Panic Inside Apple and Cheers for Satya

The blogosphere has suddenly discovered the incredible array of products, tools and services Microsoft has long possessed. Better late than never, I suppose. Fact is, their realization of the obvious is in large part due to the accessible dynamism and well-regarded tech cred of Microsoft’s new CEO, Satya Nadella.

Nadella’s hire makes for a great story on many levels. I will get to those in time. The more important story however, is the potential trouble brewing inside Apple.

Yes, Apple is the richest tech company in the world. Its laptops, smartphones and tablets are the established market leaders. But as we learned last week, from still another Apple-Samsung court case, Apple is clearly in the throes of that great ontological concern sure to stricken all those with immense wealth and power: Who am I? 

The very question could prove debilitating.

Since being named CEO, Nadella has rallied the troops, made the necessary overtures to developers, appeased the critics, silenced the doubters and taken rather bold, once unthinkable actions to ensure Microsoft has a prosperous future in mobile, in the cloud, in homes and businesses, on Apple, the web, and the Internet of Things. Not a bad two months.

The talk about Apple? There’s still no large display iPhone and the iPhone 5c is still unwanted.

All Our Yesterdays

Thanks to Apple’s ongoing “holy war” against Google — and the court documents that are now public — we learned last week what we already suspected:

  1. Samsung’s ads attacking Apple users are particularly powerful.
  2. The market for smartphones costing less than $300 is growing like mad — and this greatly concerns Apple.
  3. The market for smartphones with displays larger than the iPhone 5 and 5s is growing like mad — and this greatly concerns Apple.


We learned something else, however. Something I had not previously considered — there is dissension among the upper ranks of Apple.

Apple is struggling to understand the bounds between margins and market share and how best to maintain the profit stranglehold its iPhone franchise has on the industry.

If Apple doesn’t know, this game just got really interesting.

Guess what? Apple doesn’t know.

The iPhone 5c has made that painfully clear.

With iPhone sales growth rapidly decelerating, SVP Phil Schiller is rightly worried “customers want what we don’t have.”

What Apple doesn’t have of course, is two things: an iPhone under $300 and an iPhone with a larger Lumia 1520-like display — the two areas where most of the smartphone growth is coming from.

Expect a larger display iPhone this year.

The low cost iPhone was supposed to be here already: the iPhone 5c.

Someone at Apple clearly blinked.

Given Phil Schiller’s exhortations for a low cost device, my suspicion is Schiller is now on the opposite side of Jony Ive and possibly even Tim Cook. Given the early growing pains of iCloud, perhaps Eddy Cue also was opposed to a low cost iPhone. They really needed to have decided all that before launching 5c.

Tomorrow and Tomorrow and Tomorrow

The iPhone 5c was meant to be the “low cost” iPhone but has failed at this one job. It’s almost comically overpriced. I’m now convinced internal divisions, corporate concerns over margins, branding and sourcing all forced Apple to blink and price the 5c far higher than it ever should have been.

As I wrote in a previous Insiders post (subscription required):

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.

Based on the court documents we saw last week, which make clear many inside Apple understood the pressing threat from the low end, such a low priced device was commissioned. Only…Apple doesn’t do low end.

But it must.

But Apple doesn’t do low end.

The end result: a failed product, at least. Given Apple’s strengths, that’s easy to recover from. If there are splits within Apple’s executive ranks, however, that could prove a lasting harm.

The iPhone 5c should not exist unless it’s priced at about $300 or so. The forces within Apple demanding such a device obviously clashed with the forces that demanded margins — and brand equity — trump new users.

I confess I find this fascinating.

I find it even more intriguing now that the giant, bloated, aging Microsoft has been rather stunningly re-energized.

In my earlier Insiders post on the iPhone 5c, I was troubled with the question, ‘why’. Why did the 5c happen and how?

Explain this: A 16gig 5c retails for $549. A 16gig 5s retails for $649. Why?

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

I stated then Apple had foolishly devalued its hardware by making a mere $100 price differential between iPhone 5s and iPhone 5c:

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.

Now I know. Internal divisions. The 5c is a fine product, one explicitly designed to bring millions more into the iOS ecosystem. Only, the counter-forces decided another piece of beautiful, functional Apple hardware could not be priced with other ‘mid-tier’ devices.

That’s just not Apple.

Full Of Sound And Fury

The iPhone still accounts for the majority of the Apple’s revenues. The focus then is on building out the iPhone base, maximizing its profit potential, surrounding it with more and more devices, services and accessories to ensure lock-in. This is Tim Cook’s wheelhouse.

You can brand Cook as not being a ‘product guy’ like Steve Jobs, or not a true techie like Satya Nadella, but there is probably no one better suited for growing Apple and the iPhone business.

iphone revenues

With Cook in charge, and given his keen ability to scale manufacturing and optimize profits, expect the iPhone to be the center of the Apple universe for years to come, probably through at least this decade.

Apple wearables will require the iPhone. CarPlay will require the iPhone. New Apple accessories will be optimized for the iPhone. iBeacons will work best with the iPhone. New forms of peer-to-peer and point-to-point sharing, via the iPhone, will be rolled out over the months and years.

This is all very wise.

But I confess the failure of Apple to deliver a low cost iPhone, when so many obviously want one, when its top execs understand the potential for one, does make me question Cook’s ability to guide Apple toward the post-iPhone revolution.

Unfair? Perhaps. Even if I’m right, given I expect iPhones — smartphones, in general — to be our primary mode of computing and connectivity through this decade, Apple likely won’t feel the least bit of pain.

We are, after all, still well into the evolutionary phase of smartphone and tablet computing. This year’s iPhone, this year’s iPad, will be better than last year’s. Next year’s will be better still. And so on and so on. But a revolutionary new product? One that can live outside of the iPhone or iTunes sphere? Do not expect any such breakthrough product or service anytime in the near future from Apple. Apple is on a very direct course, set by Tim Cook, with its mission being to ensure the iPhone continues to print money. A low cost iPhone would have threatened the vision Cook holds for Apple’s future. It’s a vision I believe is almost guaranteed to succeed yet also highly predictable.

At Microsoft meanwhile, everything is in flux.

Which brings me back to Satya Nadella. He has the benefit of knowing his core moneymakers are nearing the end of their life. Tim Cook is not yet aware of such horrors.

When that day does come, I cannot say if he will still be the best person to lead Apple.

Published by

Brian S Hall

Brian S Hall writes about mobile devices, crowdsourced entertainment, and the integration of cars and computers. His work has been published with Macworld, CNBC, Wall Street Journal, ReadWrite and numerous others. Multiple columns have been cited as "must reads" by AllThingsD and Re/Code and he has been blacklisted by some of the top editors in the industry. Brian has been a guest on several radio programs and podcasts.

155 thoughts on “Panic Inside Apple and Cheers for Satya”

  1. Excellent post. Apple has to change there is no way out. For months I have been saying this. Android itself has dramatically improved so it is not just like the old talks of Android being too sluggish to compete and iOS is much better so that prices might be justifiable. I have the iPad Air and I love it but Android is pretty good too. In addition, there are some things other companies are doing with phones and tablet that Apple simply doesn’t allow. No sd slot on iPads? No file explorer? On, come on. Much I like Apple like I do it is undeniable all these things would make what is already the best tablet around even better. I think Apple could address the problem very efficiently but what seems so simple for us it not that simple for those in charge and this may be a problem for Apple in the future. It will all depends on what they will show this year. I do hope there is change in course because they truly make fantastic devices. As for Microsoft, they are clearly doing the right thing. I see good things coming forward from Microsoft perhaps Apple could learn a lesson and do something. I also have some doubts about Tim Cook. We’ll see what happens.

    1. “Apple has to change there is no way out.”

      This is funny, given how the article is all about how MS has (had to) change!

      I think this necessity to change on the part of MS (including the ousting of Ballmer), was precipitated by the very changes that Apple has already made!

      …Things like making concerted efforts and headway in the Enterprise and education; opening new industries with the iPad; iOS 7 and new base for iWork, etc. to more seamlessly work between desktop and mobile; the development of new technologies like iBeacon and 64-bit mobile computing; rumors of Apple acquiring some 30 companies in the last couple of quarters, to do who knows what; their new data-centers coming online; etc.

      1. Ok so there is nothing Apple has to do okay the competition is a bunch if incompetents that will just sit down and wait. SD slots wouldn’t be great? Maybe they would be nice for you but the millions it they would be terrific. File manager would be equally good, again for millions not for you. Or course.

        I love Apple products but most importantly I love technology and I can clearly see Microsoft trying and trying hard to listen to what costumes have to say,which is a very good thing.

        Apple must change. Mark my words.

        1. The point he made was that your “Apple must change” argument you’re hammering on about is far less severe as Microsoft’s “must change” situation. Microsoft is the one here who HAD to change, in response to changes APPLE brought to the market. Microsoft was the one here responding to threats brought forth by Apple, not the other way around.

          You’re glossing over that fact, and seemingly pretending that Apple is in a much more dire circumstance than Microsoft. MS made some significant changes to their strategy and organization, all because of a very significant threat from Apple.

          No one is arguing Apple mustn’t change. Every company has to change things on a regular basis, else risk becoming irrelevant. Apple has done that multiple times already and proven their ability to morph. A company who less than 10 years ago was known as a niche computer maker is now a consumer electronics giant. Microsoft is just addressing these issues now, they’ve refused to change for so long now that they’ve had to make dramatic changes in a very short time.

          1. I fully agree with you. I was only focusing on Apple because it is the leader right now and all the rest is logging behind. I fully agree when you say MS has to changed and it is right now. I am not criticizing Apple because I think MS is better, not at all. I do think Apple makes incredible products that is better detailed in terms of design and they do work very very well. I am very happy with my new iPad Air and I will be surely buying the next one. I jaut can’t wait.

          2. Do wake up and smell the coffee. You seem to see the real world bass-ackwards. You seem to be so misinformed, or naive, that you embarrass yourself with each point you make here. Coffee is good for comprehension.

          3. Does it hurt you to embrace reality? Seeing change is necessary isn’t necessarily a bad thing. Coffee is good for comprehension but too much of it make once write like you.

    2. “Android itself has dramatically improved”
      You mean for the 5% of users who actually have a high-end Android smartphone with an updated version of Android and UX that even approaches the UX of a 4S running iOS 7 (which they all do)?

      1. Sure loving my POS HTC One (M8). It will be joined by the S5 on Friday.
        Would have gotten a Nokia 1530, if it had digitized stylus support.

      1. While I think a full-blown file system UI is overkill, I can’t agree that Apple should do nothing. For me, the iPad would be immensely less useful if I didn’t have DropBox. Right now I substitute DropBox for a file browser.

        There isn’t any reason that Apple can’t do something like DropBox with iCloud. They could consolidate all iCloud documents in an officially approved file browser. Millions of people use DropBox successfully so I don’t think it can argued that it is too complicated.

      2. You already have a filesystem on your iPad, you just don’t have access to it. Don’t like SD? Don’t use it. I’m sure you don’t mind if I want access to the filesystem and an SD card though. Right?

        1. I actually do; this has to do with content protection and security. I want my iPhone to be safe and secure first and foremost.

          1. Sure. Why not? Why would you care what I would do?
            I would really like to upgrade storage with an SD card even more.

    3. As Android populates like rabbits, I see Apple moving in the other direction. Simplify. Simplify. Simplify. Why? Everything about it’s architecture clear through to its apps suggests Apple is creating a vault.

      Again why? Apple has very few options when it comes to generating growth forward. Watches would barely blemish its financials. The health, insurance, and banking industries, and cars, are about it. For that, Apple needs an ironclad vault to hold health and wealth content. Super crypto.

      1. Actually the recurring sales markets like retail, content, apps, transactions etc are the way to create organic, rather than linear growth.

  2. I think you nailed it. If you refer back to Dan Arielys “Predictably Irrational” book on how The Economist prices subscriptions, you’ll see the 5C became the “decoy” price, sending demand straight up onto the 5S. It clearly needs to be in the $300 price bands at least to escape the gravitational pull of its sibling model.

    1. Yes. I’ve long wondered how the 5c came to exist at its price. Makes no sense. Phil Schiller reveals the potential threat at the low-end and then Apple comes out with a low-end device that’s simply priced too high. It’s a company that feels threatened but isn’t sure how to respond. My advice: focus on the 5s. Ditch the 5c. Offer a large screen iPhone. Ignore the low end. Don’t even try.

      1. Or the 5C was a temporary placeholder cus Apple wants the A7 in all its phones. So … it makes the 5S the cheaper phone as efficiencies improve costs. If necessary, downgrade it a tad to maintain margins. Colors? No. Yes, add a bigger screen alt.

        In any case, ask what might Apple have learned by putting the 5C out? Maybe that was the plan. Testing the waters.

        1. I’m very much with you. The 5c was a test of so many new attributes. Don’t forget that it also lets them measure certain aspects of the 5s as well.

    1. I think this may be exactly right. The 5c plays the role of spoiler for the mid-tier causing consumer to either buy the 5c instead of a mid-range/ last years high end Android, or see the value and drive people to the 5s.

  3. Only in the delusional world of tech blogs is the second best selling iPhone model considered a “failure”

    Perhaps the author should investigate the sales of Specific brand Android phones rather thn group them all in one basket before declaring the 5c as a failure

    1. You beat me to it. If the 5c is a “failure”, I was wondering how the Author classifies any single Windows or Android model by any other company, including their “flagship” models.

        1. Why do you keep claiming it is a failure when we know it isn’t? You do too. That Samsung money must be good.

  4. Apple is known for two things – making paradigm shifts boldly and delivering quality right of the bat. It is the latter that loyal customers are willing to pay for. Apple under Steve Jobs could make bold moves and every time it worked. With Steve gone, they have to do what works with what they have. They can still deliver on quality. As far paradigm shifts, they cannot be made every year. That would shock the system and would cause chaos. Samsung releases so many models within a year in so many sizes and variations it saturates the mind. That is desperation. Apple simply needs to focus on what it has been delivering and make incremental improvements like it has been making. People who are loyal to Apple are not complaining about not having a ping pong paddle sized phone. If the iPhone works the way it is working, most are happy with it. Apple executives must always be worried about the sky falling on their heads. They have to. Otherwise they become like Microsoft under Ballmer who assumed that the world revolved around Redmond. There will always be disagreements between top executives. This does not mean the company is rattling the way this article projects. Nadella has just taken over Microsoft. I’d give him at least a year to see what radical changes he made and how it brought Microsoft back. I wouldn’t sing laurels for him yet by deriding Apple to juice it up. I entirely disagree with this article.

    1. Agreed. What Microsoft is doing looks interesting and certainly looks like they’re getting onto the right track, but let’s wait and see if they can get hundreds of millions of new devices into the hands of consumers, and see how that goes.

      1. How does loyalty figure into it? There will be a large screen iPhone when there’s a strong enough demand for one. Phablets are simply a tiny fraction of the market today. Apple routinely ignores the demands of a minority of users.

        1. “There will be a large screen iPhone when there’s a strong enough demand for one.”

          I figure there will be one when Apple figures out how to make it actually usable as a phone. Or sells it as something other than a phone.


          1. Also true, there has to be demand of course, but the product also has to make sense and not suck. It’s strange that so many people seem unable to grok that Apple isn’t interested in serving the entire market and every user’s needs.

          1. I’ve considered that. I was thinking about buying an iPad Mini for field work, but it doesn’t quite fit in the side pocket of my work pants. And I’d like something larger than the iPhone. For now I use a full size iPad and a good case. So maybe I just need a phone accessory of some kind for the iPad.

      2. Wanting something from Apple, that is, exhibiting independent thought and desire, automatically makes you disloyal. They know best. If you can’t live with that, shop elsewhere.

      3. I guess that depends. Do you buy Apple anyway? I wouldn’t use the term “loyal” at that point. I have little sympathy for someone who buys a Ford and complains that they want it to be a Chevy. Or worse, buys a car and complains they can’t use their bicycle tires as spares.


      4. Apple seldom makes what customers demand. Their philosophy has been to come up with something that the customer does not even know yet that he wants. At least that was the case until Steve Jobs was in charge. The only thing any customer wants is low price. Apple seldom drops its prices because that is what all competitors are doing and every customer like low price. Apple does what it does and does not change its values that easily.

        Remember that a majority of iPhone lovers are women. It is like a stylish ornament to them in addition to being a phone. Women like the gizmo to be petite so that the thumb can reach across the screen.

        Apple in my opinion must focus on enhancing the software capability of the iPhone, bring in more commercial transaction features (coupons, discounts, pricing, built in credit cards and so on).

        Apple might still make a larger phone like a ping pong paddle. But it is going to cost you around 800 or a 1000 bucks. You might have to shell out about 600 or 800 bucks more after carrier discount. iPhone 5C is not even cheap. But that’s Apple.

        We always have the choice to switch to Android based ping pong paddles if we prefer.

      5. Apple seldom makes what customers demand. Their philosophy has been to come up with something that the customer does not even know yet that he wants. At least that was the case until Steve Jobs was in charge. The only thing any customer wants is low price. Apple seldom drops its prices because that is what all competitors are doing and every customer like low price. Apple does what it does and does not change its values that easily.

        Remember that a majority of iPhone lovers are women. It is like a stylish ornament to them in addition to being a phone. Women like the gizmo to be petite so that the thumb can reach across the screen.

        Apple in my opinion must focus on enhancing the software capability of the iPhone, bring in more commercial transaction features (coupons, discounts, pricing, built in credit cards and so on).

        Apple might still make a larger phone like a ping pong paddle. But it is going to cost you around 800 or a 1000 bucks. You might have to shell out about 600 or 800 bucks more after carrier discount. iPhone 5C is not even cheap. But that’s Apple.

        We always have the choice to switch to Android based ping pong paddles if we prefer.

    2. Samsung does release many new models in sizes and variations in a year. But I don’t think it’s an act of desperation, as you say. More a strategy, a completely different strategy than say Apple’s, but a strategy that suits their strengths and goals.

      As for Apple, like many Apple loyalists, I worry about their ability to surprise and release revolutionary products, rather than evolutionary products. Of course if it were easy everyone would be doing it.

  5. “Since being named CEO, Nadella has rallied the troops, made the necessary overtures to developers, appeased the critics, silenced the doubters and taken rather bold, once unthinkable actions to ensure Microsoft has a prosperous future in mobile, in the cloud, in homes and businesses, on Apple, the web, and the Internet of Things. Not a bad two months.

    The talk about Apple? There’s still no large display iPhone and the iPhone 5c is still unwanted.”

    Ah, announcements (vaporware?) from MS, and no comment from Apple? What’s new?

    So, after the Ballmer era, one can only hope that Nadella will do better. After the Jobs era, many believe that Apple will not do as well. Again, what’s new? But, given the DNA, culture, talent and track record at both companies, I know which one I would bet on.

      1. In the positions that he’s had, Nadella has a good track record of delivering so I am confident that he will deliver. A lot of what was shown at BUILD was impressive.

      2. Of course, most of the changes going on at MS have been going on for quite a while. Listen to Gruber’s podcast from the Build conference.

  6. Maybe Tim Cook has a strategy for getting iPhone into the low cost market methodically over time.

    Fall 2014:
    5.5″ $749
    4.7″ $649
    4″ $549
    4″ plastic $449. Some carriers and retailers will discount it to about $350.

    Then by Fall of 2015 the 4″ plastic model will be about $300.

  7. I don’t understand. Did Apple ever call the iPhone 5c the low cost iPhone? I don’t think so. This is a lot of analyst huff and puff and little actual substance. First of all, every company is always evaluating their market and all the potentials of it. Any company the size of Apple is also looking at ways to be in every part of the market. Only now are we seeing some of the internal debate at Apple because of these court cases.

    Secondly, as was mentioned below, the iPhone 5c is one of the top selling phones out there. Hardly a failure. The only way to really see if it was a failure is to compare it to sales of the iPhone 4 once the 4s came out.

  8. “The talk about Apple? There’s still no large display iPhone and the iPhone 5c is still unwanted.”

    I gotta say Brian, your entire article is based on hogwash. Sale data tells us very clearly that the iPhone 5c is doing very well, and the last time I checked large display phones, while growing, were still a tiny fraction of the market. Do you have new data to add?

    I expect the 5c is an intermediate step towards a lower cost iPhone, a product that allows for a bit of experimentation. It reminds me of the iPod line in that sense.

    I do think Apple is going to make a larger screen iPhone, when the market is ready. Apple knows this stuff inside and out, they’re not going to make a move on a larger screen iPhone until they can sell enough units, and sales to date of larger screen phones haven’t been enormous.

      1. No, there’s no objective way to frame the 5c as a failure. You’re reaching here to support an incredibly flimsy argument.

          1. Oh come on, that’s nonsense, there’s never been two new models before. You’re smarter than this.

          2. Good point. For those determined to see the 5c as a failure, there’s not much that can be said. I would still argue that it’s tough to look at the sales data and say the 5c failed. I suppose it’s like saying LeBron James is short. Well, compared to somebody who is 8 feet tall, I suppose he is a bit short.

          3. If the 5c is gone from the lineup by Oct 2014, then Brian will have a much better argument that it was a mistake (like short-timers Papermaster and Browett). If the 5c continues (as is or with upgraded internals) as the basis for a second lower-cost mid-tier iPhone line, then I’d say Brian was wrong.

          4. Not necessarily, the 5c feels like a bit of an experiment, in form factor, materials, manufacturing processes, margins, and more. It feels like an intermediate step to something new. I guess we’ll probably find out in June. I would say it’s a near certainty that 2014 will be the year of an expanded iPhone line up (pun intended).

          5. I suppose we’d have to start with the 5c not being the number two or number three best selling smartphone at carriers. Oh, but it is. What data points do you have to offer?

    1. Very good point. One of the considerations within Apple is that, by going to a larger display size, they will be legitimizing the 5″ phone market, thereby increasing the sales of the entrenched players. For Apple, this means that when they enter, they will be “bringing it.”

  9. Erm…the 5C was the number 2 phone sold in the US (through carriers). So…the premise of your argument is kinda shaky there.

  10. Personally, I’d like a new model 3.5″ iPhone. I don’t particularly care for larger screens. Everyone else can like them all they want.


  11. Well-written, Brian. Such a shame that you missed the obvious. Apple will succeed by pushing the envelope and being sticky, not by creating “low cost” products. I do expect them to make a larger display iPhone. I don’t see the 5c as a failure based on how many I’ve seen on the streets.

    1. Thanks. I think the 5c was a response to a threat (low cost phones) but it played to none of Apple’s strengths. Go high-end, keep improving. They should abandon the 5c entirely.

      1. You can only remain high-end for so long until you have no more new users to sell to and then you face the reality of stagnant (or shrinking market share). And market share can only drop so much until developers start to take notice and decide that developing for your platform is not worth the investment.

        Eventually, Apple will have to move down market, not necessarily ultra low-end. There’s no reason they can’t do a decent $300 smart phone.

        1. You are forgetting the loyalty upgrade stats. iPhone users tend to remain so. Competitors are the ones who get churned.

          1. You’re correct about loyalty stats but what I was getting at is that Apple, at least for now, only targets the high-end of the smartphone market. Let’s say, hypothetically speaking, currently iPhone users remain loyal and Apple grabs the remaining of the high-end market it doesn’t have yet. Then what?

            That means you’re not growing your user base and your share of the overall mobile phone market is stagnant or potentially shrinking. Long term that can problematic. It doesn’t mean that Apple has to go sub-$100 but there’s no reason why it can’t be successful moving downward to mid-market, like a $300 to $350 level.

          2. I simply can’t believe that people will stop aspiring to be rich or for the better things in life.

      2. I still disagree. As I’ve stated before, the people I know who went 5c over the 5s love theirs. I do think it should move to the entry level tier. With the 5c they can now move what remains of iPhone 4 form factor to the 5 form factor (as much as I would prefer an iPhone 5 in a 4 body), streamlining production. If the 5c is not meant to be the entry level tier, then, I agree, dump the 5c.

        Here is one area where I think Apple has a problem and the 5c is seen as a failure because of it, but not due to the 5c, itself. This really isn’t meant to come off as a WWSJD kind of comment, but it may, so I apologize upfront.

        Back when Jobs came back to Apple, I remember one of his keynote addresses where he said the way to fight the negative press was two ways-educating through advertising and making great products, neither of which were happening. Both happened and Apple stabilized.

        Then the early 2000’s recession hit and he said Apple would weather the recession by innovating through the recession. And it turns out Apple was one of the few companies making a profit through much of the recession.

        The 5c is a great product in the way the Mac Mini is a great product, or the old white and black plastic MacBooks were great products. They weren’t normal tech industry low-end, but they are/were normal Apple low-end. The thing is, they were all released in the context of other great product releases.

        The 5c has no such context, other than the new Mac Pro, which is a category so removed, not just in product line, but also in target market, as to not really matter. Cook keeps promising new, great products, but so far the 5c/iOS7 and the Mac Pro are it. )For all the great things the 5s brings, it really is simply the next incarnation of the 5).

        This is not to say Apple should necessarily be doing anything different. But they aren’t doing anything that will really influence the narrative. The only things left for analysts and pundits to focus on are the 5c and financial minutia. So things that aren’t really big news is all that’s left to be _any_ news. Sales are great, revenue is great, profit is great. But that’s old news and if that is the only news about a company who says profit doesn’t matter, that’s a problem.

        And for all the attention the recent Schiller emails are getting, Apple seems to be forgetting, great marketing comes from great products. Great marketing removed from great products doesn’t really accomplish much. (“Great” is not an absolute, it is relative to what else already is. The iPhone is already great. To be “great” now requires being greater.)

        Now, I do agree with the idea that analysts and pundits seem to be forgetting there were _many_ years Apple went through merely product evolutions. But back then (such as with the iPod) no one was able to catch up as quickly as Samsung has (and let’s be honest, without Samsung, the Android market would not be anything close to what it is now).

        There is a lot more nuances and details in all that I lay out, but I do think this is the general drift of things.


  12. Wow, talking so factually about how another person thinks without even knowing that person. Does Tim Cook know that you seemingly know him better than he does?

    Did you write similar articles about the 4S when that occupied the $550 slot? All of a sudden just because the 5c has a new design, that makes things different? No, its the strategy Apples been using for years, last years iPhone $100 cheaper. 5c is an iPhone 5, bumped down $100. That’s never been their “low cost iPhone” strategy, so stop spinning it that way. You seem to know Tim Cook so well, but apparently you weren’t paying attention when he said countless times that the 5c is not a “low cost iPhone.” It was the iPhone 5 replacement.

    And I have a feeling the design changed simply because they didn’t have the machine/manpower to manufacture TWO iPhone models with that hard-to-manufacture-at-such-tight-tolerances metal enclosure, at the level of demand Apple has to satisfy. I work in sheetmetal, and the manufacturing processes pioneered on the iPhone 5/5s are pretty astounding for a mass market product.

    So what else do we gather from this “panic inside Apple” that you apparently have witnessed firsthand inside Apple itself (you certainly talk like you have). That Apple pays attention to whats happening in the market? SHOCKING. I’d be worried if they didn’t, like RIM and Microsoft tried to do for too long.

    1. “And I have a feeling the design changed simply because they didn’t have the machine/manpower to manufacture TWO iPhone models with that hard-to-manufacture-at-such-tight-tolerances metal enclosure, at the level of demand Apple has to satisfy”


    2. It’s because the technoverse touted the 5C as “the cheap iPhone” in the months before its release. Of course, once this wisdom has been released into the click-supported, ad-driven tech blog ecosystem, it couldn’t be retracted. That would suggest that the thinking about it was all wrong (which it was) and that the 5C was simply a “4Sing” of the 5 with some added candy colors.

      You cannot argue with the analysts’ logic. They have channel-checked their sources and have blurry photos leaked from China to back their foaming at the mouth. To differentiate themselves from rational people and draw attention to their opinions, they need a story that doesn’t conform to exactly to what Apple has been doing all along.

      1. With Phil Schiller loudly exclaiming that that iPhone was/is under threat from the low-end, I think it’s safe to say the 5c was meant to be their response.

        1. Did Phil Schiller actually say that? I thought Schiller said he didn’t agree with that interpretation of the chart when it was presented in court. From one story I read “According to Schiller, the document was not representative of Apple policy and contained information that he largely disagreed with.”

          And looking at the full context of the document that chart comes from, it does look like a normal investigation into many reasons why iPhone sales growth is slowing.

          1. I get that, but didn’t Schiller disagree with those slides in court? It seems like you’re making a leap from the slides existing and Phil Schiller ‘loudly exclaiming’ that the iPhone was under threat from the low end. It sounds like Schiller didn’t agree with that interpretation at all.

          2. Schiller definitely disagreed, but that’s what I’d expect him to say even if it wasn’t true. But Brian is absolutely wrong to say Schiller was loudly exclaiming that iPhone was under threat from the low-end. He did no such thing.

          3. You are right.

            Many especially the writer of this piece is only looking at the part and not the sum of the parts and whatever he derived from is only the value of the words he is reading and nothing else.

            Isn’t it funny that people with no vested interest in Apple’s management seems to know better than the people in Apple’s management. They also seems to know better and more knowledgable in the making and marketing of Apple products.

            Perhaps they should join Apple if thy are so knowledgeable instead of giving advice on the side which is if wrong wouldn’t cost them a single cent,

        2. Your interpretation of that is very different from anyone else. Who are you shilling for? I’m betting samsung.

        3. How could the 5c be the low-cost response when all its internals were the same as the 5, which in Sep 2013 was selling for $649 unsubsidized or $199 subsidized? Do you really believe that just by changing the body, Apple could drop the price by an extra $200 to $250? That’s ludicrous.

          The 5c simply has two reasons for existence: 1) increase the profit margin, which was lower than past models for the 5, and 2) attempt to increase sales yoy over the 4s in that price tier by bringing something new (colors) – so it’s wouldn’t be seen as a one-year-old model. As Herding_sheep wrote, it’s not rocket science.

          1. As I note above, it simply makes no sense that the 5s is priced only $100 more than the 5c, despite far superior hardware and features — except, internal/political bickering over how to position the device.

          2. So you think the iPhone 5 was way overpriced relative to its BOM (despite Apple’s supposed shrinking gross margin), and thus the 5c as well? Or you think the cost of the internal components have dropped precipitously over the course of one year? Or you really think switching to the plastic shell saved Apple $200 in costs? As a product engineer, none of those options are realistic.

          3. I like how you’ve completely ignored my original post and failed to argue in any intelligent way the points I made.

            Slides similar to those are done by every single company I imagine. Companies constantly examine the market and try to see what’s next. Apple clearly feels their lineup is missing some offerings. But where exactly do you get from those slides that Apple is stating the 5c was their “low cost strategy.” In fact, the opposite is shown through those slides. Apple is defining that market segment at sub $300. Hence their discussion of “we don’t have products in this segment”……not “we have the 5c but its failing in this segment.”

    3. Looking at US sales, I wonder if the 5c played the role of spoiler. Could also have in UK also to a degree. Still mostly theories.

  13. When will the media ever give Apple the benefit of the doubt? Why cannot it know a hellava lot more than the media supposes. “We dance round in a ring and suppose, But the Secret sits in the middle and knows” Frost.

    And to quote the great and terrible Rumsveld: “… as we know, there are known knowns; there are things that we know that we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.” And yet somehow the media thought this guy knew.

  14. It’s this simple. If Apple makes a low cost iPhone as would-be Apple CEOs recommend, the demand for high end iPhones, and the profits therefrom, will disappear. Apple cannot put a sliding scale of features on an iPhone the way it does on the iPod. An iPhone has to have the full iOS. Just like a PC has to have the full Windows. And we all know what happened to the high end Windows PC market when the race to the bottom was joined in earnest by HP, Dell, and their competitors.

    1. The 5c never should have existed. Apple made it to address the low-end threat but priced it as a traditional device. I think it’s done more harm than good for the company.

      1. Nonsense, just because *you* don’t understand why the 5c exists doesn’t mean Apple has no end game in mind.

        1. Who is it for? What job does it serve?
          The best I’ve heard is that it’s intended to be a replacement for a replaced device (the iPhone 5). Given how few devices Apple can make, that seems like a very poor reason for creating the 5c.

          1. Only Apple knows for sure, but I would guess it’s the exploration of the form factor which can support far cheaper manufacturing in the future. This may or may not mean the next version of the 5c looks exactly like this 5c. So no, if the next ‘fun iPhone’ isn’t exactly like the current 5c you don’t get to crow about how you were right.

            Apple did not make the 5c to address a low-end threat, you’re making that assumption based on your interpretation of certain bits of info. My 15 year old daughter had a choice between the 5s and the 5c, she chose the 5c.

            I also think expanding the iPhone line is important to Apple as they approach a billion user ecosystem, it’s good to have choices within that market. But choice does not equal low-priced iPhone, not within the billion users Apple serves.

          2. Looking at the sales of other devices in the US and Europe, I can make a case the 5c played the role of spoiler to mid-range Android devices. My conviction was always that this product was designed to go after the late adopter part of the market. This market doesn’t upgrade with the same seasonal cycles as the early adopter but they will upgrade when they are good and ready. This is we are in fact seeing sales of 5c pick up. These consumers didn’t feel the need to upgrade around the holiday and are seeing bolder promotions at retail today.

            But, I can see evidence that the 5c did have an impact on the middle / high middle/ last years flagship Android device. Perhaps this was what Apple wanted to play the spoiler to those who want a good enough Android device but not the free/cheapest option.

            Whether that price / spoiler role drove more to the 5s we can only speculate but either way both have sold more than any other single SKU on the market. And in many cases the 5c has outsold the total install base of competing products in the US by flagship vendors.

          3. Brian, you’re missing it.

            Pushing out iPhone 5’s would have killed their ability to produce the 5s, and the margin would not have been there. The plastic 5c has double the margin of a 5, even at $100 less.

            Don’t forget the best part. It is ***selling***, and when it doesn’t sell, the customer generally gets a 5s anyhow.

            The 5c is very popular at schools in the Bay Area, surprisingly so. It’s a fashion statement, something different.

            It’s also positioning for what’s about to be released in a few months. Apple needed to test plastic cases, and they know they need to do larger screens.

            The 5c is a win in so many ways, strategically. It’s like when you’re playing chess and it looks like you’ve sacrificed your knight to save a pawn to the uninitiated, but you’re actually setting up checkmate.

            Stop expecting Apple’s moves to make sense to you according to the rules of rock-scissors-paper.

          4. If 5c is a win for Apple, then you are right, I am completely missing it. I think it’s a straight up failure.
            That said… I like the colorful plastic. I like the feel of it better than the 5s. If Apple were to morph the 5c into a large display device, hold the line on the price, that would be huge, I think. If 5c was a necessary first step to that, then well played.

          5. “I think it’s a straight up failure.”

            This is the problem right here, you’ve failed to make a decent evidence-based argument that supports your opinion. I suspect all will become clear in June.

      2. You’re wrong on this one Brian. That horse is dead. You should accept that it was introduced as a new, but second-string, iPhone – never as a cheap option. It ended the cycle of deprecating the superseded model to a lower-cost option. I do agree with you that the price differential should have been more than $100, however.

        1. I disagree on the >$100. Only amateurs leave money on the table.

          They effectively increased their profit margin with the 5c, but the 5s has lower margins that must be made up somewhere. And there’s always the 4s, which is still selling quite well. It’s scary that people are stilling buying the 4s with only 8GB for “free.” Apple makes more on the 5c than on the 4s.

  15. What is unclear, and maybe someone knows the answer, in that “Customers want” slide, how much of that market has the iPhone (never mind the 5c) even available? While 2012 saw an increase in distribution, iPhone is still not as widely available as Android, distribution is constrained. Some people just don’t have the choice or even desire to switch carriers. It kind of doesn’t matter what the purpose of the 5c was if it isn’t available in certain markets or on certain carriers. Just wondering.


  16. Whenever I see a post from Brian about Apple I know it’s going to get lots of comments. Strong opinions, which I may agree or (sometimes) disagree with, I know that Brian won’t be dull.

  17. Though I agree with you general assessment of the 5C, I don’t think anyone at Apple meant it to be the “low cost” iPhone. Reality distortion fields aside, no one would launch a $550 phone to attract the buyers who only want to spend $300. The 5C was launched to better address the $450-650 part of the market.

    The lack of a less expensive iPhone suggests Apple does not yet think sub-$300 threaten sales of $550+ iPhones. Yes, everyone who follows this industry knows most of the growth is in the low end, but until Apple thinks low end devices are going to cannibalize the sales of high end devices, they will not release a true “low cost” iPhone.

    1. I agree. I think the only segment Apple might really be interested in from the slide above is that 91 million >$300, >4″ screen segment. I think all one has to do is look at the effect of how Apple demographics differ from Android demographics in engagement and revenue potential. Apple _could_ put hardware in people’s hands, but they would be losing money doing so.

      From my own experiences traveling through out the world, just because people are buying low-end Android does not mean they don’t aspire to have an iPhone.


    2. I can’t agree with that. Apple’s own slides are done in a very provocative manner and make it clear that the low-end and large screen are the weak areas for the company. Doesn’t seem as if they had any reason to address that mid-tier.

          1. I was being sarcastic. Being provocative to spur action, especially internally, at Apple I would imagine is de rigueur.


          2. You seem to be avoiding the truth that the slide you’re basing pretty much your entire article on (it seems) was only part of a larger document looking at the various factors involved in slowing iPhone growth AND you’re ignoring that Phil Schiller said he didn’t agree with the interpretation you’re presenting here. What’s up? Are you punking all of us and next week you’ll write a column about how to generate a long comment thread and pageviews?

      1. I don’t know when the slides were made, but I bet it was after they started designing and engineering the 5C. I think the slides are indicative of Apple expecting more growth in the over $500 range and their eventual realization they were wrong.

  18. Do you have any plans to write about the troubles at Samsung? I believe there are sales expectations problems concerning the S4 and potential demand issues for the S5.

    I would find it more interesting if you covered all of mobile and not concentrating your focus on Apple. How about the competition from China effecting sales of Samsung and other phones? How about comparing the vertical business of Google, Amazon, Apple and others?

  19. Nice article Brian. Not the typical fanboying of Apple (excuse the term) I have read thus far. I wonder if falkirk will be tempted to argue against it though.

    While I agree on every case in point you indicated, the eventual doom that may become Apple’s continual drop in market share is its own inability to listen to what the market wants and really needs. Sure they were able to fend this off for so long when Job still managed Apple-and he can subtley brush off any applesque fiasco (iphone 4 antennagate). But now no one, not Phil, Tim or Jonny can downplay Iphones weaknesses.

    This hard headedness on apple’s part, to listen to reason and delivering innovatively great products while listeng to customer wants has enabled Samsung by virtue of their oh so large screens (to overtake Apple in the lead in just a meastly 4 years. (Now dont drag me to that profit share, market share argument because its already moot.

    If Apple still fails to deliver a larger iphone display by this year, expect its sales forecast to somewhat stagnate if not dwindle further.

    1. “has enabled Samsung by virtue of their oh so large screens (to overtake Apple in the lead in just a meastly 4 years”

      Except that Samsung is now also facing stagnating sales, mediocre reviews (just sued someone in Korea! How would people respond if Apple sued for a poor review?) and a second quarter in a row of declining revenues due to declining smartphone sales. IOW, Samsung is facing the same resistance Apple did when they hit this point. Apple also, still outsells Samsung in many markets, even with constrained distribution.

      Oddly, compared to your assessment of Apple, I don’t think this is doom and gloom for Samsung anymore than similar issues are doom and gloom for Apple. Both sell more smartphones than any other vendor, probably more than other vendors combined, plus they are the ONLY two making a profit, never mind how easily you want to blow off profit share. How else do you measure the health of a company? By how much money they lose?


      1. “Apple also, still outsells Samsung in many markets, even with constrained distribution.”

        Can you provide your source as to this statement? Keep in mind that We are not talking about the ecosystem here but only the smartphone sales.

        “How else do you measure the health of a company? By how much money they lose?”

        I think you miss an obvious point to this profit share-market share debacle.. For you to even achieve your profit share, you NEED to have sales. Therefore you still inevitably NEED market share. Apple no doubt churns a huge wads of cash because even they still have a sizable

        1. “Keep in mind that We are not talking about the ecosystem here but only the smartphone sales”

          I don’t have time to find particular articles from the multitude I read. You can do your own research. And you are correct here, it is difficult to find individual OEM numbers since Apple is the only vendor to report actual figures, and most articles continue to lump Android as if it were one handset maker.

          “I think you miss an obvious point to this profit share-market share debacle.”

          Out of everyone I’ve read who talk about profit share, not a single one has said sales don’t matter. And I’ve not said that either. That would be ridiculous. Sales are needed. However, it is a regular mantra among those who tout market share that market share is the only thing, which is hogwash. Market share did nothing to help Nokia and Symbian.

          A point that does not bode well for Android and continues to bode well for iPhone, and iOS in general, is that Apple’s user base continues to be the most engaged. Or as you put it “relevant user base”. Handsets aren’t the only thing the bulk of Android users are cheap about. As long as iPhone shipments continue to _grow_ and dominate the high value markets, I have little doubt this will continue to be the trend. This is why most software developers still say “Android version coming later”, if at all.

          The other thing people either forget or don’t know is that iPhone was rarely the majority smartphone. Globally, Android primarily ate up Symbian, Blackberry, and Windows shares. Blackberry actually grew in the first year or two of iPhone. For all the grief iPhone users get for supposedly thinking Apple invented the smartphone, Apple doom sayers apparently think so, too. When pointing out Apple’s “problems” (Android OEMs should have such problems) they always come across as implying that before Android it was only iPhone.

          Define “lose the PC wars”. Last I saw not only does Apple still sell Macs and profitably, but compared to the rest of the PC industry Apple is one of the few vendors growing market share.


        2. “niche will not bode well”

          You know, there is a strong business school of thought out there that believes “niche” is the only place to make money. Just sayin’, because a lot of people seem to believe “niche” is somehow a bad thing.


    1. Reminder for commenter protocol, go after the idea not the person. Opinions are great because they allow disagreement and hopefully lead to intelligent debate.

        1. You see my point though. Regardless, I’m sure Brian is always open to being proved wrong. In the case of the 5c it is still mostly theory so the debate is still relevant.

          1. Yeah, I get what you’re saying, but in my opinion Brian is on very thin ice here, on two fronts (as I outlined in my first comment).

          2. I have been traveling so just catching up on comments. Can you send me a link to your first comment? Sorry to ask but there are lots of comments on this thread.

          3. In my first comment I took issue with this from the article: “The talk about Apple? There’s still no large display iPhone and the iPhone 5c is still unwanted.”

            It’s a biased narrative, not an evidence-based argument. Phablets (while growing) are still a fraction of the market, and to characterize the 5c as unwanted is ridiculous. I’m actually wondering if Brian is punking all of us.

          4. I agree. I think Brian’s point about what the 5c is and the role it plays is valid. I still go with Ian’s theory of the dummy role or the spoiler role. That being said, and I’ll drop this nugget without giving up the numbers I can’t, the 5c outsold the entirety of the Galaxy Note line since launch in Q4 alone.

            That being said, while we knock the phablet form factor, I am convinced something around 5″ is the sweet spot. It is a foregone conclusion to me that Apple will release a larger screen in the 4.9-5″ range. I can go into lengthy details why but I don’t know anyone who disagrees with this.

          5. I should clarify, I don’t knock the phablet form, not at all. It would be useful for me. But the reality is phablets are not a large part of the market (yet) and so criticism of Apple for not already having a phablet isn’t smart analysis in my opinion. I do think phablets are on the cusp though, and I also expect Apple to release a larger screen iPhone very soon, probably available in the Fall I would guess. That fits the timing for the category, at least it feels that way to me.

          6. I think its’ absolutely fair game to go after me for any assertion I make. Here’s another one: the iPhone 5c was *never* intended to be a decoy, a method of upsell, a way to entice buyers who want to consider low-priced but ultimately are convinced to go high-end with 5s. Apple does not make hardware for any ulterior motives.

          7. “Apple does not make hardware for any ulterior motives.”

            I agree with that. But I think Apple is smart enough to have a good sense of the ulterior effects of the 5c. Plus I don’t think, while it is provocative, that slide shows Apple being worried or even concerned. I bet they have made similar slides showing other products, such as Netbooks, sub-$500 PCs, and sub-$999 laptops. Any smart business should do this. I am sure Chick-fil-a can give you solid figures on how much sales are lost by not being open on Sundays. That doesn’t mean they are going to change practices anytime soon.

            It is always important not just to know who your customers are, but who aren’t your customers and why. Maybe it is something you can address, maybe it isn’t. Maybe it is something you shouldn’t. I think the 5c is about as down-stream as Apple _wants_ to go and that slide should prove it. They clearly know the size and growth potential of the sub-$300 market. They clearly know that this market only buys hardware, not an ecosystem (Cook has regularly commented on engagement figures). There is nothing of value for Apple to bring to this market.


          8. Read what I wrote for insiders on the new way to think about their hardware strategy. This explains why sometimes they will sell hardware for more than just profit on the hardware.

            And I agree the 5c, if at all a decoy, was not the goal, it was to attack the middle of the market and play the role of spoiler. As I said I have enough data to support this is exactly what happened as the upper middle of the market took a hit. The 5c went after people who were willing to spend $100 more but not $200 more on the iPhone who otherwise would have gone after a mid-range phone. Benedict and I both hypothesized this would happen on Cubed shortly after the launch of the 5c. It took a while for the part of the market who found this value proposition attractive to jump into the market but we are seeing it ramp now.

          9. Agreed. Apple could’ve continued to sell iPhone 5 instead to that upper middle of the market, but I think Apple found that margins would be lower than desired, and believed that a model perceived as new (i.e. with colors) would sell better. I also echo the comment that replacing the 5 with the 5c had the benefit of releasing additional limited manufacturing resources for the 5s ramp.

            I think Apple also wanted to set up a plastic model to be their lower-tier, but we won’t know that until the next models are announced.

          10. “the 5c outsold the entirety of the Galaxy Note line since launch in Q4”

            Worldwide or just in the US?

          11. That is just US. Note install base WW is likely around 55-60m by now. I could make the case that the 5c is starting to pick up pace while the note is slowing down WW.

          12. Apple’s own docs make it clear that they are concerned (I say worried, given some of the emails) of not having larger iPhone. I’m absolutely gonna get pilloried if 5c turns out to be a note seller. Fair enough. But in talking with more than one carrier and examining other data, it appears that 5c never met internal expectations and is now stagnating. For a brand new iPhone, that strikes me as huge news.

          13. Of course Apple is concerned about phablets, they would be foolish not to be on top of market trends within the segment they target as well as trends moving upstream. But it’s a leap from that to how you presented it. It’s been obvious for a while that Apple was going to release a larger screen iPhone, but Apple routinely waits until the timing is right. There’s a lot that has to line up for a larger iPhone to become a reality, from market demand to manufacturing to screen resolution/apps to usability to battery life, there’s a ton of considerations.

            On the 5c, please share what data you have, because everything I’ve seen says the 5c is doing very well, outselling many (all?) flagship Android models, and occupying the #2 or #3 spot at most carriers. Now, did the 5c meet Apple’s expectations? Perhaps not. But that doesn’t translate to the 5c being unwanted. Not at all. I see the 5c as an intermediate step to a new form factor.

          14. Yes. Even I agreed with Brian once…it was a dark day and all the birds fell from the sky, but yes, the man made a good point…once…

            I agree with Ben that it’s important that we (and we’re all responsible for it) not let this forum turn to ad hominem drivel. For that reason, I try to simply not respond to articles/comments that seem ridiculous, and always up vote a comment if it’s a coherent point, even if I don’t agree with it.

  20. Wow. 130 comments and counting. Thank you all for the great feedback. I read every comment (yes, even the really bad ones). There are now so many I can’t promise I will respond to each one. Regards.

  21. How about a follow up article now that we’ve got Apple’s latest results and evidence that the 5c did pretty darn well?

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