Tomi Ahonen outlines his strategic reasons why Apple should launch an iPhoneNano. It’s a rather loNg post I point you to, a little too much history and some stories you may or may not agree with. Still it is a thoughtful piece and after sharing his definition for the iPhoneNano I’ll share a few of my questions.
Communities Dominate Brands: Why iPhone Strategy is Wrong and Has to Change Soon
MY IDEA OF WHAT THE NANO iPHONE SHOULD BE
My suggestion is at roughly half the current price of the iPhone 4. Do a new iPhone Nano at a street price of about 300 dollars without contract, or about 99 dollars for the US market on AT&T with 2 year contract. That kind of price. And not to repeat the iPhone 3GS. Make this genuinely “a new iPhone”. Give it a couple of ‘new’ abilities that the 3GS did not have. This is easy to take from the iPhone 4. Add LED flash to the 3 megapixel camera of the 3GS. Add the iOS version 4 that has multitasking etc. Add a faster CPU and memory than 3GS, so the iOS version 4 will run well. And give it the ‘revised look’ of the new iPhone 4 (obviously also fix the Death Grip haha). The rest of the guts would be essentially the 3GS.
Then VERY importantly, make this a nano model, ie make it physically smaller. Most of all, give it a modestly smaller screen than the iPhone 4, ie 3.2 inches. This gives Apple the chance to make the Nano ‘noticeably’ smaller physically than the traditional iPhone Classic size phones – something like 10% physically smaller in length and width (while retaining about the same thickness). There is the ‘intuitive’ reason why the Nano is cheaper and the full price iPhone 4 more expensive, because the Nano itself is smaller with the 3.2 inch screen, and the iPhone 4 bigger with its 3.5 inch screen. Like in cars, compare the BMW 3 series vs 5 Series etc. The Nano needs to be carefully designed to not significantly cannibalize iPhone 4 sales.
By using the same screen resolution as the current 3GS, there is no significant market fragmentation with a new screen resolution to manage. And by using Moore’s Law, if Apple was able to make the 3GS profitably in June of 2009 with a street price of 600 dollars, it can do a Nano iPhone with almost the same specs but smaller screen, at half the cost it was for the 3GS in 2009. So the Nano in late 2010 will have the identically excellent profit margin.
For me the most important element in his argument today is… it’s now wrong to leave the iPhone3GS in the market. Where I’d like to see data is from an Apple perspective. Eg iPhone sales US vs ROW. The issue with the strategy is the 3GS sort of works in the US underselling the iPhone4 $99 vs $199 but it’s a poor trade-off today. Both require a data plan. It’s a $100 saving in the US that only a few might make. I’d suggest it is more there to help those “trade-up” discussions. Thus he’s right – Apple is missing an opportunity and likely plugging a price gap to get parent to first agree to the iPhone.
Where the iPhone Nano strategy really begins to work is in foreign markets where the iPhone is not subsidized or available unlocked. Here Tomi’s argument for a half price iPhone make a lot more sense. It’s the same as the MacBookPro vs the MacBook. Directionally, I think it’s most likely to hit the day we see the end of the HATED AT&T contractual relationship. My guess is early in the new year.
The second element that Tomi’s analysis overlooks is the impact of iPod Touch and what might happen with the next generation. We almost know for certain that the next generation of iPods will get FaceTime at the top end. We also know cameras are likely coming to the iPad update and we now have rumors of a 7 inch iPad. I think it highly unlikely that a 3G iPod Touch will be launched. However… what’s the difference with that and an iPad3G? There’s a $130 price premium on the iPad3g. Could an iPod Touch3G be launched in time for Christmas at $299? With FaceTime in place Skype in the background it’s a potential phone too. The issue is the “data plan costs”. Yet that’s been set… A 3G iPod Touch would really make things interesting…. particularly with apple’s notification server / facebook etc. It’s also in the US… $25 per month and no plan for 2gb vs adding approx at least $45 dollars for another line on a family plan. Many kids might go with the FaceTime iPod on 3G.
There’s useful discussion in his post about shares and markets. Apple obviously must go beyond GSM and embrace other standards in the US (Verizon), China, Japan etc. This is engineering time… however it’s holding back growth. In the US AT&T is the biggest barrier to growth. The market might look differently at Apple’s stock price in a year if it hasn’t inked an Verizon deal.. or even a TMobile Deal.
I’m not sure I agree with Tomi on product cycles either. PC cycles have lengthened. Mobile cycles have been short. Apple’s cycle hasn’t run out of juice. Eg only the iPhone4 was going to get me off the iPhone 3G. Although I was becoming aware of the Android opps. A longer cycle has some value. And again in the US… these things are sold with 2 year contracts. The contract affects the update cycle. So the impact of a shorter cycle may be less than predicted in this part of the world. Separately, AT&T is enabling some early upgrades.. but I suspect that is more to do with locking us all in for the end of their contract and more open competition – I certainly hope so. A shorter cycle may have more value overseas particularly where secondary markets thrive. However, Apple’s strategy remains too US centric and driven.
Biggest issue I have with Tomi is Apple’s strategy analysis is omission. It should be about a full range of devices… eg phones, portable devices, music players, macs, etc… Most of the other phone makers are now looking at iPads… I continue to find the Dell Streak interesting although when will it arrive here??? There are an increasing set of trade-off here. Much is increasingly up in the air…. Eg today a Granddad can have an Android sprint phone with hotspot and a wifi iPad and needs no internet connection at home. I wrote about this type of scenario the other day.
As Tomi notes.. there’s been plenty of suggestions about a Nano in the past. I grabbed an image from 2008 speculation. It has no internet and a smaller screen. Tomi’s closer on the screen projection. This nano example may actually work at the youngest end where parents may want to limit internet.. or in markets where there isn’t a good data option. A $200 price point could be charged for this. It’s a phone only… good for the $9.99 family plan.. on contract with AT&T.. probably about $49. Works with SMS etc. First iPhone…. for the 13 year old.
Will it happen… not so sure. Apple is almost certainly stretched to the limits, technically and supply chains are too. Yet if Tomi were to have his wish tomorrow I’d suggest:
- Apple launch a phone only iPhoneNano – no wifi-no internet – although with the notification server or some BBM type element built in as a sell-up service option. Apps supported. $200. This eliminates a whole group of apps from being useful… although some like ibooks sync over itunes while obviously the daily newspaper becomes useless in this format.. as does online gaming. However Bluetooth could be used to enable peer to peer gaming in some way.
- Apple Launch a 3GiPodTouch at $300 up from the $200 WiFi touch with micro sim. An iPhone without the phone… data centric. A mini iPad3g. The risk is.. it cuts into iPhone4 sales…. where an iPad doesn’t. Still this product is potentially the future.
All of these are feasible and the price points are unlikely to really hit / reduce their margins.
{ 2 comments… read them below or add one }
actually i think there would be a huge market for a ipod nano-phone or iphone nano whatever you want to call it but i prefer the former as i would base it more on the new touch screen nano (same dimensions/ui/etc).
The target user would be for athletes….primarily runners/bikers.
As a runner i hate running without a phone but also hate carrying an expensive touch screen larger smartphone while running.
My main emphasis would be:
Make it a pre-paid gophone. That way you don’t have to have any kind of package or contact for another line + many would be carrying the phone mainly in case for safety during their exercise so the thought of only having to pay for talk time as needed is very appealing.
Good Analysis. It echoes with what I think and though it presents ample opportunities for Apple to go mass-market it has its own challenges
http://blogs.strategyanalytics.com/WDS/post/2011/02/16/Opportunities-Challenges-Galore-for-Apple-with-iPhone-Nano.aspx