The iPhone 5C Helps Make a Strong Argument for the iPhone 5S

With the iPhone 5C, the "C" stands for "cake."

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Even though Apple’s iPhone 5C was well-expected ahead Tuesday’s press event, it still managed to be a surprise in one area.

At a starting price of $100 on-contract, or $550 without a subsidy, this is not the inexpensive iPhone that pundits and analysts anticipated.

The price isn’t low enough to stand in for the iPhone 4S, which now becomes the least expensive option (free with a two-year contract, $450 without), and it doesn’t address unsubsidized and prepaid phone markets in a way that previous iPhones haven’t. Instead, the iPhone 5C will represent the middle price tier, while the new iPhone 5S will become the top-shelf option.

Why did Apple even bother with the iPhone 5C, instead of just downgrading the current iPhone 5 to mid-range status like it has in previous years? Let’s first consider Ben Thompson’s take, written before Apple announced the 5C:

It is true that Apple has been selling multiple iPhones for a few years now; right now they sell the iPhone 5 for $650/$199, the iPhone 4S for $550/$99, and the iPhone 4 for $450/$0. However, while this does capture some customers further down the demand curve, I think that the overall demand for “old” iPhones is much lower than demand for “new” iPhones.

The 5C, on the other hand, will be about as “new” as an iPhone can get, particularly with its colorful enclosures. Even if it’s priced the same as an iPhone 4S or 4, it will sell many, many more units because of stronger demand.

The smartphone market is maturing. People are becoming happier with cheaper smartphones, and while Apple sells a lot of older iPhones, an all-new mid-range model could be an even bigger success. If the iPhone 5C happens to bring fatter profit margins for Apple by virtue of its plastic build materials, all the better. The fact that Apple will offer a 32 GB iPhone 5C, priced at $200 on-contract, raises the profit potential even further; it’s the first time a mid-range iPhone will ever allow for more than 16 GB of storage.

There’s another angle to think about: With the iPhone 5C occupying the middle tier, the new iPhone 5S will represent your only option for a premium designed, 4-inch iPhone. The iPhone 5C creates a clear separation between high-end and mid-range that wouldn’t have existed if the iPhone 5 stuck around.

I know, it’s a tired line that the latest iPhone is just a minor improvement, and it’s true that Apple doesn’t need to reinvent the iPhone every year. But people are becoming more inclined to purchase lower-cost phones — not just iPhones — so it’s getting harder to make a case for the more expensive model. The iPhone 5S’s Touch ID fingerprint sensor sounds interesting, but outside of enterprise scenarios I’m not sure that’s a big enough marquee feature to reverse the trend.

That leaves the difference in design between the iPhone 5C and the iPhone 5S. Had Apple simply kept the iPhone 5 as the mid-range option, the iPhone 5S would be an even tougher upsell, and Apple would take even more flak for not protecting its high-end business. (This was already happening long before the new iPhone announcements.)

With the iPhones 5C and 5S, Apple is trying to have it both ways. It wants to give the growing mid-range market a product that feels fresh, maybe even at higher profit margins than before. At the same time, Apple wants to make a clear argument for spending more on the high-end iPhone.

I think it’s a clever strategy; how other people will feel depends on how much they were looking forward to getting an aluminum-clad iPhone 5 on the cheap.

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23 comments
PedroMeyer
PedroMeyer

All those on wall street, the so called pundits and analysts, don't have a clue of running a company, all they know is how to sell at the cheapest price, someone else's wares, namely Apples phones, if it were up their fine advice, Apple would have never reached the heights of what it has accomplished. To our good fortune they don't run Apple, and they can hardly say they know how to run anything on wall street either, that is without cheating or misguiding people.  

THe irony on Wall Street this week that it was Dell, that seems to have hit the bottom. Remember Michael preaching to Apple, to close the company and give back as much money as possible to the share holders. As it turns out, that is close what Dell has done at this time. Going private, and giving their money back to the shareholders.  Poetic justice, I would say! 

My bets are all on Apple!

nmsoutherland
nmsoutherland

I've had an iPhone 4s for about two years, but am not eligible for an upgrade because I allowed my brother to use mine. Is it worth waiting maybe a year for the iPhone 6, or should I just pick up the 5 when the price drops? OR is the 5s really that amazing and worth all the extra cash? (keep in mind that i have no phone upgrade for two years) I'm all about smartphone photography and having a simple, easy to use interface, which is why I LOVE iOS. 

suarezdaniel519
suarezdaniel519

Apple has made a really bad thing with iphone c, 

because the kids are going to make fun of the other kids who has a more economic iphone.

simplynutty
simplynutty

Why is everyone so against a cheaper new device?  I'm guessing most who are reading and commenting about tech are likely to prefer upgrading to the latest iPhone/Android/whatever device.  That might be what made these devices popular but it's the masses who buy any device from the same manufacturer that helps them dominate the market.  Apple would love everyone to buy the most expensive flagship products but competition might be forcing them to prefer having a customer at lower price point vs. not at all.  I used to always prefer the latest iPhone model and have purchased a 3G and 4.  After pre-ordering the 5 I decided it wasn't worth it sent it back.  A year later I'll probably pass on the 5S but the 5C now has my attention.  I can definitely afford to buy the 5S (unlocked if needed) but I've realized the smartphones have become a commodity.  If Apple does this again next year I can get a new device making my 2 year cost the same as 1 5S.  Each new model is an improvement for sure but nothing that requires updating every 2 years.  To each his own I suppose but offering a cheaper device isn't the craziest thing in the world and the new 5S isn't magical nor does it need to be.

AndrewBrinkman
AndrewBrinkman

Your comments are inaccurate. The finger print scan is not the only difference besides the way they look.

DavidHall
DavidHall

>> I’m not sure that’s a big enough marquis feature

MARQUEE feature, not "marquis."

guitarpetri
guitarpetri

How the rest of us feel? At only $100 cheaper than the 5S, the 5C is a totally useless disappointment. With only 8GB of memory, the 4S is also useless. Nice way to keep ignoring the market for cheaper smartphones, and two potential customers like me and my wife...

kaedeohfu
kaedeohfu

what ajoke... im pretty sure if people want cheaper iphone they r going to buy 4s or iphone 5. thats y apple dont sell iphone 5 anymore, if they sell iphone 5, nobody is going to buy the i-plastic... also they use iphone 5 to make 5s(because the design is same). so i think most of iphone 5s are like refurbished. im so disappointed in apple... loved my iphone4s, now i love my galaxy note 2...

newmanjb
newmanjb moderator

@nmsoutherland When was your brother's last upgrade before he took yours? That would determine when you're eligible, no? Can't imagine it's a whole two years to wait. No one knows what next year's iPhone will include, so it's really just a question of how happy you are with the 4S. General rule of thumb is to wait until you feel like you can't wait anymore, not to upgrade for the sake of upgrading.

shatner
shatner

@suarezdaniel519 It will just make people work harder (get better jobs) so they can afford the iPhone 5s. Apple is helping us better ourselves. 

DeweySayenoff
DeweySayenoff

@simplynutty You forget the power of the "snob factor".  People who had iPhones used to conspicuously pull them out just to get noticed.  It was an expensive thing with an expensive plan available only to a "select few".  And since everyone wanted to be among the "select few", it became wildly popular.  This is one reason, I believe, why Apple doesn't release sales figures.  They don't want people who have bought into this mentality how pathetically common they are.

So, the snob factor was off the scale, and Apple catered to that snob factor (they always have).  That was the marketing genius of Jobs.  Nothing about any Apple product since about 1990 has been that innovative (if at all).  But the marketing throughout the history of the company has always had that "I'm better than you are because I have an Apple" element to it.

And now they undermine that message by making a brand new phone cheap.  For the masses.  (Unless you live in China where it's snob-city all over again, but it's like selling ice to Eskimos.  They'll know they're getting ripped off because they can find out the going rate for one in the U.S.)

That tells the masses, especially those who have bought into the snob factor, that they had better buy up to the 5s and ignore the 5c or they'll be seen as among the puling masses of those who don't quite live up to being worthy of owning an Apple because they were too cheap to get "the best available".

That's essentially all the article said, too.

TonyCr
TonyCr

@kaedeohfu Apple is FINISHED. Everyone is leaving crapple for Samsung. Apple is old news and has the most outdated phones on the market today. The Blackberry Z10 destories the iphone5Same. BTW I am buying he SG4. Bye bye apple you are FINISHED

simplynutty
simplynutty

@DeweySayenoff Hmm, I'm not sure I really see the snob factor.  My experience is that people want the iPhone because it is a good phone, popular AND that a lot of people have it.  I've had people literally tell me they bought an iPhone because their family and friends have them.  Perhaps when it was 1st released there was an air of elitism but now that it's sold by all major US carriers as well as Best Buy, Walmart etc. it's easier than ever to grab one.  Why is being common pathetic?  I think its awesome to bring a great device to the masses.  Prior to Apple & Google (by way of Samsung etc.) jumping in the ring I can't say that was true.  That being said, it's just a phone and I stay away from arguments about which device is the absolute best.  Apple devices aren't magical but overall I prefer them better than other phones I've tried.  The role good software plays in the usability and likability of a phone gets overlooked.  Anyway, at a difference of only $100 I hardly think there's much snob factor at play here.

D_Coder
D_Coder

@TonyCr @kaedeohfu Yeah! Apple was finished in 1984, and in 1988, and in 1991, and in 1992, and in 1997, and in 1999, and in 2002, and in 2005, and let's not forget 2007, 2008, 2009, 2010, 2011, and 2012! After all they're one of the largest companies on the planet, that *proves* they're doomed! This time *for sure*!