Blog Post

Why It’s Now or Never for an iPhone Lite

According to Gartner, mobile phone sales for the first quarter totaled some 428 million devices, with just 23 percent being smartphones. With so much room to grow, there would appear to be room for many competitors, but an expansive market is still a finite one. That’s why market share also matters.

Nokia (s nok) sold 107 million freaking phones last quarter, as many as the next three competitors combined. Nonetheless, Nokia’s market share reached its lowest point since 1997. Likewise, Samsung, LG, and RIM (s rimm) also saw declines in market share year over year.

Only Apple(s aapl), selling 16.9 million iPhones during the quarter and doubling sales year over year, saw its market share increase, from 2.3 to 3.9 percent. That made Apple the fourth largest purveyor of mobile phones. Considering the average selling price for an iPhone is about $650, that’s great news for Cupertino.

The bad news is Android(s goog). In terms of operating system market share trends, Google’s Android has won the platform war. For the first quarter of 2009, Android was powering just 1.6 percent of smartphones sold. Just three years later, Android is now running on more than a third of devices sold.

Against the Android onslaught, only iOS has manged to increase smartphone market share over the last three years, from 10.5 to 16.8 percent. Everyone else has seen their share plunge, with Symbian seeing the biggest drop, from 48 to 27 percent. But other competitors are no better off. RIM, which saw BlackBerry OS fall from 20 to 13 percent, is transitioning to its QNX operating system, but not until 2012. Microsoft(s msft), which launched Windows Phone last year, has thus far seen weak sales, with just 1.6 million devices in the first quarter. However, Gartner suggests that the transition by Nokia from Symbian to the Windows Phone operating will increase momentum for the platform.

While that’s possible, Gartner also asserts there is a shift towards an “ecosystem focus,” making users of a platform’s apps and services less likely to switch. That’s why Google and its free Android have such an advantage now, with only one real competitor, Apple, and only at the high end; but it doesn’t have to be this way.

Earlier this year, comments from Bernstein Research analyst Toni Sacconaghi in a meeting with Apple executives suggest that Apple may yet contest Google for Nokia’s market share. According to Bernstein, Apple COO Tim Cook said the company does not want its products to be “just for the rich,” and that Cook “appeared to reaffirm the notion that Apple is likely to develop lower priced offerings” in smartphones.

That sounds great, but simply offering an iPhone free with a contract, instead of for $99, won’t even slow Android down. We’re already seeing Android phones for a few hundred dollars without a contract. What Apple needs right now is a cheap iPhone. Really cheap, like about the price of an iPod touch, but more importantly it needs to be available without a data plan. While carriers would hate such a device, it’s hard to imagine them denying one access to their networks under regulator scrutiny. Those iPhone Lite users could access the Internet using Wi-Fi, and more importantly for Apple, the App Store, too.

“Ecosystem focus” is what matters as consumers abandon failed platforms like Symbian, Windows Mobile, and BlackBerry OS. Google knows that. Apple does too, but an iPhone Lite without contract or data plan for $299 would reinforce the point.

8 Responses to “Why It’s Now or Never for an iPhone Lite”

  1. JFutral

    “Google’s Android has won the platform war.”

    What war? Apple and IOS continue to gain share and have a larger installed base than Android. Android keeps gaining share at RIM/Blackberry and Nokia’s expense, not Apple’s.


  2. Nevermark

    @Cold Water,
    The lowest end iPod touch is $229 with 8GB. Add voice only calling and drop the price to $200, which the carrier could subsidize for a voice plan commitment, and it would be free to the consumer.

    The latest iPhone with data would still cost $650, subsidized to the tune of $450 for voice and data plan commitments, and cost the consumer $200.

    My numbers may not be perfectly accurate, but the alternatives would go something like that. I see both carriers and consumers getting something out of this. It would help pull in non-smart phone consumers into the smart phone age. Chances are they would upgrade to a data phone/plan for their second smart phone would.

    The big advantage to Apple would be undercutting Android, adding another way to grow iOS marketshare, and creating a smooth path from iPod to iPhone for the low end of the market, while still making a profit.

    • jfutral

      “It would help pull in non-smart phone consumers into the smart phone age.”

      That assumes cost is the main obstacle to smart phone adoption. The people I know just don’t get the need for a smart phone of any type, much less iPhone or Android.

      And if recent research numbers are ANY kind of true indication, that iPhone 3gs is kicking Android’s rear end pretty darn well.

      There is no need for Apple to create a non-Apple-like iPhone and dilute the experience. Not Apple’s style. Ever.

      And if Apple’s revenue generation is the affect of “losing the platform war” I bet Google would rather lose like that, too.


  3. What about an iPod with a cellular data plan instead? I think that there’s a portion of users (me for instance) who might be able to get by with just a decent data connection instead of a dedicated voice line.

    I barely use on cellular minutes as it is…

    With a decent data account and a VoIP app, I can get the same basic functionality as a full iPhone, without all the extra contract hassle, especially if it was sold like the iPad month-to-month data plans.

    I’ve been saying for a while that I think of the iPhone as a stop-gap product. Eventually the iPhone and iPod merge into a single device with a data connection that can support voice, and you can get dial-in as an added service (a la Skype).

  4. Cold Water

    I say never.

    They already make an iPhone Lite, it’s called the 3GS, and it’s $49(?) at AT&T. Apple doesn’t get much of a kickback if it’s sold without a data plan, though.

  5. The other thing they need to look at is the cost to start developing for the iPhone. I myself when I looked for a smart phone, I wanted to be able to program it. And as a Linux/Win user I did not have a computer/OS combo that I could program the iPhone with.