Failure is fascinating. Failure highlights our limits, our strengths, our mortality. My ‘explorations in failure’ will this week examine the iPhone 5c. At the very moment Apple was about to slice deep into the Android behemoth, offer the world a glorious low-cost iPhone, it fell flat on its face.
How could this happen?
I don’t have all the answers, of course, but I think there is much to divine by piecing together the iPhone 5c detritus.
The scale of Apple, its global supply chain, massive retail footprint, market valuation, the popularity of its computing devices, these all reveal a company that rarely makes mistakes. Apple’s iPhone 5c has been a striking failure, however, selling far fewer devices than Apple expected, likely dampening overall iPhone sales, and, if well-placed rumors are correct, very soon to be no longer of this world.
It all began, of course, with so much promise. The iPhone 5c — aka the “cheap iPhone” — was, we were convinced, going to be the aggressively priced new iPhone, ready to dismantle Android throughout the developing world, possibly beyond. It would (quickly) add tens of millions, ultimately hundreds of millions of new users into the Apple/iOS ecosystem.
This was not to be. As Tim Cook stated during the company’s most recent earnings call, 5c demand “turned out to be different than we thought.” While Apple sold an astounding 51 million iPhones total in the last quarter, Cook admitted that “our North American business contracted somewhat year over year.” Cook placed the blame squarely on the iPhone 5c by bravely reminding us that Apple “actually sold more iPhone 5s’s than we projected.”
Here’s the bottom-line: not only did iPhone 5c fail to sell in the numbers Cook calculated, the company suffered unnecessary expenses and pinched revenues by wrongly estimating the 5c/5s sales mix.
In a rather harsh assessment to the 5c’s poor showing, USA Today noted that Tim Cook refused to address the device by name. The publication went on to state that:
Sales of Apple’s iPhone 5c have been so disappointing that the consumer technology giant will likely cut the price of the device soon or even scrap the model altogether.
Count me among those that doubt iPhone 5c will reach its first birthday.
After all, the iPhone 5c, as it presently exists, is frankly inexplicable. It’s one of the highest-priced smartphones on the market, nearly as pricey as the 5s, yet with shockingly lesser hardware and camera features. Oh, and it doesn’t have the same look as the iconic iPhone 5s.
Go on – do your best sales job with that.
How did Apple so badly misread the market? In fact, there are several reasons.
Failure 1. Losing the Narrative
The most obvious failing of the iPhone 5c may be in how badly Apple lost control of the narrative. Remember the build-up of buzz before the original iPad? A full touchscreen tablet, built on iOS! The only downside, it was going to cost about $1,000.
We happily got that wrong. iPad turned out to be Apple’s most reasonably priced personal computer ever.
The 5c was the reverse of this. For example, as speculated in Daring Fireball: “(Apple’s) three pricing tiers for the next year would be a new iPhone 5S at the high end, today’s iPhone 5 in the mid-range, and the new 5C at the low end.”
Sadly, no. Worse for Apple was that we all believed the rumors. Not simply because of their persistence, no, but from the fact that the market was so obviously ready for that awesome low-end device that we were convinced Apple was capable of delivering.
Perhaps we should not have convinced ourselves. As I have said here many times: it is extremely hard for any company to shift gears and go down-market, or, for that matter, to reverse its low-price strategy and go up-market. Apple is no different. All corporations have unique strengths, unique brands, unique positions within the larger marketplace. With the 5c, we learned this the hard way. Nonetheless, Apple PR must do a better job of controlling the narrative of its upcoming products.
Failure 2. Anti-Apple design
A second failure is that the iPhone 5c altered the familiar design cues of the highly popular iPhone line. The 5c is “unapologetically” plastic and offered in several bold colors. This is the Nokia design template — and they’ve been doing it far longer than Apple. Apple offered up absolutely nothing new.
This is not to suggest the design is bad. I actually prefer the look and feel of the 5c. Not surprisingly, my go-to device is a Lumia 1520, with its bright yellow casing made of sturdy polycarbonate. The iPhone 5s feels much too light, much too fragile for my taste. Whether others feel the same is not the issue, however. Rather, the world knows at a glance what an iPhone is, and the 5c forks from this.
Unless Jony Ive and Apple are set to unleash myriad models of iPhone in numerous shapes, colors and price-points, iPod-like, then the 5c design stands out for all the wrong reasons. If you want the world to know you have an iPhone, the 5c states this with a whisper, if at all.
Failure 3. Devaluing Hardware
The most egregious, most confounding failure of the 5c, and the one I think will haunt Apple, is that the 5c effectively declares to all the world that one or all iPhones are radically overpriced. I am at a loss to understand how Apple allowed this to happen.
There is a measly $100 suggested retail price difference between the iPhone 5c and the iPhone 5s. For that extra $100, the iPhone 5s buyer receives the following additional hardware, services and benefits:
- A7
- M7
- TouchID sensor
- Lighter weight
- True Tone flash and larger 8 MP sensor
- Slo-mo video
- Enhanced imaging features
Explain this: A 16gig 5c retails for $549. A 16gig 5s retails for $649. Why?
We know what that extra $100 gets us, and it’s awesome. What are we getting for that first $549? I now have no idea. The very existence of the 5c, priced so high, calls into question the entire pricing scheme for all of iPhone. Either the 5c is priced way too high or the 5s way too low. With the 5c, Apple has brought pricing to the forefront, and in a bad way.
Putting a positive spin on the 5c’s failure, Tim Cook stated that:
“I think the 5s, people are really intrigued with Touch ID. It’s a major feature that has excited people. And I think that associated with the other things that are unique to the 5s, got the 5s to have a significant amount more attention and a higher mix of sales.”
In this case, I think it would have been better had he not spoken.
The 5c was passed over because people want Touch ID? Where are these people? I watch iPhone 5s users on a daily basis and TouchID is of scant importance to them, and certainly not the primary deciding factor between 5c and 5s.
There is simply no justification for either the 5c’s price or the 5s’s price, maybe both. Which is it, Apple? Why even allow this question to be raised?
Failure 4. Peeking behind the iCloud curtain
A final concern, one pointed out to me by reader iDawg, is that Apple may have intended to legitimately price the 5c at the mid- or low-end, but were prevented from doing so, possibly just before launch, because their services — Siri, iCloud, streaming media, data synching, etc. — weren’t yet ready to support a massive influx of new users.
“The real reason Apple doesn’t sell more phones: fear of choking Siri (and online services) to death.”
Thus, as the 5c neared completion, this theory goes, it became apparent that Apple’s various services weren’t ready to effectively meet the anticipated numbers of new users. Raising the price, and thus limiting demand was the only realistic option to prevent every user, not just 5c users, from rage-inducing crashes and failures. This is a bit hard for me to fathom, though if true, ought to place Eddy Cue on the hot seat.
5c We Hardly Knew You
As I wrote a mere fortnight after its release, Steve Jobs would never have approved the 5c. I stand by that assertion. Jobs had a near-religious fealty to focus and function, and the end result was hardware honed to near-perfect clarity. The 5c, on the other hand, is muddied, the result of varied and competing interests. The 5c doesn’t know who it is nor who it is for.
Let’s count the ways the 5c fights with itself and with what Apple is best at:
- An alternative design which denotes newness and low-price versus the iPhone design is iconic and beloved
- Lots of new Apple customers versus we must provide the best service to all our customers
- A low-cost device versus we must protect our margins
- We can make a great smartphone at any price versus we focus on the premium market
Is the iPhone 5c Apple’s canary in the coal mine? A telltale sign of near-term headwinds and divergent internal factions? Possibly, though given the company’s track record, I’m inclined to think of this as a minor self-inflicted wound, like how Disney spent far too much on that movie, John Carter.
That said, the failure of iPhone 5c is well-earned. This was not a case of technology before its time. Rather, of botched execution and that rare placement of profits before customers. Apple’s leadership, Tim Cook and Jony Ive, in particular, blew this one. That’s the most troubling aspect of all this. Tim Cook has scaled Apple to once-unimaginable heights. The iPhone 5c, however, reminds us that no company and no CEO has a perfect batting average.
Hi Brian,
Here’s another 5c theory:
5c Channel Fill Saves Apple’s %$^&:
You probably recall Apple shipped millions of 5Cs to carriers in the last two weeks of their F4Q2013 quarter. These phones were all //*paid for* channel fill//. Apple’s quarterly numbers were inflated by the $Bs in 5c revenue and earnings. (“Apple Innovates ™: Channel Fill”)
Without the 5c, Apple misses its targets and the “Apple is Doomed” brigade saddles their horses.
Please note a repriced 5 couldn’t get this job done. It would have had zero channel fill.
Every manufacturer has used channel fill to boost quarterly numbers. This is nothing new.
This would be huge channel fill, probably over 3M 5cs. Apple hasn’t needed nose bleed channel fill before. (Yes, channel fill is not new, but it is at Apple.)
And the genius of the fill is that they got it form the colorful 5C and couldn’t get it from a cheaper 5.
That would be interesting, if true. 5c price reductions and write-downs will tell us so. That said, channel fill isn’t Apple’s MO, so I can’t agree till there’s significant evidence.
A post describing Apple as dialing back 5C production within a month of the “9M sold” intro weekend. We know Apple didn’t have enough 5 esses, but it did have a lot of 5cs, perhaps 3M+ of channel fill?
http://allthingsd.com/20131018/more-iphone-5c-supply-chain-rumors/
This isn’t “significant evidence”, but lack of evidence hasn’t stopped you before. Brian, I’ll leave this here for you to ponder. Perhaps TC and gang decided to channel stuff 5cs at a high price level. This allowed them to set a value/brand expectation of the 5c AND save their Q4 numbers.
A mind game: What would Apple’s numbers have been with no channel filling 5c… I’d guess they’d be about 15% off the top and bottom lines. (A disaster for sure.)
I love conspiracy theories as much as the next guy, but Apple just doesn’t play with the numbers like this. At least, not in any way I can tell. They are almost conservative in their accounting practices. Tim Cook didn’t create such a well oiled machine by fudging with the channels. (Though, we should know soon enough if he did. These things are always eventually revealed.)
Bingo!
That’s what’s brilliant about the channel fill! //Apple didn’t play with the numbers.//
//They executed a brilliant sleight of hand in plain sight and called it the NEW 5c! (We will fill the channel.)//
Beautiful misdirection. So beautiful, in fact, that Brian Hall is trying to figure out how the 5c FAILED while saving Apple’s bacon!
How great is that? Incredibly subtle strategy, magnificently executed. (No conspiracy needed, just brilliance!)
Apple did fail, but not in the ways you presume. Apple was never going for low-cost or cheap; the fact that consumers all clamored to spend the extra $100 for an iPhone 5s shows there isn’t really a need for them to make anything other than the best.
Apple simply could not source all the components necessary for more 5s devices, so they decided to test the waters with the 5c at the insistence of a certain individual who thought they would be able to make up for the shortage with the “colorful” device. After all, it had worked for him before.
You’ll note that certain arrangements were immediately made to ensure that Apple would have good supplies in the future.
Tim Cook failed to keep the operations pipe unconstrained, but the 5c at least partially covered up the much larger hole that would’ve existed if Apple were even more supply constrained on the 5s. It also shows just how strong the demand for Apple’s 5s, at a premium price, is.
“..the fact that consumers all clamored to spend the extra $100 for an iPhone 5s”
Or they spent $100 less an bought a 4S or they held off upgrading their phone. Or, worse for Apple, they bought an non iOS device.
“The 5c doesn’t know who it is nor who it is for”
I couldn’t disagree more. I think the 5c (and Ive) knows who it is and who it is for. It seems to be the analysts and even some Apple internal folk who don’t know who the 5c is for. Hell, I don’t know who it is for. But I keep finding and meeting people who love their 5c and felt no compulsion to get the 5s over the 5c.
And I still believe the 5c will make a great 4s, bottom tier offering replacement. For the customer, it keeps them at least 2 generations ahead of the iPhone 4 offerings, at the very least brings them to LTE speeds (where available) and gives Apple an easier supply chain shift than balancing supply of two completely different technologies.
I think to call it a failure is too reductionist. It may not have met certain people’s expectations, but apparently it is performing on par with previous models in that Apple strata. That is still better than most of the smartphone handset makers. I’m sure they would love to have such a failure!
Joe
“I think the 5c (and Ive) knows who it is and who it is for.”
Yeah, its for the ‘colourful’. It just turns out there are fewer of them than expected.
“It just turns out there are fewer of them than expected.”
Sure, by some. But it still was enough to garner it top spots in US carrier sales, topping much of the competition. So like I said, I bet many device makers wish they could “fail” like this.
Joe
I’m with Joe on this one. If having the 5c be the #2 phone is failing, especially when the #1 phone is your own, more expensive, 5s product, AND in most markets, you own the top 3-5 with models back to the 4s, that’s not losing.
If you go to the Olympics and your team takes the gold and the silver, it’s NOT a bad day! Honestly, I feel as though I’ve lost a few IQ points by having to point that out.
Had the 5c been the #1 phone, we would be having a similarly ridiculous argument that Apple’s 5s has failed, and won’t be back again. Brian would have gone further by saying that Apple has lost its cache and can’t push the heights of premium anymore.
Instead, we see that, if anything, Apple could have introduced a 5s PLUS, and taken gold, silver and bronze as well.
Microsoft has sold about 200 million Windows 8 licenses. Is that failure or Olympic like gold medal success? Companies like Microsoft, Apple and others deal in global scale.
If the 5s performed similarly to Windows 8, relative to previous models, you would have a point. Globally Apple and Samsung are still raking in the profit. What global scale do you think Apple is not addressing properly with either the 5c or some theoretical 5c+? I mean, I can’t tell what you think a 5c should do or be, only that you think it failed to do some things I’ve not heard anyone articulate it was supposed to do except other analysts and pundits.
I mean, the only thing I’ve heard Apple say is that the 5c did not sell as much as they thought it would (but still did at least as well as previous second tier models, if not more in some markets) AND that the 5s sold more than expected. At worse that just tells me upselling from a 5c to a 5s was easy. So all those potential 5c customers seemed to decide to move up to the 5s. How is that a failure?
Joe
Before the launch of the 5C, Apple was ignoring two significant global markets: sub $650 smartphones and > 4″ smartphones. All the 5C did was give them access to the $550-650 smartphone market with a new device.
“the only thing I’ve heard Apple say is that the 5c did not sell as much as they thought”
Yes, and this is failure. Granted, it is not on the scale as Windows 8 failure or Blackberry 10, but it is still failure. Apple heavily promoted the 5C at launch, much more so than it did the 5S. Many expected the 5C to significantly outsell the 5S. Part of the reason it did not was because there was stronger than expected demand for the 5S which suggests Apple’s strategy of offering a poorly differentiated inferior device for $100 less was not the best idea.
Also, Apple did not launch the 5C just to make the up-sell to the 5S easier. They expected the 5C to expand the user base. And you can’t just assume potential 5C customers chose the 5S. Many I suspect chose the 4S, an Android or Windows device or not to upgrade.
“All the 5C did was give them access to the $550-650 smartphone market with a new device.”
Not knowing Apple’s internal research and basing my opinion on what Cook has articulated and other metrics such as engagement other observers offer across the interwebs, that may be the only significant market sub-5s worth addressing.
“Yes, and this is failure.”
But not the categorical failure Brian and others are trying to present. It is a failure to accurately anticipate demand, but it is not a device failure.
One can’t say on one hand that the 5c is not differentiated enough and then present a long list of things the 5c does not have vs the 5s.
“Many expected the 5C to significantly outsell the 5S.”
Many analysts and pundits. We don’t know the internal goals from Apple to say how off their projections may have been. Again the 5s outsold even Apple’s expectations. I think perception dynamics are such that to think the 5c did not play a role in that vs, say just re-releasing the previous model like Apple has traditionally done, is a bit short sighted. How many people did the promise of the 5c bring into the store who wouldn’t have given the 5s a second look? I would be gravely disappointed in Apple if they hadn’t thought about this.
The irony in this thinking is that if Apple had done what they always have done and just moved the previous model to the next lower tier, would we be having this conversation? If the 5c is really just a repackaged 5, what is the problem?
Brian just plain doesn’t like the 5c. Apple’s failure, to him, imo, is that the 5c exists, not that it didn’t meet expected demand. This article is, once again, Brian trying to justify his dislike with specious arguments and reductionist thinking.
This is Wall Street speak, enthusiasm or disappointment based, not on actual numbers, but based on imaginary “whisper” numbers. Merely meet or, heaven forbid, fall short of analysts expectations even if you present blow out numbers, you get pummeled.
One can be rationally disappointed that it didn’t meet expectations, arguably much less blow out the competition, sure. But one cannot be rationally disappointed in its actual performance and call it a failure. It continues to provide Apple two of the top selling smartphones available. That is not a failure.
Joe
Yeah, sold 200 million Windows 8 licenses to dealers and users who replaced Windows 8 with Windows 7. Quit talking like the communications jerk at Microsoft and start dealing with reality, Hall.
There is a difference between Apple failing and the 5C failing. I am pretty sure Apple expected to sell far more 5C’s than it did. And none of this should take away from how much a success the 5S has been.
I think this iteration of 5c has died, but Apple is in this for the long game.
I would absolutely jump at the opportunity to buy a 5c if it had the A7, M7 and a larger display.
…and ran Android
…and cost $200 unlocked
Might as well add in all the other stuff that won’t happen…
I can dream can’t I;-)
But, I do think that at minimum, the “5c” should have a large display. Partly because so many in the market would love a large display iPhone, and also because I think if Apple is going to veer from its iconic iPhone look, as they did with 5c, that’s when you should change the form factor as well.
I believe that’s one of your weaknesses as an analyst; you excuse yourself with, “I can dream, can’t I.”
I still post that we still may not know the role the 5c is playing yet. I still notice folks that fall into the late adopter category the ones who got the 5c. Both my in-laws are this type and both upgraded to the 5c from phones that were older than 2 years old.
Perhaps Apple thought more intenders of the 4S would jump to the 5c than did. I heard the 4s still did decent volume.
The boosting of channel inventory is an interesting theory. I always thought the repackaging of the iPhone 5 was a fairly smart move.
If Apple does release an even much lower cost phone to go after emerging markets it will likely be plastic. So perhaps this was a way for them to start to get more experience with mass producing this particularly form in plastic.
My guess is later this year when we see the new lineup that the role the 5c played will become clear. If it is a transition to a lower cost product that fits their build quality but can be sold at lower cost, then the 5c would make some sense as a part of that process.
Plastic in my opinion ruined it for the 5C. Truly, the design sufferred an embarassment of riches. I sincerely doubt they they would have a 6C in the latter part of the year just to up-sell the Iphone 6.
The main problem with the 5C is that it is not differentiated enough from the 5S. I have to believe the market of people who want an iPhone but who either prefer the 5C to the 5S or who can
not afford the extra $100 is
very limited. For those who are more sensitive to price and can not
afford the 5S, there are many compelling phones priced below the 5C,
including the 4S. At least the 4S offers a different size and the old 30 pin connector, difference which some buyers likely value. The only value added by the 5C are to people who prefer plastic and the colour options.
The only way for Apple to sell more 5C’s is to increase the price difference between it and the 5S. However, the 5S will likely drop to $550 once the 6 is launched and Apple has been reluctant to sell and promote a sub-$450 device. At some point, Apple will have to decide to either drastically cut the price of the 5C or discontinue it or the 5S.
Good points, but again I say this just proves that Apple has room to go even further upscale, with both the iPhone AND the iPad.
You forget only half the US market buys a new phone each year. My guess is that the next cycle will have a line of 4 iPhones, including both a new premium and a super-premium model. I think the iPad Pro is another cycle out, but like winter for the Game of Thrones, she’s a coming round the mountain…
I agree. At the price offered 5c simply can’t compete, unlike the 5s, which I think easily trumps all comers.
I don’t believe for a second that the 5c can be considered a failure. The claim is hyperbolic if not hysterical in nature.
I have two different theories.
1) The 5C was meant to capture younger contract customers, who’d buy at the 2 year anniversary of their current contracts. The aspirational 5S would get customers as soon as it’s released. The main error on Apples part, at least here in the UK, is that a lump of contract phones are bought at the start of a new school year (week 1 Sep), so they missed the volume ramp of new phones for the younger audience, and are on a slow burn on months where contract renewals are relatively light. So, it’s ticking along, but will take its place in volume sales in time.
2) the price of the 4S made it the low cost new iPhone, and Apple put the price of the 5C too close to the 5S. Close enough to make it a classic Dan Ariely “Decoy” price:
As an illustration from Dan Arielys “Predictably Irrational” book was from The Economist, who offered:
* a subscription to Economist.com for $59
* a subscription to Economist Magazine for $125
* a subscription to the online and print edition for $125
At first blush, a silly offer. In tests, 16% chose the Internet only edition, 0% the print only one, and 84% the print plus Internet offer. However, offer only:
* a subscription to Economist.com for $59
* a subscription to the online and print edition for $125
and the takeup goes to 68% and 32% respectively. The presence of a similar, but clearly inferior, decoy swings the takeup of the high priced option from 32% to 84%.
Doesn’t that sound exactly the effect of Apple pricing the 5C too close to the 5S?
Perhaps, but does Apple need to do that? iPhone 5s likely to sell in massive amounts already. Plus, unlike with these magazine offers, Apple has to commit significant manufacturing resources to any product.
Without wishing to trivialise the scale of Apples task in pricing to suit all worldwide markets in one take, the Dan Ariely thesis did apply to the one market I live in. The UK is around 50% contract, spreading the cost of the handset over a two year term, and 50% pay as you go, where the consumer has to pay full retail for the handset up front. For the younger audience (I think the main target for the 5c), there is a hump in purchases in late August and September where many kids get their first phone at the start of a new school year.
For this market, the 5c came in too late to get that new school year new purchase binge. For contract customers, you can get the aspirational 5S at only £4/month more, or £100 more for PAYG (£600 vs £500 – though at £500, you’re looking at a small audience).
So, for this market, Apple were late with the 5c and fundamentally have priced it too close to the 5S, making it a decoy price. It really needed to be in the £300-400 band to make a fundamental difference here. That said, dynamics in other markets, and not wanting to undermine the second hand price for owners of previous iPhone 5 users, may also have been factors tying their hands.
It didn’t fail. It just didn’t sell as many at launch as Apple assumed it would.
Not the same thing at all.
You want an example of a failure. Look at Microsoft writing off $900 million in built but unsold Gen 1 Surface RTs after selling less than that both models. That is failing.
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