iPhone 5c, iPhone 5s: Connecting up the dots in Apple's plans

The Apple rumour mill is going into hyperdrive, but what are the real issues that Apple needs to focus on with its next iteration of the iPhone?
Written by Steve Ranger, Global News Director

With Apple expected to launch new hardware next month, the rumour frenzy is building, but by now the speculation is coalescing into a comprehensible and even believable pattern: that Apple is likely to unveil two iPhones at an event in September: one premium model (thought to be called the iPhone 5s) and an economy sidekick (the iPhone 5c). It may even throw in an unexpected bonus by adding gold to its range of device colours.

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But whatever Apple actually unveils, it will have to deal with a shifting smartphone landscape, marked by growing competition and fresh challenges. Here are some of the priorities that Apple needs to tackle — regardless of what colour its next handset turns out to be.

Turning dumbphones into iPhone fans

It may come as a surprise to those of us inside the high-tech filter bubble, but there are still some people out there who don't have a smartphone. In fact, there are quite a few, even in the US and western Europe (and plenty, plenty more in emerging markets). Persuading them that now is the time to make the jump from feature phone to smartphone, and chose Apple when they do, must be a top priority for Apple.

But it's not going to be easy: in a survey commissioned by Fortune, Samsung was found to be attracting more first-time smartphone buyers upgrading from feature phones (37 percent) than Apple (26 percent). An entry-level iPhone model that can trade on the cachet of Apple's premium brand could certainly help here, especially in developing markets.  

Taking on Android, and defending the iOS app ecosystem

Android phones continue to utterly dominate the smartphone market: Android increased its lead to 79 per cent of the market in the second quarter of this year (up from 64.2 percent in the second quarter of 2012), according to data from analyst Gartner, while iOS held a 14 percent share. It's a tough fight — Apple's family of (very similar) handsets versus pretty much the rest of the mobile industry.

And what of apps? While Apple users may spend more on their apps, Android users download on average the same amount per device, per month — and there are far more Android users out there. That means Android is becoming a more attractive development platform than it has been previously, analyst Benedict Evans points out. "This is a major strategic threat for Apple. A key selling point for the iPhone (though not the only one) is that the best apps are on iPhone and are on iPhone first," Evans writes on his website.

His answer: a cheaper iPhone to push up market share and protect the broader app ecosystem.

Laying the foundations for the next big thing

While it looks like the Samsung Galaxy Gear will be the first of the new generation of smartwatches to hit the market, there has been the constant tick-tock of leaks and rumours that suggest an iWatch is on its way.

But apart from the 'quantified self' fans, there's not a clear demand for smartwatches (or Google Glass either) yet. That means Apple needs to start laying the foundations for wearable devices and explaining why anyone ought to care.

Elsewhere, there's plenty of speculation that Apple will finally add the long-expected biometrics to its next iPhone. As my ZDNet colleage Jason O'Grady points out, adding biometrics could (assuming the implementation is decent) open the way for a whole new range of mobile payments applications.

Stop the average selling price slide

But while Apple's sales have continued to grow, the company has faced a significant drop in the average selling price (ASP) of its smartphones: despite the iPhone 5 being the most popular model, its ASP declined to the lowest figure registered by Apple since the iPhone's launch in 2007, thanks to strong sales of the iPhone 4, according to analysts Gartner.

The declining ASP suggests a need for a new flagship model, but introducing a new lower-priced model alongside could risk even greater cannibalisation than is happening with the iPhone 4. Gartner analyst Anshul Gupta has warned: "Despite being seen as the less expensive sibling of the flagship product, it would represent a new device with the hype of the marketing associated with it." Launching a premium model and an economy handset could reduce the risk, but Apple has to get the balance between the two right.

Regaining momentum and defeating iPhone fatigue

It's incredibly hard to deliver major innovations in the smartphone realm, but following the underwhelming iPhone 5 launch, Apple needs to come up with something better than a gold iPhone to regain its momentum.

And much of its competition are currently quite invigorated: Samsung has done a good job with layering additional services on top of Android on the S4, the Motorola Moto X has some interesting new ideas and even BlackBerry's BlackBerry 10 operating system looks surprisingly elegant: Apple needs to leapfrog all of these. That iOS 7 has dumped the tired skeuomorphics of previous iterations suggests a step in the right direction.

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