Since the app store was released, people have been suspicious of Apple’s commitment to the open, mobile web. Why would Apple push the mobile web forward when web technology may compete with its native apps platform?
I’m not usually an Apple defender, but if you want to beat up on a company for their laggard mobile browser, look in Mountain View, not Cupertino.
Who knows if these will actually ship in the final version of iOS 5, but their inclusion wouldn’t be a surprise. Ever since the initial release of the iPhone, each new version of the operating system has included new browser features. Often these features, like geolocation, show up in Mobile Safari before they show up on the desktop.
This is what I call a mobile first browser. Borrowing from Luke Wroblewski’s mobile first thinking, browser makers need to develop their mobile browsers first.
We Need More Mobile First Browsers
Of the browser makers that have both mobile and desktop versions, which ones have shipped new features on mobile first?
We know Apple has. I suspect Opera has as well. The rest seem to be developing for desktop first.
What I found most interesting about Dave’s article is that mobile specific features are not mentioned in either his post nor in the comments. The Mozilla folks who defend their browser and its features talk exclusively about the desktop version.
Microsoft’s mobile browser also lags its desktop version. The mango update will bring Internet Explorer 9 to Windows Phone 7 later this year.
Mango will be a great improvement over Internet Explorer 7 which is currently being used, but while the Windows Phone team works on integrating IE9, Microsoft has already released two preview builds of Internet Explorer 10.
Google Needs to Step Up
If there was one company that we would expect to lead the charge for the open, mobile web, it would be Google. At Mobilize 2009, I watched Andy Rubin, SVP of Mobile, say that Google saw HTML5 eventually supplanting most native apps.
Given Google’s emphasis on web technology, a leading edge mobile browser seems like a natural fit. The reality is much different. The Android browser lags behind the iPhone in many ways.
At Google I/O 2010, Vic Gundotra demonstrated browser access to the camera, accelerometer, and the microphone. When Read/Write Web asked me about the demonstration, I responded, “Hell yeah, it’s about time”.
Unfortunately, none of these features shipped with Android’s Gingerbread release. Apple shipped browser access to the accelerometer before Google did. It is over a year later, and we have no idea when we will see them.
The contrast at Google I/O this year between a day dedicated to Android and a day dedicated to Chrome OS made the problems crystal clear.
For some time I’ve been hearing rumors of battles between the Chrome and Android teams. Seeing the two operating systems on stage made it clear that they are competing visions of the future. Should tablets use Chrome OS or Android?
It seems that the things that people accuse Apple of—slowing the pace of the browser in order to give their app platform an advantage—are actually happening at Google. Competition is generally a good thing, but when the competition is between the Android and Chrome teams, it is the users of the Android browser who lose.
Google needs to step up. Chrome is arguably the best desktop browser. There is no excuse for Android’s browser not leading as well.
I was surprised people contested the idea that Apple is going to sell a cheaper iPhone. But then I realized that not everyone follows mobile as closely as I do and probably missed the news:
Apple said they were going to release a cheaper iPhone.
Apple COO Tim Cook, CFO Peter Oppenheimer and VP of Internet Services Eddy Cue recently met with Bernstein Research analyst Toni Sacconaghi who published an note to advise his financial clients1. Here is the key paragraph from Fortune’s summary of Sacconaghi’s note:
The analyst says Cook “appeared to reaffirm the notion that Apple is likely to develop lower priced offerings” to expand the market for the iPhone. Cook said the company is planning “clever things” to address the prepaid market, and that Apple did not want its products to be “just for the rich,” and that the company is “not ceding any market.”
What is there to debate?
You may think that they are going to cannibalize their high end sales or that they will damage their brand. I may think they proved they are willing to undercut their own products with the iPod Mini and Nano so they can do it again.
But regardless of who is right, it seems pointless to debate whether or not they are going to release a cheaper iPhone. It’s coming regardless.
Cheaper Doesn’t Mean Cheap
I think a lot of people are getting hung up on the word cheaper and hearing the negative connotation of cheap. I wonder if people would have had as strong of a reaction if I had used “less expensive” instead of cheaper.
No one looks at the quality of the iPod Nano and thinks “cheap,” but it is undeniably cheaper than the classic iPod or the iPod Touch. Expect the same from a “cheaper” iPhone—it will look and feel great, but cost less.
So why use “cheaper” instead of “less expensive?” Brevity.
1 I doubt a financial advisor could lie about meeting with Apple management. That would likely cause them some SEC grief. But if you want corroborating sources, check out the New York Times, Bloomberg, and Wall Street Journal. Everyone is hearing a cheaper iPhone is in the works. It is the details of the phone (e.g., size) that no one knows.
Yesterday, Apple declared that 2011 is the Year of iPad 2. Calling 2011 the year of anything other than transformation in the Middle East is crazy.
But if we’re going to limit ourselves to Apple products, I think it is more likely to be the Year of the Cheaper iPhone than the iPad 2.
Before the first rumors of a cheaper iPhone surfaced, I’d been talking to friends about demographic and sales information that indicated to me that the tech press was too focused on high-end devices and missing the lower end of the market.
Because of this, I’m bullish on the impact of a cheaper iPhone and what it would mean for Apple’s smartphone market share. Let me explain why.
The Real Reason Why Android is Successful: It’s Good Enough and Cheaper
It seems like I’ve spent most of my life rooting for companies who made products that were superior in design, but lost to products that were good enough and cheaper.
I was flabbergasted that people would buy inferior products that promised headaches instead of joy. I thought people just didn’t understand how these inferior products were going to cost them much more in the long run with the thousand cuts of poor user experience and design.
At some point I realized that I wasn’t giving people enough credit. They knew that Tivo was a better product, but the DVR that the cable company gave them for free was good enough and cheaper. The same has long been true of Windows machines.
The problem for a lot of Apple fans is that they still can’t understand why someone would chose the obviously inferior product. M.G. Siegler of TechCrunch wrote an article entitled, “Is Android Surging Only Because Apple Is Letting It?” His thesis was that Android was only winning because the iPhone wasn’t available on Verizon. In the article, he wrote:
Now, don’t get me wrong, almost all Android phones are a million times better than the phones we had just a few years ago before the iPhone burst onto the scene. And if the iPhone didn’t exist, there is no question that I would use an Android phone and would probably be very happy with it. But the iPhone does exist. And I simply can’t bring myself to use an Android phone when I know a superior device is out there. That’s my only requirement for me to use a product: it has to be the best.
Most people don’t require their phones to be best. They simply want something that’s good enough to get email, text message, and browse the web. Oh and cheaper is better.
BTW, the predictions of big lines to buy the Verizon iPhone hasn’t panned out and sales have thus far been “disappointing.” So much for the theory that carrier exclusivity is why Android passed iPhone in market share.
But Isn’t Android the Same Price as the iPhone?
A common misconception about the smartphone market is that Android phones and iPhones are essentially the same price. Both the Samsung Fascinate (Galaxy S) and the iPhone 4 cost $199 with a two-year contract.
But the Android phones don’t stay at their launch price point. Verizon had a large television campaign last fall that offered a buy one get one free offer for the Fascinate. Verizon’s site currently lists 13 different Android models for under $100.
Q2 2007 to Q2 2010 Average Selling Price. Source: Asymco
The lower ASP for Android devices is what allows carriers and retailers to offer steep discounts on these devices. And cheaper phones are important because there is a lot of growth at the lower ends of the market.
Millennial Media’s report tracks the number of ad impressions delivered to a given phone. As you might expect, the top phone is the iPhone and the top ten list contains a mix of Android, Blackberry and iOS devices.
But amongst those well-known devices is the Samsung Freeform. The Freeform was still the number six phone in the report as late as December of last year.
The inclusion of the Samsung Freeform on this list stood out like a sore thumb. I had to know more about this phone.
It turns out that the Samsung Freeform is one of those feature phones that start to edge into smartphone-like capabilities. It has a keyboard for texting and a reasonably capable browser.
The phone is only available through MetroPCS. Right now, you can get it for $49 unsubsidized.
But more importantly, you can get unlimited voice, text and web on the Samsung Freeform for only $40 per month.
Growth at the Low End of Smartphone Market
Around the same time I learned about the Freeform, a Comscore survey in Europe found that “smartphones are generally seen as luxury devices that come with big price tags and high monthly tariffs, yet the largest segment of the market and the one demonstrating greatest momentum is actually the low to mid tier.”
I haven’t found a similar study of growth rates in the United States, but I have found other evidence that seems to support the theory that significant growth in smartphone market is happening at the low price points.
U.S. Minorities Lead Caucasians in Mobile
Over the last year, there have been numerous studies showing that minority adoption and usage of mobile is outpacing caucasians:
It probably goes without saying, but census data shows that minority populations still have lower household incomes than caucasians. Obviously, lower prices will be an important feature for people with less discretionary income.
Therefore, Android’s success is further proof that growth is happening at the lower end of price spectrum.
The Rational for the Cheaper iPhone in a Single Chart
A couple of weeks ago, I came across a pie chart from Comscore that clearly explains why Apple was rumored to be making a cheaper iPhone:
If you read the Comscore blog post that this chart comes from, you won’t find anything about the cheaper iPhone. The post focuses on how valuable iPhone subscribers will be to Verizon compared to other smartphone owners because iPhone owners have higher household incomes.
According to Comscore, 81% of iPhone owners have household incomes greater than the U.S. median household income ($44,389).
TNS Global found similar results in a survey noting that “iPhone users are also younger, but the most highly educated, employed as a manager or professional and earning more than $100K per year.”
Does Apple care about the low end of the market?
When I tweeted about the above chart, I got a lot of feedback from people who were confused about what I thought the chart meant. My friend Jonathan Stark jokingly asked if BMW was going to announce a car for under $10k? The implication being that Apple stakes out the high end and doesn’t care about the low end of the market.
I have always thought that Apple cared about market share, but that it wasn’t the top goal for Apple. Apple seems to value:
Building the best product they can
Selling products with a high profit margin
Gaining market share
In that order. They won’t compromise their design ideals, brand or margins to chase the low end.
But if they can create an cheaper iPhone that lives up to Apple’s brand promise and sustains their margins, I see no reason why they wouldn’t pursue the low end of the market given the growth opportunities there.
Until recently when people brought up the idea of Apple pursuing an iPod Nano and iPod Shuffle like approach to the smartphone market, I didn’t think Apple could do it. It didn’t seem like there was enough room to differentiate the iPod Touch from a low end iPhone.
I also had my doubts they could build a product at the low price point without compromising. They can’t decrease the screen size like they did for the iPod Nano or remove it entirely like they did for the iPod Shuffle.
However, I now believe there is a lot of room for Apple to explore the low end market. There are a lot of premium features on the iPhone 4, like the retina display, that could be removed on a low end phone without compromising the quality of the design.
Will a Cheaper iPhone Make a Difference? The Biggest Cost of a Phone is the Carrier Subscription
When rumors of the cheaper iPhone first surfaced, many people commented on the fact that reducing the cost of the phone won’t help Apple unless they do something to reduce the monthly subscription cost. I disagree.
The success of Android indicates that even if the monthly costs are the same, that many people will chose the slightly less expensive phone. While consumers in carrier subsidized markets never see the full average selling price of phones, it does seem to make an impact in market share.
Second, if Apple is able create an iPhone that is relatively inexpensive without a carrier subsidy, then people can choose to buy it without a contract or go prepaid. In fact, a cheaper iPhone may be the best way to force lower prices by increasing competition between carriers.
There are nuggets that hint at this strategy in quotes from the recent analyst briefing:
“Apple CFO Peter Oppenheimer said Apple would not let carriers dictate terms, which [Bernstein analyst Toni] Sacconaghi says reinforces, “the notion that Apple might be willing to act to disintermediate carriers with a soft-SIM.”
A cheaper iPhone available without a contract and with a soft SIM allowing people to switch networks would force carriers to compete on price. If Apple also expands into the prepaid market and signs up lower priced carriers like MetroPCS and Virgin Mobile, the impact on carriers could be as large as the impact of the original iPhone.
But even if they cannot lower the carrier costs, making a cheaper iPhone is the only thing they have full control over if they want to expand the iPhone and reach people with lower household incomes.
A Cheaper iPhone Will Be a Smash Hit
Those who have followed me on twitter or seen me speak at conferences knows that despite the fact I love Apple products, I haven’t been bullish on its prospects of Apple dominating mobile market share. The main reason for my pessimism had been based on other platforms being good enough and cheaper.
The news that Apple will be releasing a cheaper iPhone changes my view substantially. If Apple is aggressive about the low end of the market, and it sounds like they may be, then the limitation on their market share will likely be their ability to keep up with demand. My off-the-cuff guess is a cheaper iPhone puts Apple at 30 to 40% of the market when the dust settles.
But we don’t need to look that far into the future to know that a cheaper iPhone is going to be a big hit. It is going to be huge this year.
The success of the iPad has caused an onslaught of new tablets to be announced. There were over 100 tablets announced at CES in January. The big question is whether or not these tablets can compete with the iPad.
Aside from questions about whether or not these tablets can provide an experience comparable to the iPad, there remain questions about whether or not they can compete on price.
Wired is the latest to take up this question with an article called Why Nobody Can Match the iPad’s Price. The article uses the recently announced pricing of the Motorola Xoom tablet to make its point:
Motorola’s Xoom tablet is debuting in the United States with an $800 price tag. (To be fair, the most comparable iPad is $730 — but there’s no $500 Xoom planned, and the lack of a low-end entry point will hurt Motorola.)
There are two Xoom models. Here is how they currently compare to the iPad based simply on high-level specs:
3G, 32GB unsubsidized Xoom for $799
3G, 32GB unsubsidized iPad for $729
WiFi, 32GB unsubsidized Xoom for $600
WiFi, 32GB unsubsidized iPad for $599
The Xoom does not offer a $500 16GB alternative like the iPad does, but the pricing for their 32GB version is essentially the same as the iPad. It is not yet known when the WiFi only version will be available.
Reminder about Average Selling Price
In my previous post on average selling price, I pointed out how the prices that most companies launch their products at are not usually the long term price. Only Apple continues to sell its product at the same price until a new model replaces it.
This is what makes evaluating products like the Xoom so difficult at this point in time. What we know right now is the manufacturer’s suggested retail price. We don’t know what the real price of the product will end up being the market.
There are other factors as well that may make it challenging. If the tablet market remains unsubsidized, not only will the tablet makers be unable to take advantage of subsidies to lower price, but they will lose the marketing push and distribution arm of the carriers.
But whether or not Android tablets will be able to compete on price can’t be told by their announced launch prices—especially launch prices as close as the Xoom is to iPad prices—because these prices will eventually be discounted off the MSRP in the coming months.
Apple certainly has the lead and may be able to fend off the numerous competitors, but it is too early to tell.
But the point of this post isn’t to convince you that this is a great deal. Instead, I wanted to look at the challenges of trying to compare mobile phone products based on price.
Last summer, there were numerous articles comparing the Droid X to the iPhone 4. Nearly every article noted that they cost the same price with a two-year contract.
But while the iPhone 4 continues to sell at $199, someone who waited a few months to buy a Droid X can save quite a bit of money.
This illustrates some of the problems that come from trying to compare mobile prices. For example:
Every new product is judged against the comparable Apple product. However, these comparisons only occur at the time the products are launched, not in the subsequent months when the price decreases. Apple is the only company that maintains the product price until a new model is ready to replace the old one.
Apple also uses a minimum advertised price policy to prevent retailers from selling products at a steep discount. Most other companies allow retailers to discount their products which means consumers can find deals.
Carrier subsidies distort the market. They fluctuate from product to product and over time depending on what the carrier and the handset manufacturer negotiate. And carrier subsidies do not exist in every country which means that the U.S. view of the relative prices of phones will differ from those in countries without subsidies.
Because these factors make it difficult to compare the price of phones, I don’t pay much attention to the price that new products are released at. Instead, I look at the average selling price to get a sense of the “real” price of the handsets.
The Average Selling Price
The average selling price (ASP) tell us how much money a handset manufacturer is receiving on average for the phones that it sells. The average selling price is usually reported during quarterly financial results and thus can be considered as accurate as possible given regulation on fraudulent reporting.
Q2 2007 to Q2 2010 Average Selling Price. Source: Asymco
Looking at this chart, it becomes clear the Apple is still selling at the high end of the smart phone market. The average selling price for the iPhone is $635. The nearest competitor is RIM with an ASP that is half of the iPhone ($295).
Even if I’m walking out of the store with a new iPhone for $199, someone is ultimately paying $635 for that phone. And my suspicion is that the person ultimately paying that price is the consumer.
This is why the average selling price is probably our best metric for comparing how much companies are really charging for their phones over the life of their products.
Averaging selling price helps get rid of the distortion of the carrier subsidies and inflated MSRP which only the few customers who buy immediately at launch have to pay. ASP instead shows the “real” price that manufacturers are getting for their phones which makes it easier to compare true costs.