Big Thoughts on Small Devices

On September 10 we’re likely to see not one but two new iPhones. There’s the expected iPhone 5S upgrade to last year’s phone. The 5S — if that is indeed its name — should feature an upgraded processor, a better camera, and a fingerprint sensor, all in the now familiar iPhone 5 case. With Apple getting all “cloudy,” I wouldn’t expect any storage bumps, so likely still the same 16GB/32GB/64GB flavors. We’ve played this game twice already with the 3GS and the 4S, following the 3G and the 4 respectively, and we know how it’s played. No surprises.

Also expected is what the tech pundits have taken to calling the iPhone 5C. The C stands for “color,” because colorful plastic backs have been leaking all over the place. Nobody knows any of the details yet of course, but a good bet is that it will feature the same CPU as last year’s iPhone 5 and the same Retina display, packed into a low-cost plastic shell in a variety of happy colors. I haven’t seen this discussed elsewhere, but it’s my gut feeling that color will be the only thing you can choose, and that every model will carry 8GB of flash storage. FaceTime and Siri are both big draws into the Apple world, so the 5C should have both, even if there turns out to be no rear-facing camera.

This is the iPhone China has been waiting on for years, if current negotiation rumors are to be believed.

The kicker will be the price. You can expect it to take the iPhone 4S’s place as Apple’s freebie-with-contract phone in the US and other countries where subsidy purchases are the norm, and retail unlocked/unsubsidized for somewhere between $299 and $399 in the rest of the world. I’m splitting the difference and betting on $349.

Apple currently sells its cheapest unlocked iPhone 5 starting at $649.

So why such an aggressive move — for Apple anyway — downmarket?

The short version is: This is what Apple does.

The original iPod cost $399, and required a Firewire-equipped Mac to install music. Four years later, they debuted the iPod mini alongside the third-generation iPod, for just $249. They also made them compatible with Windows. Apple quickly killed off the mini in favor of the even tinier iPod nano starting at $199. Then came the diminutive iPod Shuffle for just $99. The current versions of those models sell for $149 and $49, respectively.

So the longer version is: This is what Apple does — stake out the high end and then move downmarket for volume. The timing is about on par with the five years it took to go from the $399 iPod to the $99 iPod Shuffle.

The stakes are bigger this time around. Much bigger. The profits in smartphones dwarf those to be found in mere music players. Well, provided you’re a company named “Apple” or “Samsung.” Nobody else is even sucking so much as hind teat.

The big question however is the potential effects of the iPhone 5C on the people who buy them.

Before the iPhone, I was a very reluctant feature phone owner. The only reason I finally broke down and got a cell phone was that I was newly married and my wife insisted. Previously, I’d been happy enough just to ignore the landline. But my iPhone changed me from a feature phone owner into a smartphone power user. I wasn’t spending any more time on the phone, but I was sure getting a lot of use out of the little touchscreen computer in my pocket.

This change — from simple owner to power user — is an effect Android most emphatically does not have on its owners. Usage, engagement, and Google Play purchases all tell the same story. Most Android buyers are the kind of buyers Nokia used to specialize in: Give me something cheap that I can talk on. NTTAWWT, either. It should come as no surprise that most phone buyers buy their phones for talking.

Those same usage/engagement/App Store purchases show that iPhone owners are by and large are really into using their phones for all kinds of things other than talking. Is that an effect the iPhone has on people, like it did on me? Or is there something about the iPhone which attracts innately power-users? If it’s the latter, then Apple stands to steal some few millions of price-sensitive Android power users away from Samsung and Motorola. But if it’s the former, then a low-cost iPhone could very well change the smartphone landscape completely, as millions upon millions of complacent Android-as-a-feature-phone users get sucked into the Total Engagement World of the iOS ecosystem.

There’s some evidence that it very well might be the former. A recent poll showed that second-time smartphone purchasers were more likely to be thinking about buying an iPhone than first-time purchasers were. In other words, given a taste of what a smartphone can do by Android, they’d like to get the full flavor by taking a big bite of Apple. That’s not a whole lot of evidence, but it is something.

We’ve had great smartphones and we’ve had cheap smartphones, but there hasn’t been a cheap and great smartphone from a company with as wide an ecosystem and with as much sex appeal as Apple enjoys. This could be another game changer.