stock to remain valuable. But it turns out, what they needed to reset the growth button was a larger screen and a more expensive price point.

My concern with the lower-cost argument is that it targets a demographic that is unquestionably buying larger screens. For example, we may rationalize that Apple could take a lower-cost iPhone and bring it to markets like India. The challenge with this is consumers in India can already purchase very well made, high-spec, 5″ or larger Android smartphones for less than $200. So, can a brand new, smaller screened, slightly more expensive iPhone compete with a $150 well spec’d, 5″ smartphone in India? Maybe, maybe not.

Another market this product could be targeting (if it comes to market) is the pure post-paid segment in western markets. These are customers where price really is the most important factor. They pay their phones off up front, are often using pre-paid SIM cards, and/or simply can not afford a >$600 device or a $25 dollar a month payment plan. While I concede this is an interesting play, here again is a space where we see consumers purchase larger screen phones because, in many cases, it is their only computer. Therefore, the largest screen real estate they can afford is often the most desirable. This mindset is very similar to those of emerging markets consumers as well. Big screens are valued most and they need them to be affordable.

While I can’t yet rule out this potential move by Apple, I’m still skeptical. Most of the arguments presented to me for the need for a smaller iPhone don’t seem to hold water with the market insights we are seeing at the moment. Again, consumers rarely know what they want until they see it. However, the evidence presented for Apple’s need to address this price point to get new customers, if lined up with the data, would suggest they need to launch a lower cost, large screen phone. Essentially, a lower cost version of the 6s or 6s Plus. This seems highly unlikely. But again, we can’t rule anything out yet.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

22 thoughts on “Apple and a New, Smaller, Potentially Less Expensive iPhone”

  1. Right now, I’m sitting on (See what I did there? :-D) my last smart phone, a 5s. It is still larger than I want, so to go larger makes even less sense. I don’t want Android and Windows doesn’t seem to have a 4″ or smaller smartphone.

    Ah, well.


    1. My mother’s in the same boat — this year she’ll upgrade to the 5s, but after that, she’s going to be SOL if Apple doesn’t continue to stock a smaller phone for people with small hands or people who want something that will fit comfortably in their pocket.

      1. I think Apple’s reasoning is you can go bigger if you go thinner: both holding it and pocketing it get easier ? Plus screen size is a rather bad indicator of device size, the screen is only 66 to 80% of the surface of a phone. a 4.7″ phone @80% is probably very close to a 4″ @66%.

  2. I see this as an Apple channel filling move to hold the fort until the calvary comes (the A7).

    I bet they can sell in (or channel fill) 20M 4″ iPhones across two qtrs for an ASP approaching $500. This would pad the CQ2 and CQ3 quarters with an extra $10B revenue. If they don’t sell well, it might take till CQ1 2017 to convert these to sell throughs, but Apple’s revenues would be ‘smoothed’ with a positive impact on PPS. If they do sell well, it’s a win/win for Apple as the revenue contribution approaches $20B and beyond.

    Although $20B is only 8% of $240B, the contribution makes the two weakest quarters stronger and within those quarters the impact would be closer to 15%.

  3. If there is demand for 4″ phones than how much does it really matter that there are decent low priced 5″ phones? If I want a small car, the price of SUV’s does not have much impact on what I buy. Yes, it increases the temptation to go bigger, but if I already ruled out bigger it does not matter.

    If the size of the device is the driving factor, then the real question is whether there are any quality 4″ Android (or other) phones to compete against.

  4. “Less expensive” – maybe, maybe not. A smaller phone would logically slot in at $100 cheaper than the mid-sized phone (so, $550 for this year’s model, $450 for last year’s model). So price-wise, just like the 5c. The question is what happens when this year’s smaller phone becomes a 2 year old phone.

    Thus far, Apple has resisted making a $350 phone available except in lowish-income markets like China and India, where they keep the older phones around for an extra year (3 year old models) with another $100 price drop. There’s someone inside apple who has done extensive modeling of the impact to their profits if they allow their oldest phone to drop to the $350 level in high income markets (US and Europe), and it’s not going to happen until those models indicate that doing it will not lower profits.

    So, what does happen to a putative “small” iphone when it becomes a 2 year old phone?

    Option a: Apple’s market models indicate a 2 year old small phone at $350 will not impact their bottom line. So the minimum price to get an iphone will drop below $400 and everyone will be happy except Android makers who will suddenly have competition against their midrange models.

    Option b: it’s not going to be $100 cheaper. maybe $50 cheaper than the
    medium sized phone. So the bottom price drops slightly, but not below
    $400. Apple puts an even tighter than usual leash on non-apple retailers so you never see the small phone on sale for less than $400. Everyone except android makers is happy, including wall street.

    Option c: Apple will simply stop offering 2 year old phones, and the cheapest iphone you can get will remain $450, but now it will also be small – yet another reason to pay an extra $100 for the $550 model.

    Option d: Apple treats the small sized phone as “pre-aged,” so you never see a 2 year old “small” model for sale, and at the bottom $450 price tier you have a choice of a 2 year old medium phone or a 1 year old small phone.

    1. Full disclosure, I made a bet with a friend they don’t release a new iPhone with a smaller screen. Maybe smaller form factor but not smaller screen. So I may or may not be buying him an expensive steak dinner.. 🙂 But I struggle with this on many levels.

      1. Big screens are very useful to people who use their phone a great deal. But that’s not the entire market, and there’s also non-trivial population of people who do use their phone a lot but who also care a lot about in-hand comfort and one-handed usability, who are reluctant to go bigger than 4″ (and may regard 4″ as too damn big, but that ship has sailed).

        My mother told me she didn’t want a larger phone than her current 4s. She’s short and clumsy with small hands, and she uses the phone mostly as a phone, as a camera, and as a GPS device, plus a bit of asking Siri for information about this and that. So a bigger screen isn’t going to help her all that much, but it is going to make it much harder for her to handle it comfortably and safely.

        I finally got myself a used Iphone 4 last year. It gets used as a phone, as a camera, and as a digital shopping list. (I don’t have a data plan for it and don’t plan to get one). A bigger screen would be pretty much useless to me, while a bigger lump in my pocket would be a major downside.

        1. and to think I use my Galaxy Note 10″ as a GPS when I’m driving to unkown parts, and complain when I’m walking and only have my 7″ phone for that….

      2. I’d think that forcing a larger screen on people doesn’t make sense (and do I love huge screens ^^).
        First, people should be able to get what they want (even when they’re outrageously wrong !),
        second small does make sense for a suprising amount of people around me who really don’t do much with their smartphones (do we have any data on that ? are there clear segments, or does everyone read as much off their screens ?)
        third, smaller has traditionally also meant lower-end, but it really doesn’t have to, especially if you’re willing to make the phone a bit thicker to still fit high-end components inside. Sony’s “Z Compact” line seems to be doing OK on the Android side.

        Also, it’s not in Apple’s interest to offer cheaper options since a lot of people buy the brand not the device.

        I’d think it could make sense for Apple to release a smaller phone, but keep the price up, as well as the specs as much as possible. A BMW Mini is much smaller, *and* much more expensive, than a Renault midrange sedan. If I were Apple, I’d release an iMini, but at the same price as the iNormal. If they’ve got balls, they’ll even make it more expensive because… cramming so much magic in such a small space is even harder ?

        I’d have made a different bet :-p

      3. Newest rumours suggest that they are going to upgrade the internals on the 5s to A8 SOC, but continue to sell it as a iphone 5-something, for the same $450 free-on-contract price as before. In other words, a new phone in old clothes, aka, “pre-aged” as i called it.

        Which means this coming fall there will be two 450 phones to choose from, a smaller model that’s supposedly older, and a bigger less old model. Under the hood, both will be the same phone with the same 2 year old guts.

  5. Apple already sells a 4″ iPhone, the 5S, which I assume still sells well. The major hardware limitation of the 5S is that it does not have NFC and can not support ApplePay (it also doesn’t support VoLTE, but I suspect that is not as big a concern). Thus, it only really makes sense for Apple to release a new iPhone in order to make ApplePay available on a 4″ device.

    If so, the question comes down to pricing vs. the 5S. I strongly doubt Apple would release a new iPhone and price it under the 5S. There is only $100 difference between the 5S and the 6, so there is not much room in between unless they lower the price of the 5S. Maybe they drop it to $400 and only offer a 16GB model to create some room. Alternatively, and I think this is the more likely scenario, they could stop selling the 5S in strong ApplePay markets and just replace it with a 4″ 6C. The 5S would still be sold, but not in all markets.

    1. I think the size issue is a variant of the “cheap” issue we discussed a couple of years back. The main danger is having customers downgrade from the full device to the cheap, or small, variant.
      At the same time, there’s value for Apple in recruiting as many users as possible, be it on the cheap end or the small end. I’m sure they have extensive models for that. And in having these users stongly engaged (ie using Pay, Music, Apps…).

      They could go small by making smaller-but-not-cheaper. Or maybe, if “latest design” is a strong criteria, stick with last year’s design but with this year’s lock-in features (Pay), so their core buyers don’t consider switching down for fear of looking passé. Or maybe the camera can play that role, if it’s a core feature. I’d say the battery too, but iBatteries are already insufficient.

      1. Yeah, I’m a little annoyed with the conflation of small and cheap. I don’t need it to be the entry level/16gig. I want small latest hardware, 64gig+. I’m not interested in going larger just for the new features.


          1. I would seriously consider it if it were a Windows phone and not Android. Plus it is still a 4.6 screen, .6″ larger than I care for.


      1. Therein lies the problem. If you’re using any one of the iPhones you’ve mentioned, you have to have the Watch to be able to use Apple Pay. With this supposed upgraded 4″ iPhone, chances are you’ll be able to use Apple Pay without having to buy an Apple Watch. It gives you more options / flexibility.

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