8 ms·

IPhone 5C: C is for Cognitive Illusion

87 points by kjhughes 13y ago

Cbasedlifeform 13y ago
Interesting analysis by Dediu as usual (I'm a big fan and listen to his podcast regularly). I think a lot of people (including Horace and yours truly) are surprised by the 5C pricing strategy -- it's not 5C(heap) but 5C(olor). I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. (A matter of taste, of course.) If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me. It's notable there's no black (or 'slate') 5C. I guess if one wants a more 'dignified' (again, a matter of taste) one has to go 5S. I commend to all the interesting Steve Jobs quote found at the end of the comment by markwilcox: "What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share." - Steve Jobs. As a long-time Apple fan and former shareholder I'll be very interested to see how this pans out.
- kunil 13y ago
  I have 0 knowledge in business world and how things work but wasn't Jobs basically Apple itself? Even if he does not have single-handedly vote percentage to make things reality for Apple, his reputation is not enough to force things?
  - zeckalpha 13y ago
    This quote is about the late 1980's, after Jobs had been forced out of Apple.
- juandopazo 13y ago
  US$100 is a lot of money for a lot of people in other markets.
  - lucian1900 13y ago
    The difference is still minuscule. £549 vs £469 is insignificant, especially when you can get a Nexus 4 for twice that difference (£159).
    - bosie 13y ago
      where can you snag a nexus 4 for 159 pounds?
      - OrsenPike 13y ago
        Google cut the price a couple of weeks back. The 8GB N4 is £159. You can grab it from here https://play.google.com/store/devices/details/Nexus_4_8_GB?id=nexus_4_8gb https://play.google.com/store/devices/details/Nexus_4_8_GB?i...
      - NickPollard 13y ago
        On Google Play last week (the 8gb version), it has now sold out. The 16gb version is available for £199, which I bought two weeks ago and am thrilled with.
        JimmaDaRustla 13y ago
        What you get for the price, best deal there is! Months ago, this phone was being offered for free on a 2 year contract. I paid $50 for mine 6 months ago. Only thing I'm disappointed in is the camera, but that's why I have my Canon.
  - VLM 13y ago
    On the other hand doesn't the stereotypical iphone owner in the USA currently write a check well over $100 per month? I'm not talking about "extreme measures" but the more typical grannie walks in off the street and walks out with a phone? This seems to be a problem. Hmm buy the inferior product, or spend a mere 3 weeks service to buy the top of the line. Duh I'll buy the top of the line. If I wanted to save money I'd just get an android phone from Republic Wireless for $19 like VLM did on Hacker News (I'm a happy customer). Therefore since I'm already contemplating the 2nd most expensive option out there, and possibly the 2nd best option out there, may as well pay a tiny bit more for the best one. If I want to blow $30 on an expensive bottle of wine, there's no way in hell I'm paying $31 for an inferior bottle sitting next to a superior $32 bottle. If I wanted to save money I wouldn't participate in that market anyway. And that is the marketing plan I think they're using. I don't think they'll sell any of the cheaper ones.
- threeseed 13y ago
  One of the things people always forget is Apple's brand. The best place to see this exemplified is Ginza, Tokyo where the store is right next to Louis Vuitton, Prada, Chanel etc. It sees itself as a premium, fashionable brand. Pricing it low would have the effect of short term financial gain but at the expense of commoditising the iPhone's brand. Which would make people far less willing to spend the extra money on the 5S (which has the larger margins).
  - yadoga 13y ago
    Actually the '5C' is supposed to have the higher margins. Apple are pricing it more or less the same as the original '5' while benefiting from their integrated supply chain with known parts and on top, replacing the aluminum case with supposedly cheaper plastic parts. Albeit very high-grade polycarbonate, comparable to the Lumia line from Nokia. The '5S' has the much more expensive exterior parts, plus new chip designs inside as well as bigger camera sensor and TouchID parts. The 'C' will be raking in the profits for Apple.
    - iaskwhy 13y ago
      That's one of the most interesting takes from this. Everyone was claiming cheap and they went for margin instead.
      - criley2 13y ago
        Apple always goes on margin. The extra memory versions of the iPhone are all margin. When you get to the $850 iPhone with 64GB of memory, the profit margin is generally around 75%. As in, it costs them $215 to make a $850 device. Apple rarely dips below 40% margin on it's products it seems. Now that Apple has over $100,000,000,000.00 in it's little hedge fund and has become the largest fund in the world (iirc), I've begun to look at the iPhone as the worlds most successful hedge fund capital raising scheme.
        iaskwhy 13y ago
        "Always" might be too extreme given the iPad Mini. Also, I would consider an upsell of the same model a different thing from the base price of different models.
- saturdaysaint 13y ago
  Notice that Jobs didn't say "companies should always make rational profits and go for market share". Under Jobs, the first several generations of iPhone were exceptional for how much market share they left on the table by being exclusive to a single carrier in many major markets.
- kayoone 13y ago
  He didnt really follow the essence of that quote with NeXT then, did he ? Which means, going for market share makes sense for some companies, but not for all of them. Imo competing in the lower end of the market isnt going to do them nor their brand much good. Their focus on the premium segment seems to still be the right directio to me.
- coldtea 13y ago
  >I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. That's a western male perspective. In Asia (including India), adults will jump to get those colors. (And women in the West too).
  - plinkplonk 13y ago
    "In Asia (including India) adults will jump to get those colors" no they won't (due disclosure: Indian living in India). They might 'jump to get' good value for money. The IPhones have never been seen as good value for money in the Indian market, and have truly miniscule market share. Bright colors won't help. These kind of generalizations - emerging market customers are fools who can be bamboozled by bright colored cases and very expensive phones that are one generation (or more) behind the truly cutting edge phones - shows Apple is clueless about how to succeed in emerging markets. Which is ok - they can stick to America/Europe and make tonnes of money. We'll see in a year or two if they can crack the Chinese markets, with these plastic phones. I doubt it somehow.
    - 001sky 13y ago
      It is true that the color palletes of attractive hues vary by region. In part, this has to do with skin-tone. You can verify this by looking at Make-up for women (who understand this stuff), and compare trends on a global level. This is not withstanding the value for money argument, which is a valid (but disctinct) point.
      - plinkplonk 13y ago
        All true. I was just pushing back against the idea that Indians will "jump to get" brightly colored cellphones. Color has next to no impact on the Indian cell phone (vs say cosmetics) market, which is very feature-comparison and value for money driven.
  - diydsp 13y ago
    I think you think you called out sexism, but in actually, you have perpetuated it. PP shared his/her own opinion with no attempt or claim made to speak for other people. Your contribution was to declare which opinions belong to each sexist grouping you architected. You have said, "Your opinion is a western male one," but I doubt you know PP's origin, so you are shooting in the dark. You have said, "Asians are like _this_. Women are like _that_. Men are like _this_. Indians are _that_." That is prejudicial, and even worse, normative, behavior by you, compelling others to conform. If I were an Asian adult who didn't like the colors, your comments might make me feel hurt right now, whereas PP's comment was acceptable.
- pohl 13y ago
  If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me Conjecture: these will be the free-with-contract phones next year, and something else will occupy the $100 slot.
  - baddox 13y ago
    Sure, but that's still not a significant departure from Apple's current tiered pricing model.
- baddox 13y ago
  > I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. (A matter of taste, of course.) If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me. I genuinely think this opinion might be the result of a filter bubble or its "real life" equivalent. I don't care for the bright colors personally, but I think the white 5c looks excellent (a black one would be even better). I still prefer the metal casing (plus the tech specs are important to me), so I'll choose the 5s if I decide to upgrade, but I can absolutely understand why a huge portion of potential buyers would prefer the plastic case, especially people who aren't particularly concerned with having the most blazing new chip or the fingerprint sensor. In fact, even among gadget geeks, I can see many choosing the plastic design specifically because it is plastic. I have heard a lot of disappointment about the fragility of metal iPhones since the debut of the iPhone 4.
zeckalpha 13y ago
I think they decided they couldn't make the 5 any cheaper in the short term, so they changed their product cycle.
- threeseed 13y ago
  Apple has been planning this for years. If they wanted to make it cheaper they would have. It is a deliberate move and the key is now to understand why they did it.
- ckayatek 13y ago
  Is it possible that Apple will settle for lower market share as long as they retain a majority of the profits? I mean look at the PC market where Apple sells relatively few units but controls nearly half of the profit. What does it matter if you only control 10% of the market if you control 90% of the profit in the long run. Of course the issue in this argument is the App store. You could argue that by building a huge user base could allow you to shift your profits from hardware to software in the long run.
  - ZeroGravitas 13y ago
    I don't know if the numbers are hypothetical but Apple is probably going to have roughly 10% of the smartphone market this quarter, but they'll also have slightly less than half the profit share, which is some way off your 90% figure. And both numbers are trending down from their peaks of ~25% and ~90%. I'd also look to Intel and Microsoft if I was wondering where the profit in the PC market went. I'm guessing your figures for PC profit don't include the little known Wintel duo?
colinm 13y ago
Apple's problem is that they are only relevant in a handful of countries while competing in a global market. Android is crushing them.
- CmonDev 13y ago
  It means that Bentley and Ulysse Nardin also have a problem.
  - Schlaefer 13y ago
    If you mean by that bought up and owned by a volume manufacturer or with a relevance that people have to google the name to know who you're talking about: yes.
  - deelowe 13y ago
    They kind of do(or did), not sure what your point is. Bently, Bugatti, Aston Martin, Porsche, etc... have all had major trouble recently. Most of the luxury brands have been bought by higher volume manufacturers.
  - danieldk 13y ago
    And the car analogy still does not fly. A Bentley will work fine on the same roads a Volkswagen does. However, an iPhone will not run, say, Android apps. If Apple's marketshare drops under a certain percentage, it becomes less and less interesting to treat it as a first-class citizen.
    - GFischer 13y ago
      Network effects are very important, however, for now Apple users outspend Android users by a very significant margin, so they can get by with a relatively low market share. As long as the spending trend continues, developers will continue delivering products for the platform.
    - r00fus 13y ago
      Your analogy doesn't hold. The "roads" are carrier networks, and the iPhone plays well in most of those (in fact, latest models have impressive band coverage for data). Not even sure how Apps fit into the car analogy, but they sure as hell aren't even fuel, maybe accessories or tires? You're right - a car analogy just don't fly.
Terretta 13y ago
The article text states the exact opposite of its own headline: “Under the old model the n-1 variant was meant to be a modest volume contributor to the portfolio, being essentially a cognitive illusion which encouraged buyers to stick with iPhone n at the expense of competitors. However, the new n-1 product (the 5C) has a distinct positioning that makes it seem fresh and not a lesser, stale version of the flagship. It is designed to appeal as a legitimate upgrade for iPhone 4/4S users. It is, in other words, _not_ meant as an illusion, and not focusing attention on the flagship[3]. Rather, it is meant to be a genuine, core product.” IOW, the iPhone 4 vs 4S was cognitive illusion, the iPhone 5C vs 5S is not cognitive illusion. So, C is not for Cognitive Illusion. Opposite headline is better link bait, though.
- taeric 13y ago
  I think the reading was that this model is to address the old cognitive illusion. That is, the old n-1 model rested on a cognitive illusion to work. The argument here is that this model is to take that place. (Make sense?)
- superuser2 13y ago
  It had Siri and it was genuinely faster. iOS6 is perfectly usable on my 4S... on the iPhone 4 it ran horribly.
weisser 13y ago
Wouldn't pricing a new iPhone (regardless of version) too low have a negative effect on the perceived value? If the iPhone 5C had the same core components as the 5S I would get it instead because the plastic is probably more durable and I'd like a colorful device as a change of pace from the white and silver Apple products I own currently.
Cthulhu_ 13y ago
Could just be a sales strategy. "The 5C looks tacky, the 5S looks much better and is only $100 more expensive!" And teenagers will probably go for the 5C, breeding a new generation that likes tacky smooth glossy plastic in bright pastel colors.
- iwasakabukiman 13y ago
  What's tacky today might be fashionable tomorrow. Fashion is very fluid.
  - JohnTHaller 13y ago
    Not quite as fluid as some people think. Gold has been tacky for a while now, at least in the states.
    - iwasakabukiman 13y ago
      But it's wildly popular in other parts of the world. Apparently it's the number one color for aftermarket modifications of iPhones. Look at the design of Sony products over the past 50 years. The design has changed radically. Heck, even look at the Apple design language over the past decade or so. Things change. Everyone thought that OS X 10.0 looked very stylish at the time...now it looks dated.
    - joonix 13y ago
      This style of gold, especially with the white accents, has come back into fashion with women in the US.
- jes5199 13y ago
  I actually think the colored iPhones look nice; I'm tired of carrying around a phone that looks like it was designed for a lawyer or a wall-street jerk. And the 5S might have an amazing camera, but otherwise I don't see why I'm supposed to want it.
austenallred 13y ago
"Apple is recognizing that the market is actually “segmentable”. This is the notion that one size does not fit all–a radical idea for the brand." Apple has always had products for higher end and lower end markets as soon as that product becomes established. iPod video (I know that's not the formal name) came out at roughly the same time as the Nano and shuffle. MacBook Pro had MacBook. iPad and iPad mini. Mac Pro and iMac. This isn't new, it's just the first time it's been so deliberate and noticeable.
- JimmaDaRustla 13y ago
  Author refers to smart phone market as "segmentable", not other markets. Your statement doesn't really disprove his.
  - untog 13y ago
    Yes but the author also states that it is a "radical idea for the brand", which it isn't. It also isn't a radical idea for the smart phone market, as Android manufacturers have been doing it for a long time. So we have a brand with experience in segmenting approaching a market that has already been segmented by competitors. Not such an interesting story.
    - JimmaDaRustla 13y ago
      True, that's a better statement. It seems that Apple has done this out of market demand (of course they did, any company would rather have one clutch device over a smorgasbord), but with the 5C still being a high-end feature phone, why'd they do it? I'm guessing they are just creating a foundation for a radical iPhone 6?
      - criley2 13y ago
        I like MG's take. The iPhone 5s is evolution of a pre-Ive design. The iPhone 5c is Johnny Ive's first shot at a decidedly Ive version of the iPhone.
crusso 13y ago
Such a big deal is being made of this initial pricing strategy for the 5C when it's really such a transient situation. Apple is going in with a high price on the 5C to keep the brand solid and scoop up profits from early adopters who will just have to have the latest pretty colored iPhone. My guess is that the 5C's price will erode much faster than the 5S. Apple will do its best to balance the mix to ensure that the product is sold and out there.
- simonh 13y ago
  This is exactly what I came here to say. This is another case of Apple skating to where the puck is going to be in maybe 2 or 3 years time. There is no point in Apple introducing a brand new truly low cost iPhone because such a device would by necessity only be in the market for a short time before it would get obsoleted. The 5C is set to be manufactured for the next 3 years, so they will extract maximum scale effects and maximum sales volume over the lifetime of the device. The 'C' may well stand for 'Cheap', but not now. It stands for where it will be positioned over it's lifetime. Other manufacturers bring out a new device and only care about it for maybe 6 months, after which they're on to the new thing and ready to forget the old one ever existed. Apple thinks really long term about their device's full economic life cycle. For example the iPad Mini was criticism for being too expensive, but that was taking a short term view. I fully expect the current mini to continue to be manufactured at a lower price point for another year, cutting off the air supply to the cut price Android tablet market, but Apple is in no hurry to get to that point.
  - Touche 13y ago
    > This is another case of Apple skating to where the puck is going to be in maybe 2 or 3 years time. That phrase doesn't mean what you think it means. It has nothing to do with planning for a long product life. "Where the puck is going" is towards affordable off-contract phones and cheaper carrier monthly costs. The 5C is Apple doubling down on the carrier subsidy model. It's the model that makes the 5C seem competitively priced. It's ironic because Apple is often credited as standing against carrier power, when in reality the status quo is exactly what will allow Apple to keep making those legendary profit margins on iPhones. Once unsubsidized becomes the norm (as started by T-Mobile and now being adopted by others) they're going to be forced to compete on price at the expense of margins. They can stay exclusively on the high end if they want, but the high is going to be ~300-400 at most. That's where the puck is going. Selling a 2012-grade 5C for competitive price in 2015 is not "where the puck is going".
lnanek2 13y ago
Not really strange at all that the specs don't differ much besides the case. Apple has always done this. Make a minor change like flash memory size, and charge a heck of a lot more for the higher end version than the difference actually costs to produce. They retain an easy to develop for ecosystem by not having much difference and gain economies of scale on production. Whoever this is doesn't really know much about the computer industry. He probably doesn't even realize desktop processors are often produced as one model and cheaper ones just clocked down to create artificial differences which retaining efficiencies of only having to make one thing.
- iwasakabukiman 13y ago
  Actually, Horace Dediu is a pretty well respected writer who does know what he's talking about. Go read some of his past posts, they're pretty insightful.
  - ZeroGravitas 13y ago
    But skip the ones where he predicts success for RIM and Nokia (this is pre-Windows Phone, which he predicted they would never move to), and failure for Samsung because the former are "integrated" and the latter is "modular" (even though they make their own silicon, screens, RAM, etc.). And the one when he says Android will never have more than 15% of the market... (currently at 80%) and certainly never more than Microsoft (currently 3.7%). And any when he mentions open source, which he doesn't understand at all.
Touche 13y ago
This is classic innovators dilemma. Apple cannot release a true low-end, mid-range, or even "low high-end" phone because it risks eating into the iPhone's legendary profit margins. Smartphones are becoming cheaper; Apple cannot hang on to the iPhone's profit margins forever. As it ignores the trend it risks creating a generation of smartphone users not in the Apple ecosystem. It's happening right now.
kyro 13y ago
The iPhone 5 has become relatively less stale in the total mobile phone market compared to what the iPhone 4/4S became. The current model of the phone can still compete, it's good enough. Apple recognizes this, but also knows that it needs to innovate to keep its early adopters happy. And so they split their product to tailor to these two market segments -- those who need innovation, and those who would be perfectly happy with the current specs. These two market segments do not differ greatly in their purchasing power. Splitting the product wasn't to create a mid-tier and high-tier phone for the respective price points. It was a targeted refresh of the product for two equally valuable market segments. I suspect that as the mobile phone landscape changes, the iPhone 5C will begin feeling more obsolete, and it will then be relegated to the level of n-1 offering, and all attention will then go to the iPhone 6, which should presumably be a huge leap in innovation and design.
- derefr 13y ago
  To me, what this looks like is a final submission by Apple to the economics of their own supply-chain. Apple has never been able to make enough iPhones of each successive generation for people to get their hands on during the first few months after release. Whereas, once they've ramped up production, they tend to have all these parts left over in the pipeline[1] that they have to sell off as N-1 gen hardware to price-sensitive late adopters. (This is also why the iPod Touch was originally created, to serve as a sink for N-2-gen parts.) Now, Apple are trying to shift the purchase frenzy to the N-1 gen, and position their new gen-N tech -- whose production hasn't yet been ramped up -- as something for early-adopters only. In other words, to switch from an (N-1, N) view of the world, to an (N, N+1) view. Everything in the S will filter down to the C of the next gen. They'll get their pipelines saturated with 5S parts just in time to wrap them in plastic and call them 6C parts. As long as more people buy Cs than Ss, this works out perfectly. --- [1] By "in the pipeline", I mean the more general "economically incentivized to produce units of, instead of units of the new model, by contractual obligations to factories, training costs of factory workers, etc." Apple actually keeps their literal pipeline of hardware-produced-but-not-yet-shipped-as-a-product quite low.
  - kyro 13y ago
whichdan 13y ago
A small point that's usually overlooked: assuming you're on AT&T, there's a ~$35 upgrade fee, $30 for a case, sales tax, and maybe an extra charging cable or other accessory. A $99 phone is more like $200 for the average person, so the comparison should be closer to $200 vs $300 rather than $100 vs $200.
- joonix 13y ago
  You're not required to buy a case and accessories at the AT&T store. If someone is price conscious, they will know they can get it cheaper elsewhere. And I suspect a lot of people won't put cases on them since the shell is plastic and the color of the phone is a selling point.
nicholassmith 13y ago
As Hacker News users we can all consider ourselves in the top N percent for technology product interest, so the iPhone 5C seems weird to us. It's plastic? It's how much? In those colours? With those specs? I was talking to my girlfriend and some friends who are distinctly not interested in the wonderful world of tech and to them the iPhone 5C does genuinely seem fresh (although pricing was a bit split). Apple's positioning the device to recapture the interest of a market who's been saturated with many devices.
- JTon 13y ago
  Yeah I can confirm this through my experience as well. In my circles, 5C is the girlfriend phone.
- baddox 13y ago
  I consider myself in that same top N percent for technology product interest, but I'm not at all confused about the 5c. Most smartphones, even flagship smartphones, are plastic, and some have spectacular build quality. The price is extremely competitive. I think the only complaints about price are influenced by the rumor that the 5c would be the free subsidized tier. Ignoring that and looking at the 5c on its own terms, it's certainly a competitive $100 subsidized phone.
freakyterrorist 13y ago
I think this opens them up to new experimentation at the top of the market. The 5C becomes the everyday model that suits the average consumer. The 5S will become the experimental super phone. Following on from this I would not be at all surprised to see a larger screen phone join the 5S as a high end lower volume model for those who can afford/want it.
chrisdevereux 13y ago
Agree that the purpose of the 5C is to keep margins up rather than grow market share. The interesting relationship isn't between the price of the 5C and the 5S, it's between the price of the 4S and 5C. It seems to be targeting people who would have bought a 4S, not people who wouldn't have bought an iPhone at all.
hacknat 13y ago
Why is nobody talking about the camera improvements, the speed improvements, and the fact that this is the first 64 bit phone? The improvements to the 5S are actually dramatic, you just can't see them yet.
- timdellinger 13y ago
  I'm wondering if those improvements will actually matter to customers - I'm seeing diminishing returns with respect to putting R&D money into phones.
  - hacknat 13y ago
    A lot of the apps that you know and love wouldn't be possible without performance improvements. Of course customers won't notice the improvement directly, they'll notice in new software capability they previously didn't have.
mpg33 13y ago
I dunno...assuming the original iPhone 5 would have been bumped down to the same price as the 5C is releasing as... I would rather have the iPhone 5.
pioul 13y ago
Interesting analysis. This shift in the number of flagship products might also give a fresh start to the brand in the mind of iPhone users. Now that everybody has an iPhone, "Think different" might regain some credibility if you start using the new, more than good enough iPhone 5S.
akrymski 13y ago
Obviously Apple is trying to turn the iPhone 5C into the plastic Macbook of 2006 - the best-selling laptop ever. The MacBook was also more expensive than the competition, however consumers (even students) paid up. Arguably the price difference wasn't as extreme, but I'd be surprised if Apple didn't lower the price to $499 or less, and announce a white+black models of 5C very soon. However, I'd argue that the main reason consumers bought the Macbook was not the Apple brand, but the vast gap between OS X and Windows XP. They bought into the operating system, and that's what drove sales of other Apple products from then on, because after all, that iPhone/iPod works better with a Mac. Fast-forward to now, Apple's competitor isn't MS Windows. It's Android, which doesn't cost a premium the way Windows did, and is arguably not inferior to iOS. OS X was more "open" compared to Windows, and not just due to its Unix underpinnings. It didn't come with pre-packaged software and DRM restrictions, but it did come with better software. It didn't force you to consume content the Microsoft way, it embraced developers creating great apps like VLC without charging them. No more. iOS is a walled garden, even more so than Windows ever was. Sure Google isn't a saint in that regard, and yet Android encourages competition. It has no issue with Amazon's Kindle app selling e-books. It has no issue with developers writing apps to replace "core functions". It knows that selling 10 units with a 10% margin is better than selling 1 unit with a 20% margin. It's thinking long-term. I still love Apple for its design and attention to product detail, but if their greed and hubris continues to escalate, history may just repeat itself.

87 points by kjhughes 13y ago

Interesting analysis by Dediu as usual (I'm a big fan and listen to his podcast regularly). I think a lot of people (including Horace and yours truly) are surprised by the 5C pricing strategy -- it's not 5C(heap) but 5C(olor). I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. (A matter of taste, of course.) If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me. It's notable there's no black (or 'slate') 5C. I guess if one wants a more 'dignified' (again, a matter of taste) one has to go 5S. I commend to all the interesting Steve Jobs quote found at the end of the comment by markwilcox: "What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share." - Steve Jobs. As a long-time Apple fan and former shareholder I'll be very interested to see how this pans out.

kunil 13y ago
I have 0 knowledge in business world and how things work but wasn't Jobs basically Apple itself? Even if he does not have single-handedly vote percentage to make things reality for Apple, his reputation is not enough to force things?
- zeckalpha 13y ago
  This quote is about the late 1980's, after Jobs had been forced out of Apple.
juandopazo 13y ago
US$100 is a lot of money for a lot of people in other markets.
- lucian1900 13y ago
  The difference is still minuscule. £549 vs £469 is insignificant, especially when you can get a Nexus 4 for twice that difference (£159).
  - bosie 13y ago
    where can you snag a nexus 4 for 159 pounds?
    - OrsenPike 13y ago
      Google cut the price a couple of weeks back. The 8GB N4 is £159. You can grab it from here https://play.google.com/store/devices/details/Nexus_4_8_GB?id=nexus_4_8gb https://play.google.com/store/devices/details/Nexus_4_8_GB?i...
    - NickPollard 13y ago
      On Google Play last week (the 8gb version), it has now sold out. The 16gb version is available for £199, which I bought two weeks ago and am thrilled with.
      - JimmaDaRustla 13y ago
        What you get for the price, best deal there is! Months ago, this phone was being offered for free on a 2 year contract. I paid $50 for mine 6 months ago. Only thing I'm disappointed in is the camera, but that's why I have my Canon.
- VLM 13y ago
  On the other hand doesn't the stereotypical iphone owner in the USA currently write a check well over $100 per month? I'm not talking about "extreme measures" but the more typical grannie walks in off the street and walks out with a phone? This seems to be a problem. Hmm buy the inferior product, or spend a mere 3 weeks service to buy the top of the line. Duh I'll buy the top of the line. If I wanted to save money I'd just get an android phone from Republic Wireless for $19 like VLM did on Hacker News (I'm a happy customer). Therefore since I'm already contemplating the 2nd most expensive option out there, and possibly the 2nd best option out there, may as well pay a tiny bit more for the best one. If I want to blow $30 on an expensive bottle of wine, there's no way in hell I'm paying $31 for an inferior bottle sitting next to a superior $32 bottle. If I wanted to save money I wouldn't participate in that market anyway. And that is the marketing plan I think they're using. I don't think they'll sell any of the cheaper ones.
threeseed 13y ago
One of the things people always forget is Apple's brand. The best place to see this exemplified is Ginza, Tokyo where the store is right next to Louis Vuitton, Prada, Chanel etc. It sees itself as a premium, fashionable brand. Pricing it low would have the effect of short term financial gain but at the expense of commoditising the iPhone's brand. Which would make people far less willing to spend the extra money on the 5S (which has the larger margins).
- yadoga 13y ago
  Actually the '5C' is supposed to have the higher margins. Apple are pricing it more or less the same as the original '5' while benefiting from their integrated supply chain with known parts and on top, replacing the aluminum case with supposedly cheaper plastic parts. Albeit very high-grade polycarbonate, comparable to the Lumia line from Nokia. The '5S' has the much more expensive exterior parts, plus new chip designs inside as well as bigger camera sensor and TouchID parts. The 'C' will be raking in the profits for Apple.
  - iaskwhy 13y ago
    That's one of the most interesting takes from this. Everyone was claiming cheap and they went for margin instead.
    - criley2 13y ago
      Apple always goes on margin. The extra memory versions of the iPhone are all margin. When you get to the $850 iPhone with 64GB of memory, the profit margin is generally around 75%. As in, it costs them $215 to make a $850 device. Apple rarely dips below 40% margin on it's products it seems. Now that Apple has over $100,000,000,000.00 in it's little hedge fund and has become the largest fund in the world (iirc), I've begun to look at the iPhone as the worlds most successful hedge fund capital raising scheme.
      - iaskwhy 13y ago
        "Always" might be too extreme given the iPad Mini. Also, I would consider an upsell of the same model a different thing from the base price of different models.
saturdaysaint 13y ago
Notice that Jobs didn't say "companies should always make rational profits and go for market share". Under Jobs, the first several generations of iPhone were exceptional for how much market share they left on the table by being exclusive to a single carrier in many major markets.
kayoone 13y ago
He didnt really follow the essence of that quote with NeXT then, did he ? Which means, going for market share makes sense for some companies, but not for all of them. Imo competing in the lower end of the market isnt going to do them nor their brand much good. Their focus on the premium segment seems to still be the right directio to me.
coldtea 13y ago
>I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. That's a western male perspective. In Asia (including India), adults will jump to get those colors. (And women in the West too).
- plinkplonk 13y ago
  "In Asia (including India) adults will jump to get those colors" no they won't (due disclosure: Indian living in India). They might 'jump to get' good value for money. The IPhones have never been seen as good value for money in the Indian market, and have truly miniscule market share. Bright colors won't help. These kind of generalizations - emerging market customers are fools who can be bamboozled by bright colored cases and very expensive phones that are one generation (or more) behind the truly cutting edge phones - shows Apple is clueless about how to succeed in emerging markets. Which is ok - they can stick to America/Europe and make tonnes of money. We'll see in a year or two if they can crack the Chinese markets, with these plastic phones. I doubt it somehow.
  - 001sky 13y ago
    It is true that the color palletes of attractive hues vary by region. In part, this has to do with skin-tone. You can verify this by looking at Make-up for women (who understand this stuff), and compare trends on a global level. This is not withstanding the value for money argument, which is a valid (but disctinct) point.
    - plinkplonk 13y ago
      All true. I was just pushing back against the idea that Indians will "jump to get" brightly colored cellphones. Color has next to no impact on the Indian cell phone (vs say cosmetics) market, which is very feature-comparison and value for money driven.
- diydsp 13y ago
  I think you think you called out sexism, but in actually, you have perpetuated it. PP shared his/her own opinion with no attempt or claim made to speak for other people. Your contribution was to declare which opinions belong to each sexist grouping you architected. You have said, "Your opinion is a western male one," but I doubt you know PP's origin, so you are shooting in the dark. You have said, "Asians are like _this_. Women are like _that_. Men are like _this_. Indians are _that_." That is prejudicial, and even worse, normative, behavior by you, compelling others to conform. If I were an Asian adult who didn't like the colors, your comments might make me feel hurt right now, whereas PP's comment was acceptable.
pohl 13y ago
If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me Conjecture: these will be the free-with-contract phones next year, and something else will occupy the $100 slot.
- baddox 13y ago
  Sure, but that's still not a significant departure from Apple's current tiered pricing model.
baddox 13y ago
> I just looked at real world photos on Ars of the new models and from my POV the 5C models look like they are designed for kids. (A matter of taste, of course.) If Apple cut the price by another $100 they might make sense as a pricepoint but at only $100 less than 5S it seems crazy to me. I genuinely think this opinion might be the result of a filter bubble or its "real life" equivalent. I don't care for the bright colors personally, but I think the white 5c looks excellent (a black one would be even better). I still prefer the metal casing (plus the tech specs are important to me), so I'll choose the 5s if I decide to upgrade, but I can absolutely understand why a huge portion of potential buyers would prefer the plastic case, especially people who aren't particularly concerned with having the most blazing new chip or the fingerprint sensor. In fact, even among gadget geeks, I can see many choosing the plastic design specifically because it is plastic. I have heard a lot of disappointment about the fragility of metal iPhones since the debut of the iPhone 4.

zeckalpha 13y ago

I think they decided they couldn't make the 5 any cheaper in the short term, so they changed their product cycle.

threeseed 13y ago
Apple has been planning this for years. If they wanted to make it cheaper they would have. It is a deliberate move and the key is now to understand why they did it.
ckayatek 13y ago
Is it possible that Apple will settle for lower market share as long as they retain a majority of the profits? I mean look at the PC market where Apple sells relatively few units but controls nearly half of the profit. What does it matter if you only control 10% of the market if you control 90% of the profit in the long run. Of course the issue in this argument is the App store. You could argue that by building a huge user base could allow you to shift your profits from hardware to software in the long run.
- ZeroGravitas 13y ago
  I don't know if the numbers are hypothetical but Apple is probably going to have roughly 10% of the smartphone market this quarter, but they'll also have slightly less than half the profit share, which is some way off your 90% figure. And both numbers are trending down from their peaks of ~25% and ~90%. I'd also look to Intel and Microsoft if I was wondering where the profit in the PC market went. I'm guessing your figures for PC profit don't include the little known Wintel duo?

colinm 13y ago

Apple's problem is that they are only relevant in a handful of countries while competing in a global market. Android is crushing them.

CmonDev 13y ago
It means that Bentley and Ulysse Nardin also have a problem.
- Schlaefer 13y ago
  If you mean by that bought up and owned by a volume manufacturer or with a relevance that people have to google the name to know who you're talking about: yes.
- deelowe 13y ago
  They kind of do(or did), not sure what your point is. Bently, Bugatti, Aston Martin, Porsche, etc... have all had major trouble recently. Most of the luxury brands have been bought by higher volume manufacturers.
- danieldk 13y ago
  And the car analogy still does not fly. A Bentley will work fine on the same roads a Volkswagen does. However, an iPhone will not run, say, Android apps. If Apple's marketshare drops under a certain percentage, it becomes less and less interesting to treat it as a first-class citizen.
  - GFischer 13y ago
    Network effects are very important, however, for now Apple users outspend Android users by a very significant margin, so they can get by with a relatively low market share. As long as the spending trend continues, developers will continue delivering products for the platform.
  - r00fus 13y ago
    Your analogy doesn't hold. The "roads" are carrier networks, and the iPhone plays well in most of those (in fact, latest models have impressive band coverage for data). Not even sure how Apps fit into the car analogy, but they sure as hell aren't even fuel, maybe accessories or tires? You're right - a car analogy just don't fly.

Terretta 13y ago

The article text states the exact opposite of its own headline: “Under the old model the n-1 variant was meant to be a modest volume contributor to the portfolio, being essentially a cognitive illusion which encouraged buyers to stick with iPhone n at the expense of competitors. However, the new n-1 product (the 5C) has a distinct positioning that makes it seem fresh and not a lesser, stale version of the flagship. It is designed to appeal as a legitimate upgrade for iPhone 4/4S users. It is, in other words, _not_ meant as an illusion, and not focusing attention on the flagship[3]. Rather, it is meant to be a genuine, core product.” IOW, the iPhone 4 vs 4S was cognitive illusion, the iPhone 5C vs 5S is not cognitive illusion. So, C is not for Cognitive Illusion. Opposite headline is better link bait, though.

taeric 13y ago
I think the reading was that this model is to address the old cognitive illusion. That is, the old n-1 model rested on a cognitive illusion to work. The argument here is that this model is to take that place. (Make sense?)
superuser2 13y ago
It had Siri and it was genuinely faster. iOS6 is perfectly usable on my 4S... on the iPhone 4 it ran horribly.

weisser 13y ago

Wouldn't pricing a new iPhone (regardless of version) too low have a negative effect on the perceived value? If the iPhone 5C had the same core components as the 5S I would get it instead because the plastic is probably more durable and I'd like a colorful device as a change of pace from the white and silver Apple products I own currently.

Cthulhu_ 13y ago

Could just be a sales strategy. "The 5C looks tacky, the 5S looks much better and is only $100 more expensive!" And teenagers will probably go for the 5C, breeding a new generation that likes tacky smooth glossy plastic in bright pastel colors.

iwasakabukiman 13y ago
What's tacky today might be fashionable tomorrow. Fashion is very fluid.
- JohnTHaller 13y ago
  Not quite as fluid as some people think. Gold has been tacky for a while now, at least in the states.
  - iwasakabukiman 13y ago
    But it's wildly popular in other parts of the world. Apparently it's the number one color for aftermarket modifications of iPhones. Look at the design of Sony products over the past 50 years. The design has changed radically. Heck, even look at the Apple design language over the past decade or so. Things change. Everyone thought that OS X 10.0 looked very stylish at the time...now it looks dated.
  - joonix 13y ago
    This style of gold, especially with the white accents, has come back into fashion with women in the US.
jes5199 13y ago
I actually think the colored iPhones look nice; I'm tired of carrying around a phone that looks like it was designed for a lawyer or a wall-street jerk. And the 5S might have an amazing camera, but otherwise I don't see why I'm supposed to want it.

austenallred 13y ago

"Apple is recognizing that the market is actually “segmentable”. This is the notion that one size does not fit all–a radical idea for the brand." Apple has always had products for higher end and lower end markets as soon as that product becomes established. iPod video (I know that's not the formal name) came out at roughly the same time as the Nano and shuffle. MacBook Pro had MacBook. iPad and iPad mini. Mac Pro and iMac. This isn't new, it's just the first time it's been so deliberate and noticeable.

JimmaDaRustla 13y ago
Author refers to smart phone market as "segmentable", not other markets. Your statement doesn't really disprove his.
- untog 13y ago
  Yes but the author also states that it is a "radical idea for the brand", which it isn't. It also isn't a radical idea for the smart phone market, as Android manufacturers have been doing it for a long time. So we have a brand with experience in segmenting approaching a market that has already been segmented by competitors. Not such an interesting story.
  - JimmaDaRustla 13y ago
    True, that's a better statement. It seems that Apple has done this out of market demand (of course they did, any company would rather have one clutch device over a smorgasbord), but with the 5C still being a high-end feature phone, why'd they do it? I'm guessing they are just creating a foundation for a radical iPhone 6?
    - criley2 13y ago
      I like MG's take. The iPhone 5s is evolution of a pre-Ive design. The iPhone 5c is Johnny Ive's first shot at a decidedly Ive version of the iPhone.

crusso 13y ago

Such a big deal is being made of this initial pricing strategy for the 5C when it's really such a transient situation. Apple is going in with a high price on the 5C to keep the brand solid and scoop up profits from early adopters who will just have to have the latest pretty colored iPhone. My guess is that the 5C's price will erode much faster than the 5S. Apple will do its best to balance the mix to ensure that the product is sold and out there.

simonh 13y ago
This is exactly what I came here to say. This is another case of Apple skating to where the puck is going to be in maybe 2 or 3 years time. There is no point in Apple introducing a brand new truly low cost iPhone because such a device would by necessity only be in the market for a short time before it would get obsoleted. The 5C is set to be manufactured for the next 3 years, so they will extract maximum scale effects and maximum sales volume over the lifetime of the device. The 'C' may well stand for 'Cheap', but not now. It stands for where it will be positioned over it's lifetime. Other manufacturers bring out a new device and only care about it for maybe 6 months, after which they're on to the new thing and ready to forget the old one ever existed. Apple thinks really long term about their device's full economic life cycle. For example the iPad Mini was criticism for being too expensive, but that was taking a short term view. I fully expect the current mini to continue to be manufactured at a lower price point for another year, cutting off the air supply to the cut price Android tablet market, but Apple is in no hurry to get to that point.
- Touche 13y ago
  > This is another case of Apple skating to where the puck is going to be in maybe 2 or 3 years time. That phrase doesn't mean what you think it means. It has nothing to do with planning for a long product life. "Where the puck is going" is towards affordable off-contract phones and cheaper carrier monthly costs. The 5C is Apple doubling down on the carrier subsidy model. It's the model that makes the 5C seem competitively priced. It's ironic because Apple is often credited as standing against carrier power, when in reality the status quo is exactly what will allow Apple to keep making those legendary profit margins on iPhones. Once unsubsidized becomes the norm (as started by T-Mobile and now being adopted by others) they're going to be forced to compete on price at the expense of margins. They can stay exclusively on the high end if they want, but the high is going to be ~300-400 at most. That's where the puck is going. Selling a 2012-grade 5C for competitive price in 2015 is not "where the puck is going".

lnanek2 13y ago

Not really strange at all that the specs don't differ much besides the case. Apple has always done this. Make a minor change like flash memory size, and charge a heck of a lot more for the higher end version than the difference actually costs to produce. They retain an easy to develop for ecosystem by not having much difference and gain economies of scale on production. Whoever this is doesn't really know much about the computer industry. He probably doesn't even realize desktop processors are often produced as one model and cheaper ones just clocked down to create artificial differences which retaining efficiencies of only having to make one thing.

iwasakabukiman 13y ago
Actually, Horace Dediu is a pretty well respected writer who does know what he's talking about. Go read some of his past posts, they're pretty insightful.
- ZeroGravitas 13y ago
  But skip the ones where he predicts success for RIM and Nokia (this is pre-Windows Phone, which he predicted they would never move to), and failure for Samsung because the former are "integrated" and the latter is "modular" (even though they make their own silicon, screens, RAM, etc.). And the one when he says Android will never have more than 15% of the market... (currently at 80%) and certainly never more than Microsoft (currently 3.7%). And any when he mentions open source, which he doesn't understand at all.

Touche 13y ago

This is classic innovators dilemma. Apple cannot release a true low-end, mid-range, or even "low high-end" phone because it risks eating into the iPhone's legendary profit margins. Smartphones are becoming cheaper; Apple cannot hang on to the iPhone's profit margins forever. As it ignores the trend it risks creating a generation of smartphone users not in the Apple ecosystem. It's happening right now.

kyro 13y ago

The iPhone 5 has become relatively less stale in the total mobile phone market compared to what the iPhone 4/4S became. The current model of the phone can still compete, it's good enough. Apple recognizes this, but also knows that it needs to innovate to keep its early adopters happy. And so they split their product to tailor to these two market segments -- those who need innovation, and those who would be perfectly happy with the current specs. These two market segments do not differ greatly in their purchasing power. Splitting the product wasn't to create a mid-tier and high-tier phone for the respective price points. It was a targeted refresh of the product for two equally valuable market segments. I suspect that as the mobile phone landscape changes, the iPhone 5C will begin feeling more obsolete, and it will then be relegated to the level of n-1 offering, and all attention will then go to the iPhone 6, which should presumably be a huge leap in innovation and design.

derefr 13y ago
To me, what this looks like is a final submission by Apple to the economics of their own supply-chain. Apple has never been able to make enough iPhones of each successive generation for people to get their hands on during the first few months after release. Whereas, once they've ramped up production, they tend to have all these parts left over in the pipeline[1] that they have to sell off as N-1 gen hardware to price-sensitive late adopters. (This is also why the iPod Touch was originally created, to serve as a sink for N-2-gen parts.) Now, Apple are trying to shift the purchase frenzy to the N-1 gen, and position their new gen-N tech -- whose production hasn't yet been ramped up -- as something for early-adopters only. In other words, to switch from an (N-1, N) view of the world, to an (N, N+1) view. Everything in the S will filter down to the C of the next gen. They'll get their pipelines saturated with 5S parts just in time to wrap them in plastic and call them 6C parts. As long as more people buy Cs than Ss, this works out perfectly. --- [1] By "in the pipeline", I mean the more general "economically incentivized to produce units of, instead of units of the new model, by contractual obligations to factories, training costs of factory workers, etc." Apple actually keeps their literal pipeline of hardware-produced-but-not-yet-shipped-as-a-product quite low.
- kyro 13y ago

whichdan 13y ago

A small point that's usually overlooked: assuming you're on AT&T, there's a ~$35 upgrade fee, $30 for a case, sales tax, and maybe an extra charging cable or other accessory. A $99 phone is more like $200 for the average person, so the comparison should be closer to $200 vs $300 rather than $100 vs $200.

joonix 13y ago
You're not required to buy a case and accessories at the AT&T store. If someone is price conscious, they will know they can get it cheaper elsewhere. And I suspect a lot of people won't put cases on them since the shell is plastic and the color of the phone is a selling point.

nicholassmith 13y ago

As Hacker News users we can all consider ourselves in the top N percent for technology product interest, so the iPhone 5C seems weird to us. It's plastic? It's how much? In those colours? With those specs? I was talking to my girlfriend and some friends who are distinctly not interested in the wonderful world of tech and to them the iPhone 5C does genuinely seem fresh (although pricing was a bit split). Apple's positioning the device to recapture the interest of a market who's been saturated with many devices.

JTon 13y ago
Yeah I can confirm this through my experience as well. In my circles, 5C is the girlfriend phone.
baddox 13y ago
I consider myself in that same top N percent for technology product interest, but I'm not at all confused about the 5c. Most smartphones, even flagship smartphones, are plastic, and some have spectacular build quality. The price is extremely competitive. I think the only complaints about price are influenced by the rumor that the 5c would be the free subsidized tier. Ignoring that and looking at the 5c on its own terms, it's certainly a competitive $100 subsidized phone.

freakyterrorist 13y ago

I think this opens them up to new experimentation at the top of the market. The 5C becomes the everyday model that suits the average consumer. The 5S will become the experimental super phone. Following on from this I would not be at all surprised to see a larger screen phone join the 5S as a high end lower volume model for those who can afford/want it.

chrisdevereux 13y ago

Agree that the purpose of the 5C is to keep margins up rather than grow market share. The interesting relationship isn't between the price of the 5C and the 5S, it's between the price of the 4S and 5C. It seems to be targeting people who would have bought a 4S, not people who wouldn't have bought an iPhone at all.

hacknat 13y ago

Why is nobody talking about the camera improvements, the speed improvements, and the fact that this is the first 64 bit phone? The improvements to the 5S are actually dramatic, you just can't see them yet.

timdellinger 13y ago
I'm wondering if those improvements will actually matter to customers - I'm seeing diminishing returns with respect to putting R&D money into phones.
- hacknat 13y ago
  A lot of the apps that you know and love wouldn't be possible without performance improvements. Of course customers won't notice the improvement directly, they'll notice in new software capability they previously didn't have.

mpg33 13y ago

I dunno...assuming the original iPhone 5 would have been bumped down to the same price as the 5C is releasing as... I would rather have the iPhone 5.

pioul 13y ago

Interesting analysis. This shift in the number of flagship products might also give a fresh start to the brand in the mind of iPhone users. Now that everybody has an iPhone, "Think different" might regain some credibility if you start using the new, more than good enough iPhone 5S.

akrymski 13y ago

Obviously Apple is trying to turn the iPhone 5C into the plastic Macbook of 2006 - the best-selling laptop ever. The MacBook was also more expensive than the competition, however consumers (even students) paid up. Arguably the price difference wasn't as extreme, but I'd be surprised if Apple didn't lower the price to $499 or less, and announce a white+black models of 5C very soon. However, I'd argue that the main reason consumers bought the Macbook was not the Apple brand, but the vast gap between OS X and Windows XP. They bought into the operating system, and that's what drove sales of other Apple products from then on, because after all, that iPhone/iPod works better with a Mac. Fast-forward to now, Apple's competitor isn't MS Windows. It's Android, which doesn't cost a premium the way Windows did, and is arguably not inferior to iOS. OS X was more "open" compared to Windows, and not just due to its Unix underpinnings. It didn't come with pre-packaged software and DRM restrictions, but it did come with better software. It didn't force you to consume content the Microsoft way, it embraced developers creating great apps like VLC without charging them. No more. iOS is a walled garden, even more so than Windows ever was. Sure Google isn't a saint in that regard, and yet Android encourages competition. It has no issue with Amazon's Kindle app selling e-books. It has no issue with developers writing apps to replace "core functions". It knows that selling 10 units with a 10% margin is better than selling 1 unit with a 20% margin. It's thinking long-term. I still love Apple for its design and attention to product detail, but if their greed and hubris continues to escalate, history may just repeat itself.