First The Smaller iPad, Now A Cheaper iPhone?

As the Wall Street Journal explains, there have been rumors of a cheaper, lower-end iPhone for some time. But the publication now says that a less-expensive iPhone is probably real and may come out later this year:

While Apple has explored such a device for years, the plan has been progressing and a less expensive version of its flagship device could launch as soon as later this year, one of the people said.

The cheaper phone could resemble the standard iPhone, with a different, less-expensive body, one of the people said. One possibility Apple has considered is lowering the cost of the device by using a different shell made of polycarbonate plastic; in contrast, the iPhone 5 currently has an aluminum housing. Many other parts could remain the same or be recycled from older iPhone models.

The cheaper iPhone is assumed to be a response to the largely unimpeded rise of Android and Samdroid in particular (Samsung Android devices). Samsung just had another great quarter, led in part by record sales of its Galaxy devices.

Steve Jobs famously didn’t want to make a smaller tablet because he thought the smaller size of the device would compromise the user experience. Obviously this year Apple released the smaller iPad Mini. We’ll find out later this month how well it sold when Apple reports its holiday quarterly earnings.

While the wisdom of the iPad Mini’s pricing (starting at $329) was debated, the decision to release the smaller tablet was uniformly praised as a necessary response to the Kindle Fire and more recently the Nexus 7. If Jobs were still around he might be holding the line against releasing a lower-quality device.

The iPhone 5 has been popular and presumably sold well but it’s perceived to be too expensive for developing markets and for some domestic users. Android handsets come in a wide array of varieties and prices (although increasingly it’s all about Samsung Galaxy devices). In North America Apple has reduced the price of older models to enable carriers to sell them for $99 or give them away with two-year contracts.

The WSJ article portrays the potential move to a cheaper iPhone as a reaction to declining global smartphone market share:

In the 2012 third quarter, Apple held only 14.6% of worldwide smartphone shipments, down from a peak of 23% in the fourth quarter of 2011 and the first quarter of 2012, according to IDC.

If a less-expensive iPhone is purely a reaction or a “desperation move” it will probably fail. However if the decision to manufacture a cheaper iPhone is driven by segmentation considerations and done thoughtfully it could succeed. An iPhone for emerging markets might be one approach; an iPhone for younger or budget minded consumers could be another.

Any less expensive iPhone would need to be differentiated from the “flagship” phone or the latter could be tarnished by the use of lower quality materials in an inferior device.

The iPod line could and probably does provide a model: iPod Touch, iPod Classic, Nano and Shuffle. The devices look different from one another and exist at different price points. Apple could go with color to differentiate and lend appeal to a plastic-body iPhone. (Although rumors suggest the iPhone 6 will come in colors).

There are several ways that Apple could develop a less expensive device that might serve its objective of expanding to new markets and audiences while maintaining the integrity of the iPhone brand. However there’s also considerable risk there as well.

Any cheaper iPhone, to succeed, would have be more than just a cheaper iPhone.

Postscript: According to several reports, based on a Chinese newspaper interview, Apple marketing SVP Phil Schiller says that there will be no cheaper iPhone. From CNET:

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“Despite the popularity of cheap smartphones, this will never be the future of Apple’s products. In fact, although Apple’s market share of smartphones is just about 20 percent, we own 75 percent of the profit.”