iPhone 5s, iPhone 5c and beyond: Why Apple needs to break the smartphone to remake it

ZDNet’s Monday Morning Opener: Apple's next set of smartphones will help it into new markets, but it's time to up the pace of innovation.
Written by Steve Ranger, Global News Director

To be able to sell what is effectively the same handset for six years in the ultra-competitive device market reflects how well designed and shrewdly marketed the iPhone has been.

But later this week Apple will unveil its latest smartphones, the iPhone 5s and the iPhone 5c, which together will mark a significant change in Apple's strategy: they represent possibly the first step towards offering a constellation of iPhones.

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

And it's about time too. After six years, the competition has caught up with, and in some cases overtaken, Apple. And, as reasonable Android devices get cheaper, it's getting harder for buyers to justify the premium price tag on iPhones.

The importance of China

Around 88 million smartphones were shipped in China in the past quarter — a third of all sales globally, making it an appealing market for the company in particular. But it's also a market where Apple holds less than five percent share, making it a modest seventh among smartphone sellers in the country. With the US and Western Europe drawing closer to smartphone saturation, Apple's biggest hope for growth is in China, India and other fast-growing economies, where price really does matter.

Hence the widely-trailed arrival of the iPhone 5c, a cheaper model that can compete better with mid-market Androids (Apple has been working on persuading China Mobile to start selling iPhones too — if the operator bites, it could be big win for Apple thanks to its 740 million subscribers).

The iPhone 5s (likely to come with a biometric home button which could kickstart all sorts of authentication and mobile payments plans) will target the high end, while the 5c will expand Apple's reach elsewhere.

The risks of expansion

Still, adding a new handset is not without its risks as Gartner analyst Anshul Gupta warned recently, because the iPhone 5c could eat into demand for the iPhone models. "The potential for cannibalisation will be much greater than what is seen today with the iPhone 4. 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," he warned.

But Apple's objective isn't to protect sales of a particular device, it's to safeguard the entire ecosystem. Here's one potential threat of sticking just with a high-end iPhone strategy: Android has always been the second choice development platform behind iOS, but as the number of Android devices out in the world continues to expand, that's no longer a given.

And if Microsoft's acquisition of Nokia turbocharges Windows Phone, developers may have to decide between three competing and attractive app platforms. With Apple's global market share at around 14 percent, it might not necessarily remain the de facto choice. If developers start defecting, then the whole edifice can come tumbling down — that's why it's time for Apple to grow market share, even at the expense of losing some sales at the high end.

And it's important to note that Apple has a pretty good track record of taking on the innovator's dilemma and winning. After all, Apple let the iPhone cheerfully cannibalise iPod sales and eventually kill off the music player, and then launched the iPad, giving consumers a compelling reason to avoid its MacBook line — but this never stopped Apple for a second.

Apple seems less sentimental, and less cautious about its products. Most tech companies, especially hardware companies, are inherently and miserably conservative.

Part of the problem of the PC industry has been its unwillingness to innovate, and a desire to squeeze as much profit out of ageing designs as possible. Admittedly this strategy served those companies well for a decade but Apple spotted that weakness and exploited it — and the PC makers found their comfy world collapsing around them.

However, Apple is veering towards that comfiness, and needs to have some more urgency around innovation. While iOS 7 is a vast improvement on its predecessors, it's no longer at the cutting edge of UI design, and when it comes to hardware that houses it, Apple is being outpaced by more elegant designs. The modest changes seen in the iPhone 5 and the two new handsets are not in themselves enough to keep iPhone the handset to beat. Wearable tech might be that next wave of disruptive innovation, but it's not going to hit for a couple of years, so Apple needs a stronger story around iPhone innovation.

To many, the 3.5-inch screen on the iPhone 4 and 4s and even the four-inch screen on the iPhone 5 are a little too petite in the phablet world. It comes as no surprise then that Apple is already testing different screen sizes and is rumoured to be trying out a six-inch device (indeed, it's interesting that these rumours about what's next have begun circulating even before the iPhone 5s and 5c are formally unveiled). Could it be ready to make an iPhone phablet perhaps, even at the risk of hurting sales of both the iPhone 5s and the iPad mini?

Perhaps, but Apple can't be afraid of doing just that. After six years of selling the same device, Apple needs to be ready to break the iPhone to remake it.

ZDNet's Monday Morning Opener is our opening salvo for the week in tech. As a global site, this editorial publishes on Monday at 8.00am in Sydney, Australia, which is 6.00pm Eastern Time on Sunday in the US. It is written by a member of ZDNet's Global Editorial Board, which is comprised of our lead editors across Asia, Australia, Europe, and the United States.

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