Don’t write off the iPhone just yet

This may seem and odd premise, given that Apple flogged 4 million of the new iPhone 6 units as soon as it was launched. It doesn’t sound like a failure. But I’m hearing voices…

The theory is that the smartphone market is saturated. In the US, an often quoted statistic is that 75% of Americans already have one. In the UK, research from Deloitte puts the figure at 72% a year ago, rising at about 15% a year. Selling something everyone already has is not a good place to be.

Then there’s the inexorable rise of Android. Google launched the low cost, very capable and very affordable Android One phone in June. Never heard of it? Well it’s not available in the west – they’re going after the huge third world market, starting with India. There are a billion punters there, eager for the western tech. And the same with China, although they can make their own (as well as handsets for the rest of the world).

Generic Chinese Android handsets are good. I have one. It takes two SIMs at once and works under water, at a fraction of the prices of a western branded unit. Manufactures like Huawei, ZTE and Foxconn own this space and will be hard to shift. Google doesn’t make money from Android, and I doubt that the Android One will contribute much to their balance sheet. But Google is a data capture company, and have Google-controlled smartphones out there is strategically very good.

So, Apple must be doomed – a saturated market and cheaper smartphones that do it better. But that’s never been a problem Apple’s business model.

Apple’s products are aspirational – they say, “Look at me – I’m wealthy enough to spend £100s every year for the latest iPhone and therefore I’m a good prospect when it comes to making babies.” The more they cost, the more people want them. Fanbois may protest, saying that they iPhones work better (not so) and look nicer. Sony sells nice looking kit too, but is forecasting a $1.2B loss from its Android smartphones. The same with HT; it’s just breaking even on declining sales. Samsung is making a good profit ($6B), but there’s a suspicion this has been generated on a huge marketing spend.

Apple doesn’t need to spend too much on marketing. It just has to look cool and remain aspirational.

According to Juniper, shipments of smartphones will be close to 1.2B units this year (with 985M shipped in 2013). That’s a high volume, but if it’s the Android One and low cost units going to emerging markets (those not yet saturated), the bulk of that will be making meagre profit.

Apple, on the other hand, makes a very nice margin, thanks. Fanbois will happily hand over $100s simply to have one with a larger flash memory; several thousand percent more than the memory itself costs elsewhere. They’ll accept that the limited-life battery is ;sealed inside and will die, taking the iPhone with it in a couple of years. They’ll accept that there’s no memory card slot as an alternative to buying the ridiculously expensive internally upgraded models. They’ll even put up with the poor telephone performance; after all the screen looks very nice (don’t tell them that Samsung beat them too it).

I used to work with Cuppertino in the late 1970’s and early 1980’s – lots of people did because the Apple II was a major player; a de-facto standard. Then in 1981 the IBM PC was launched, became the new de-facto standard and Apple was marginalised with the Mac, losing market-share big time until it was less than 10%. 25 years ago I was discussing their demise with Guy Kewney, a good and wise pundit and friend. “You’re wrong”, he said. “The PC market is much bigger. Other PC makers would be very happy to have 9% of the current market, and they have much lower margins than Apple.”

iPhone 5 – I don’t want one

As I write this, Tim Cook is demonstrating the iPhone 5. So far it looks just as bad as the iPhone 4S, but 20% lighter and thinner. Oh yes, it has a new Apple A6 CPU this time around, which is apparently faster and less power-hungry, but it still eats batteries at an alarming rate. Apple claims the battery will last 8 hours in 3G or WiFi mode. The Apple A series processors are, of course, ARM cores to Apple’s specification manufactured by Samsung. I haven’t heard anything about that changing.

As smart phones go, the iPhone is a pretty poor offering. Here’s why:

Apple’s iOS is a right mess. It’s built on left-overs from the NeXT, it’s a pain to develop in (who needs another Object-based version of C when we’ve had C++ for ages, and the  system libraries are awkward, to say the least). I wouldn’t say Android is brilliant, but it’s got an excuse. This is supposed to be a premium product, yet the software engineering has lost the plot.

You can’t change the battery. This is shameful. Batteries have a limited life, and by fixing the battery in, Apple is limiting the life of the ‘phone, so you’ll need to buy another one each year. You can’t even carry a spare battery with you to help out when it goes flat.

You can’t upgrade the memory. The basic model is 16Gb, with 32Gb costing $100 more and the 64Gb $100 more than that. Flash memory is cheap and plentiful, and Apple is trying it on. Buy a Smartphone with a memory card slot.

The iPhone 4S was a terrible ‘phone. The sound quality was awful. You could always tell when someone was using one. It remains to be seen whether the iPhone 5 is any better, but given Apple could release such a terrible ‘phone last time, why should anyone give them a second chance?

This is definitely another item for the fanbois; those with an interest in conspicuous consumption. Anyone else needing a Smartphone should look elsewhere.