Two factors reveal Apple’s real mission with iPhone 5c

Two factors reveal Apple’s real mission with iPhone 5c

Summary: The iPhone 5c has drawn sneers because it was not the low-cost device the tech industry expected. Here’s why Apple had something different up its sleeve.

TOPICS: Mobility, Apple

Apple iPhone 5c has suffered from a case of mistaken identity.

When leaks about the iPhone 5c started showing up earlier this year, tech industry observers started speculating that this was the long-conjectured "iPhone Mini." Those expectations were based solely on the previous success of the iPod Mini, which was smaller and less expensive than Apple's flagship iPod and went on to become the best-selling model in the product line.

The timing was perfect for such a product, the tech industry surmised, because Apple has been losing market share in emerging markets to sub-$300 Android devices. When Apple officially unveiled the iPhone 5c on Tuesday, it was not that device. It started at $99 on-contract and over $500 without a contract. As such, the tech press and market analysts frowned (some actually sneered).

However, evaluating Apple is a yin and yang thing. You have to look just as closely at what the company doesn't say and doesn't do because they say so little and are extremely calculating with every product decision since they release so few products.

If you want to understand what Apple's doing with the iPhone 5c and why it could make sense, here are the two factors to think about:

1. Apple did not release a new iPod Touch

One of the regular features of Apple's annual September product event is the release of new iPods. It didn't happen this year. While Apple continues selling last year's iPod models (they are still available in the online store and at retail stores), the product is quickly reaching end-of-life.

In July, Apple reported in its earnings call that the number of iPod units sold was down 32% year-over-year, one of the largest dips in the history of the product line. That's significant because the iPod Touch has continued to be a strong seller during the past several years. As recently as 2011, there were quarters when iPod Touch sales rivaled iPad sales.

The iPod Touch was extremely popular among children and teens, who could use it to enjoy the benefits of iPhone apps over WiFi. Apple sold over 80 million iPod Touch devices from 2007 to the end of 2012 (during that same period, it sold 244 million iPhones, by comparison).

While the entry level iPod Touch never cost less than $199--the same price as the entry level iPhone on a 2-year wireless contract--the appeal was that you didn't have to pay $70/month for a smartphone contract with a data plan like you did with an iPhone. However, the economics of smartphones have changed drastically over the past 12 months.

2. U.S. kids are converting to smartphones

During the past year, U.S. wireless carriers have introduced family data plans, which have made it much more practical for parents to get smartphones for their kids. A household with two adults that are already sharing a data plan can now add a child's smartphone to their plan for as little as a monthly fee of $10 (T-Mobile), $20 (Sprint), $35 (AT&T), or $40 (Verizon).

As a result, 37% of U.S. teenagers now own a smartphone (up from 23% in 2011), according to Pew Internet's report, Teens and Technology 2013. Separately, the Zact 2013 Mobile Families Survey, found that 44% of U.S. kids aged 12-17 are using smartphones in 2013. It expects that number to grow to 51% in 2014, 59% in 2015, 66% in 2016, and 73% in 2017.


All of this means that there is likely to be about 40-50 million iPod Touch-owning kids in the U.S. who could soon potentially convert to smartphones. That's partly because of the improved economics of family data plans and partly because many of these iPod Touch owners will be aging into smartphone ownership.

That adds up to a huge market opportunity. It's a new segment to tap in a smartphone market that looks increasingly saturated across the U.S. and Europe.

And, since most these iPod Touch kids are already invested in the Apple ecosystem with music and apps purchases, Apple has a natural advantage to win them over to the iPhone.

From that perspective, the carnival of colors available for the iPhone 5c and its colorful silicone cases make perfect sense. They've got "youthful self-expression" written all over them. They are also destined to stand out in displays at wireless stores across the world.

Bottom line

Let's not think of the iPhone 5c as the low-cost iPhone for emerging markets. Apple may or may not make that product, but this is not it.

Instead, let's think of the iPhone 5c as Apple's iPod Touch replacement for a wave of kids that are about to convert to smartphones.

Also read

Topics: Mobility, Apple

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  • I'm stunned!

    Someone actually posted an intelligent thoughtful assessment of the new iPhone line? What is tech journalism coming to???
    • Interesting theory but maybe there's a different reason

      The iPhone 5 may not be suitable for lower volume production possibly due to production problems with the screen. So the 5C "cheaper" is a cheaper for Apple to make phone to replace the 5 with rather than continuing production as the second tier phone like they have traditionally done.

      It would make a lot of sense to do this if production of the 5 was problematic. There is certainly cost associated with changing the production line which might have led to introducing the plastic case as a cost offsetting measure.

      The simplest explanation is often the correct one.
      • I'd say complete crap. The 5c is still way too

        expensive for a tweens iPod replacing first smartphone. The thing probably costs less than $100 to make. It should be under $200 off contract and free with contract. It's a rip off compared to the feature value you get with Nokia or Samsung.
        Johnny Vegas
        • Very true

          I honestly can't believe how many kids I've seen with nokia lumia's lately. The 520 and 620's are priced much more in line with what teenagers can afford and with what teens parents are willing to pay for.
          • Not around here...

            I'm a teacher, I teach IT to kids aged 6 - 17. I see a variety of phones in the older bracket but considering I teach at a low fee paying school, the majority I'd say 89% of smartphone-carrying-students, would have an iPhone. I teach in the outer suburbs of Melbourne, Australia.
        • And you can play your iTunes music on your Samsung or Nokia

          • Sync iTunes on WP8

            The Microsoft Windows Phone software allows you to sync your iTunes music to your device. Works well with my 920.
          • On Android, connect Phone ...

            ... drag and drop files onto device, play.
          • iTunes music

            I cannot believe that you asked that. Maybe because I despise so much the iTunes. When I used an iPhone I hate iTunes more, now I just fell amazement that someone could like such a cumbersome interface. Now, I have to admit that I like the iTunes University. But, iTunes for music?!?!?!?!!? never!
            Erasmo Cepeda
          • You're making me laugh.

            iTunes has all but dropped DRM music tracks, meaning that (surprise, surprise) you can play back your iTMS music on anything that supports AAC.
          • convert it

            Easy, just convert it to non DRM format. You can burn it to disk and convert it back to lossless AAC or use one of the many software conversion solutions. Then start buying from amazon, end of problem.
        • They're paying extra for...

          ... the parental controls. It's one area the other phones haven't caught up on. It's also not too expensive for all parents. I don't even have kids and I bought both iPads and Alienware laptops for two of my nieces. Lastly, if the kids already had iPods, then the parents are likely already heavily invested in years of iTunes and App store purchases. You have to add in the expense of potentially re-purchasing all of that on a completely different platform. Add in the "Find my iPhone" and "find my friends" functions for parents to keep track of their kids' locations or find phones they misplaced, and it changes the view on the price. In other words, there are a lot more considerations for parents than the list price.
    • Except his theory

      Is based on parents wanting to have their kids own a smartphone. Realistically, little Johnny with his iPod is unlikely to start texting or calling random people because that's not an option. Some may say Skype or other messaging apps- parents can still control the Apple account and prevent this. Kids were already getting hand-me-downs and that won't change.
      • Ever in your life seen...

        A parent say "No, you cant use my phone"?
        No. Didnt think so.
        • Actually, quite a lot.

          There are lots of people out there who have nice smartphones that are used mostly for work that won't let their kids touch them.
        • What universe do you live in?

          Any good parent will say NO, I do!
          • You're right, many people aren't

            I know many parents (too many) who don't say NO. I guess Apple (and many other entertainment and electronics enterprises) could be betting on them. As they are very serious on where and how to invest their money, I'm afraid it means that good parents are not that many. By the way, that coul explain complex social phenomena like divorce rate, delinquency, drug abuse and bullying.
            Erasmo Cepeda
      • Interesting take

        I agree with you. A trip to China would show the trend we're just starting to see here: everyone in the large cities - and by "everyone" I mean the majority of folk - have smartphones. Kids as young as five, and every member of the family. By comparison, almost no one has land lines. I find that fascinating, because of the logic of it: land lines are by nature inflexible. A parent here may very well say "no" (I certainly did with my kids) but that's going to change, and fairly rapidly too.
      • Actually, little Johnny with an iPod Touch 3

        would be able to "text" anyone with an iPhone, iPad, iTouch, or even a Mac running Mountain Lion thanks to iMessage in iOS 5 and Mountain Lion; if little Johnny got an iTouch 4, he can also FaceTime with iPhone 4, iPad 2, other iTouch 4s, and pretty much any Mac you'd come across today.

        Sure, you can restrict things, but the most likely thing to happen is that little Johnny won't be buying things from the App Store. What he will be doing (and what you really can't stop) is side-loading any apps you've bought that downloaded automatically to the PC in the den or any other computer that has iTunes installed, thanks to iTunes automatically downloading any purchased apps (by default) to your computer and then, in turn, being able to sync the apps over WiFi to any device.
  • Yep. Basically the tech pundits took a rumor that fit their

    prejudices and ran with it, and when the truth turned out to be something completely different, they snarled and growled. Hopefully some day, adults will start practicing journalism again.