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Apple feels sting of intense competition

iPhone 5

New standards try to simplify mobile advertising

As smartphones continue to evolve from a tech geek’s dream to more of a status symbol reaching a broader group of consumers, Apple is struggling to expand the reach of the influential, yet pricey iPhone.

Last week, T-Mobile USA said it will begin offering the iPhone soon and will soon end phone subsidies while Walmart announced a new unlimited plan for the iPhone when purchased at an unsubsidized price. These moves could help expand distribution for the iPhone as prepaid phones and less expensive phones continue to gain ground.

“Apple initially started with an exclusive approach but has learned that that is not going to be the way to take over the market,” said Michael Morgan, analyst at ABI Research, New York. “Samsung has taught it that – that is why Samsung is shipping twice as many devices as Apple.

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“Apple has pretty much already expanded as much as it can in the market where it will perform the best – the subsidized market,” he said. “The prepaid area is where Apple needs to expand if it is going to be successful but that has always been a touch road for the iPhone because it is so expensive.

“Moving to T-Mobile is another step to see if they can figure out how much traction an expensive device will get. I can’t say that I think they will be successful with it – they may need to figure something else out.”

The iPhone lifestyle
The evolution of the smartphone market toward unsubsidized phones could increase competition for Apple because it means there will be greater price transparency, opening up opportunities for less expensive phones to gain.

However, Apple is banking that consumers will see the iPhone as a status symbol and be willing to pay more for it as a result.

“In many ways, that it is hallmark of the iPhone these days – that is has moved past the point where it is a technology device and is more of a lifestyle, premium branded product,” said Carl Howe, vice president of research and data sciences at Yankee Group, Boston. “It is a trophy that is very much mainstream.

“In many ways, this is Apple saying we are not afraid to compete in the marketplace even though we have a premium product,” he said.

Monetization opportunities
Wider distribution is one way Apple can compete against Android, which continues to grow as a platform.

However, Apple still has the stronger platform when it comes to monetization opportunities for marketers.

“The platform market is really shaping up into this competition between Apple and Android – the more opportunities Apple has to grab share, the better the position they are in,” said Noah Elkin, principal analyst at eMarketer, New York.

“It is a land and expand strategy,” he said. “You want to get people onto your platform and once they are there, you can continue to build with replacement devices.”

“Even though Android has more users, monetization is still greater on iOS. Even if Apple lacks the same scale as Android, it doesn’t seem to have hurt the platform in terms of adhesion from existing user or form marketers.”

A “cheaper” iPhone?
Apple’s strategy with the iPhone has always been about making money off of the hardware sales. This is one reason why Apple is so profitable and that its stock price has been on an upward trajectory for some time.

However, one way to address the growing smartphone market would be to produce a less-expensive phone. Such a strategy could sacrifice profit margin and may not make enough gains in volume to make up for the loss.

The hurt with a less-expensive phone could put on Apple’s profit margin is why some think that the rumors of a cheaper iPhone are just that – rumors – and not likely to become a reality.

Instead, what Apple may try to do is develop a different phone that targets a different audience. It may be less expensive – just like the iPad mini is less expensive than the iPad – while still being a premium product.

“It is hard to find a single story for Apple that is about being cheap,” Yankee Group’s Mr. Howe said.

“They have done the good, better, best thing before – for the iPod there is a bigger capacity one and other less capable, smaller ones, “ he said. “But they don’t say, ‘We are going to take the same product that we have and make it cheaper.’”

One opportunity in the smartphone space that Apple could try to fill is with a smaller phone.

“In a time when everyone is going big, going smaller has a lot of attraction,” Mr. Howe said.

“It it more easily pocketable and it might fit more naturally into what Apple sees as one of its biggest growth markets – China. “In Asia, they are more focused on smaller, beautifully crafted things.”

What is clear is that the smartphone market continues to evolve and that the even the iPhone – which helped create the smartphone category – may be vulnerable to the changes it is undergoing as consumers continue to embrace mobile technology.

“We’ll see if this is the last year we end up talking about the iPhone,” ABI Research’s Mr. Morgan said. “There are a lot of signals that the iPhone is getting near its peak – growth is slowing, it is running out of places to grow and we haven’t really seen a new product in some time.

“We might get to the point where Apple is no longer the leader in terms of technology or even mindshare,” he said. “Once that happens, you need to change what you are doing or grow old gracefully.”

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York

Associate Editor Chantal Tode covers advertising, messaging, legal/privacy and database/CRM. Reach her at chantal@mobilemarketer.com.

 
Related content: Manufacturers, Apple, iPhone, Android, Yankee Group, Carl Howe, ABI Research, Michael Morgan, eMarketer, Naoh Elkin, mobile marketing, mobile

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Comments on "Apple feels sting of intense competition"

  1. Murat Dikici says:

    January 16, 2013 at 3:13am

    As you told, Apple is better for monetizing apps. Because most apps are paid in App Store. Why would people buy new cheap iPhones and pay for each app later? I don't think this is a good way to compete with Android.

    As a second thing to consider; i like the freedom in Android OS. It is almost fully customizable. But on iPhone you can't customize the phone. As i always say; iPhone's hardware is good and Android smartphones' operating system is good. New iPhone will loose the only advantage now: good hardware.
  2. Vlad Gorenshteyn says:

    January 14, 2013 at 10:09am

    I find it confusing when a brand markets itself as luxury and premium product but then goes into the pre-paid market. [fyi, aspirational, luxury, and premium are not all necessarily the same thing].

    Maybe a less expensive or "cheap" iPhone is appropriate for pre-paid markets but definitely not the flagship. Here are some examples from other brands that segment the markets: Armani (Armani Xchange), Lexus/Toyota (Scion), BMW (Mini), Mercedes (Smart), HP (Compaq), Victoria's Secret (PINK). These brands use a different trademark for entry-level market. As Apple CMO, I would be careful with cannibalizing itself and diluting Apple's status with their core consumer (whoever that may be for their suite of products). Everybody does aspire for the same thing.

    On another note, Jobs sold Apple's benefits and didn't really care if iOS had: copy/paste functions, MMS capability, data liberated ux, etc. That was all good when Apple had a monopoly, today however, the increased competition from Android, Win8, etc. features as it related to UI/UX are really important. For competition's sake and the consumer, I hope Apple understands this and is adjusting.

    --my two cents

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