Apple's iPhone strategy focuses on competing with Android

Apple’s big announcement was aimed at slowing Android's growth, but falls short of reaching the huge market opportunity in the developing world.

During the iPhone 5C and 5S announcement earlier this week, Apple all but came out and admitted that competing with Android was its top priority. The iPhone 5C is really a colorful, cost-reduced iPhone 5. The specifications are very similar, but it is designed to sell for $99 with a two-year contract. This will give many upgrading Android consumers pause to consider Apple’s marketing mystique and the 5C. Apple is hoping to capture some of these upgrading Android users. The 5C will put downward pricing pressure on higher spec'd smartphones, such as the Galaxy S4, the HTC One and the Moto X.

Apple had to do something to interrupt Android's market share leadership. Time will tell if it can reverse Android’s rise and stem its own market share losses.

Given its supply chain expertise and the potential to ship large volumes of the 5C, Apple should be able to retain its rich margins, but its market share expansion strategy won’t work in the fastest-growing markets of the developing world. In these markets, consumer cell providers generally don’t finance smartphone purchases over two-year contracts, and consumers purchase phones at a much more expensive "non-contract" price.

Android market share in China has exceeded 90% because Android is free and open source and manufacturers can offer a broader range of smartphone designs with prices much lower than the 5C non-contract price, listed as $733 on Apple’s Chinese website, as Quartz reported. In China, which research firm Canalys has predicted will account for one-third of the smartphone market by 2017, the 5C is not a low-cost device compared to the $864 price for the iPhone 5 in the country, according to Quartz.

Price is not Apple’s only obstacle to gaining market share in China. Apple has not yet engaged China Mobile as a potentially effective sales channel. A rumored deal with China Mobile, which boasts more than 1 billion mobile phone subscribers, has not yet been announced.

Ironically, should Apple execute its 5C strategy well and expand market share, archrival Samsung, as the purveyor of the A6 processor that powers the 5C, will also benefit.

The iPhone 5s

Rackspace’s Robert Scoble summed up Apple’s 5S announcement in his post to Facebook:

"Did Apple announce something? Oh yes, fingerprint sensor. Faster iPhone. Better camera. Motion sensor…"

The iPhone 5S is designed as a natural upgrade path for the loyal premium iPhone installed base. Those ith older models of the iPhone are likely to upgrade to the iPhone 5s at the two-year contract upgrade price, starting at $199 for a 16GB model.

The 5s is a nice phone that will prevent current users from defecting to high-end Android alternatives. But it is unclear whether the iPhone 5s will tempt a consumer with a Samsung Galaxy III will away from a higher spec'd Galaxy S4 or HTC One.

But with the iPhone 5s, Apple can breathe a sigh of relief that its flagship smartphone is not powered by a Samsung processor.

Considering all the potentially innovative products, such as a smartwatch, an Apple TV or some other potentially disruptive new product categories that were rumored to be announced, it’s clear that Apple considers competing with Android a higher priority than innovating to produce a large new revenue stream from a new product.

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Copyright © 2013 IDG Communications, Inc.

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