Why Apple won't sell a low-cost phone in India

Why Apple won't sell a low-cost phone in India

Summary: John Sculley, Apple's CEO and Steve Jobs' famous bête noire was in India recently to promote his new line of phones positioned at developing markets like India. This is what he had to say about Apple's unwillingness to bring a low-cost phone into these markets

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TOPICS: Apple, India
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john sculley

John Sculley, the former CEO of Apple who allegedly—and infamously—participated in the ousting of demi-god Steve Jobs (which I wrote about here) was recently in India promoting his new line of smartphones aimed at the developing world, specifically markets like India.

Sculley had one interesting comment (about Apple) and one revelation both in his interview with the Economic Times.

On Apple:

Ever wondered why Apple hasn’t been all over the Indian market like jam on toast when it comes to developing Apple phones with altered specs and (cheaper price points) for the Indian market?

This is after all both the fastest growing  smartphone market in the world and the largest in terms of volume, with a 1.2 billion population and an 18 percent smartphone penetration rate.

Yet, Apple has a negligible market share compared to arch rival Samsung (35 to 40 percent) but doesn't seem interested in doing anything about it. The best they could come up with was to recently re-introduce a has-been—the iPhone 4—which they initially re-launched in Indonesia. Leftovers for the developing world, is one way to look at it.

apple 4
The Apple 4 - the best the company can do for India

Here's why Sculley thinks Apple is holding back: "You can repackage a phone into monthly installments but the reality is - it's still very expensive. Apple tried with the 5C, it failed because they compromised on product as they used an old processor and left out certain features.

Apple's expectation from product quality is so high but business model requires high gross margins. They generate incredible amounts of cash but if they compromise on that, their stock goes down. They have a dilemma - either miss the market where 70 percent of the industry  is or risk falling of their stock price dramatically if they go after the market. One company's dilemma is another company's opportunity."

In other words, what I think Sculley is saying is that Apple cannot trot out a lower spec'd product for a mass market because its business model makes a fountain of cash selling a premium product that is flying off the shelves for a premium price in most parts of the world.

In India, telecom companies unlike the US haven't subsidized the cost of phones with locked in contracts so an iPhone is far beyond the reach of most Indians. And introducing a cheaper phone will suddenly confuse the hell out of the value proposition of the iPhone in western markets. Which is why Apple's strategy has been to introduce the way-inferior iPhone 4 here in India rather than a brand new product developed at this market.

Topics: Apple, India

Rajiv Rao

About Rajiv Rao

Rajiv is a journalist and filmmaker based out of New Delhi who is interested in how new technologies, innovation, and disruptive business forces are shaking things up in India.

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20 comments
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  • That's a lot of words

    to pretty much say: Apple doesn't see it as a profitable market.
    baggins_z
    • Or rather

      It is potentially profitable, but marginal profit is more important to stockholders than absolute profit is. And since defying orthodoxy is a good way to invite a hostile takeover, Mr. Cook plays it safe, as usual.
      John L. Ries
      • No, more like Apple doesn't sell ANY low-cost phone

        ANYWHERE!!! LOL!
        wizard57m-cnet
        • Didn't say it did

          But if it thinks it can make money doing it, then it might make sense regardless. It's not like Steve Jobs was famous for following conventional wisdom (even his own).
          John L. Ries
  • its not in their business model

    Target the easy 10-15% of the market, take the rest of the day off... why do any more work than that.
    greywolf7
    • It's not in their business model

      Actually, it isn't. Apple doesn't go into low margin parts of the market.

      Remember when all the analysts were saying that Apple was doomed because they weren't competing in the NetBook area of the market? The NetBook market had a zillion hungry sharks trying to pare off pennies so they could dominate market share, with cut-throat competition and prices rapidly descending until profit per unit became negligible.

      The Indian market who want smart phones are tech savvy enough to not want a two year old model, but are unable to afford a premium priced handset. Android is ideal for this market, since these handset makers seem to be determined to throw in high level hardware at a price point which will allow them to dominate the market. Making a profit seems almost secondary in this game, which is ironic since in the tech sector "winning the hearts and minds" lasts until the next model intro.
      varase
  • Kirkland 5c

    Apple is secretly developing an economy model which they will sell through Costco (or the Indian equivalent) with a store brand label. You heard it here first.
    Producto Endorsair
    • Apple and secret in the same sentence no longer makes sense

      Costco...
      Emacho
      • Yes, because there are lots of Costco's in India...

        ;)
        William.Farrel
  • Re: iPhone 4S - the best the company can do for India

    The iPhone 4S more than holds its own against the iPhone 5/5S so it would seem Apple are offering a pretty good package.

    Of course if they wanted to go really budget then the production of the iPhone 4 could recommence.
    5735guy
    • Re: That's a lot of words ... & .... the 4S

      Thanks John L Ries for further clarifying my point.

      Also 5735guy, i meant the 4 not the 4S....Correction made and thx for bringing it up or I wouldn't have spotted it
      Rajiv Rao
  • Also between the lines..

    Indians are largely well-educated and much less susceptible to the Reality Distortion Field advertising that the upper-midrange value of Apple products are actually worth the premium price. They have a clue what actual hardware specs are and what they mean. A cheap little screen with a mediocre 8mp camera and recycled beer-can back is not a premium device ohter than its price and pop appeal. If they actually produce a 4.7 screen iPhone, it will be because Samsung is giving away the leftover fab capacity from the S3 displays at fire-sale prices.
    NotMSUser
  • Another case of reality distortion nonsense

    FTA -"...its business model makes a fountain of cash selling a premium product that is flying off the shelves for a premium price in most parts of the world"

    That statement is absolute nonsense. Stop sipping the Apple koolaid.

    First of all, Apple's phone isn't flying off the shelves in "most parts of the world". The brisk iPhone sales are only happens in a few Western markets, which is where you'll find most of the 'global' iPhone users. The world has almost 200 countries and in most of them the iPhone struggles more and more. And it struggles precisely because of the massive high unsubsidized price tag which gets even more massive once you pass the additional import duties to the consumers.

    Secondly, in places like the US and those few markets where the iPhone flies off the shelves, it doesn't do so for a premium price. It does so precisely because the iPhone doesn't have a premium price tag as a result of being heavily subsidized down to the cheap zone. In other words, the iPhone flies of the shelves in countries where it's just as cheap as a $200 unsubsidized phone in the developing markets.

    The Indian phone market is not an oddity. Globally, phone subsidies are an anomaly, not a norm like in the US market.
    eMJayy
  • Anybody with a brain

    Can simple look at the numbers and see that the iPhone is the #1 and #2 best selling model in the market AROUND THE WORLD.

    Yes, there are few places where other brands/models outsell the iPhone. But there are the exception, not the rule.
    wackoae
    • So you're agreeing that Apple is doing the right thing here

      giving up a billion in profit to save even more billions in stock price, then?
      William.Farrel
  • No doubt Apple still makes good margins on iPhone 4

    I think we also know Apple still makes a boat load on iPhone 4 in India. The whole model of Apple is set the margins and stick with them. No sales, no discounts no rebates. You either buy it for this amount or go elsewhere. This works when you have plenty of takers. At one time Apple had very few takers at their margins. What is bad for Apple is Android phones that perform as well or close at less price. When Apple compromises like with the 5C. Rather then providing same hardware and take a hit on margins. They would rather skimp on hardware and give the buyer a less then stellar product. In my view Apple worries about Apple.
    JohnnyES-25227553276394558534412264934521
  • Why Apple is irrelevant in India

    Fixed the headline for you.
    Retterdyne
  • Imagine Apple putting out a low cost iPhone

    that does everything the higher cost iPhone does.
    William.Farrel
  • Re: that does everything the higher cost iPhone does....

    In the case of the iPhone 4S I would have to agree but the iPhone 4 does not come up to todays standards.
    5735guy
  • Yawn

    "This is after all both the fastest growing smartphone market in the world and the largest in terms of volume, with a 1.2 billion population and an 18 percent smartphone penetration rate."

    So? Tell me this. What is the total profit made on all of the smartphones sold in India and what percentage of that profit does Apple make.

    I seem to remember that profitability was always a bit of a mystery to Sculley.
    Henry 3 Dogg