Will Apple Compete In The Billion Units Low Cost Market?

The iPod business for Apple is almost coming to end of life. However iPhones is still growing in momentum. It brings Cupertino over 50% of its revenue at the moment. The problem for Apple is that it is no longer the force to reckon with when it comes to smartphones. In India you cannot be iOS first as a developer and perhaps you can survive without an iOS app. Android phones are cheap and billions of users who are still to get their first smartphone would probably get a low cost one. That’s not a market Apple has any hold on.

Apple’s issue starts with the increasing gap between Android and iPhone prices. See the graph below.
Price Gap

An average Android phone today sells for less than half of what the iPhone costs. The price gap is a staggering $374. Apple’s earnings call yesterday revealed that 80% of iPhone 4S buyers were first time iPhone users. What does this tell us? iPhone 4S is the cheapest usable iPhone on the market today. People want an iPhone, but they can’t afford the 5c or the 5s. That’s the reality of the Indian market. 

Unfortunately, the volumes would be high in low and mid range market. Most developers want more users to build apps for them and these users would be in the cycle of low and mid range smartphones. Who would make those local apps for iPhone in India then? Only the big guys! This could hurt the prospects of the high end market for Apple too and hence they may want to compete in the mid range smartphone market as well.

Here is what ARM predicts (source)
Smartphones 2018

For every 1 billion smartphones sold in the entry level of the market, 550 million would sell in the mid range and only 350 million in the high end market that Apple dominates. In fact Apple only has 60% of the high end market (smartphones over $400), so that’s less than 250 million iPhones vs over 1.6 billion total smartphones out there. Not a bad number to have, but we see that in markets like India, iPhone’s share would be less than 5% even then, that’s something which won’t get them enough critical mass to survive in the cloud / services business.

So would Apple find ways to bring larger screen iPhones? Would they do powerful acquisitions? Will they compete with Google Now which works with Indian accent and would they have their basic services like Maps fixed? Would they thrive in a market where phones are dumb terminals to access cloud services? That’s an area where Microsoft apparently has an edge over Apple.

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