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Analysis iPhone Growth Strategy

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The world doesn’t want a bigger, better phone. It wants one it can afford

Samsung launched the latest version of its flagship smartphone, the Galaxy s4, in March. In stark contrast to its main rival, Apple, the Korean company trailed the launch for days before the event, publishing teaser videos on You Tube, and the launch itself was staged in New York’s glitzy Radio City Music Hall. Samsung hired a full orchestra to play at the theatre during the event, and commissioned Broadway veteran Jeff Calhoun to direct it.

The whole show was broadcast live on YouTube and to big screens in Times Square – but was heavily criticized for its portrayal of women. One journalist, CNET’s Molly Wood, described it as ‘tone-deaf and shockingly sexist’. Another, ABC’s Joanna S, said: ‘Sadly, it isn’t really shocking to me – I was more shocked by the lack of working wireless at the event. I guess that tells you a bit about how tech companies continue to think about marketing to women’.

Next step: Apple offers earlier iPhone models at lower prices, but designing a new, cheaper iPhone could make sense

Next step: Apple offers earlier iPhone models at lower prices, but designing a new, cheaper iPhone could make sense

Where Apple stages relatively low-key launches and relies on bloggers and the press to generate buzz, Samsung was determined to make sure no-one would be able to ignore the S4, whether they wanted to or not

Perhaps that was because the company knew the phone itself, whose every feature had been leaked beforehand, lacked the wow factor necessary to generate the headlines it wanted. The only unknown feature unveiled at the launch was that the S4 can be used while wearing gloves.

Early reviews were hardly encouraging. ‘If you’re looking for Samsung’s new Galaxy S4 to define a novel new era of smartphone greatness, it’s time to temper your expectations’, said CNET, which described it as ‘a firm stride forward rather than a giant leap’.

In a nutshell, the S4 seems to be almost the same as its predecessor, the S3, except that it has a slightly larger screen, is more powerful, and adds one new feature that’s nice to have but doesn’t feel essential. It’s exactly the kind of upgrade that, if Apple were to launch it as the iPhone 6, would attract the kind of doom-laden headlines with which the company has become all too familiar of late. Apple can now consoled itself that it shouldn’t take too much effort to offer a more compelling upgrade with the iPhone 6 later this year.

The real issue isn’t whether the Galaxy S4 is better than iPhone 5 (or 6), but how many more of these top-end models any maker can shift. Flagship phones, while important for their manufacturers in the same way as luxury cars are for car their makers, are decreasing in relevance. Worldwide, few people can afford to pay $750 up front or the monthly contract equivalent for a mobile. It’s easy to forget, when we see the sheer number of iPhones and Galaxy in use in the UK, that the biggest growth for smartphones is taking place in Asia, where the cost of either is completely prohibitive to most people.

The real issue isn’t whether the Galaxy S4 is better than iPhone 5 (or 6), but how many more of these top-end models any maker can shift

The real issue isn’t whether the Galaxy S4 is better than iPhone 5 (or 6), but how many more of these top-end models any maker can shift

The real issue isn’t whether Samsung’s or Apple’s flagship phone is better. Both are losing relevance

So-called ‘feature phones’ still outnumber smartphones in Southeast Asia, but that’s changing rapidly. Smartphone sales are growing more than 50% per annum in much of the region. But it’s not the likes of the iPhone 5 or Galaxy S3 that are driving that surge in demand. The real action in the smartphone market is taking place at the other end of the price scale – hence Apple’s inability to make enough of the two-and-a-half year-old iPhone 4, which it still sells as a lower-cost option, to meet demand.

Gerald Tan of market research firm Gfk talked last year about the prospect of cheaper smartphones. ‘Priced below $100, device[s] will be within the reach of an even larger pool of consumers’, he said. ‘This move is likely to significantly expedite the demand surge for smartphones in the region’s yet to be converted feature phone user population, [in] which we expect to see continued robust growth for at least the next two years’.

Based in South Korea, Samsung has an obvious advantage over Apple in the region. And it’s not the only local company to prosper. Lenovo, Huawei and ZTE are all seeing growth in smartphone sales. Together, those manufacturers are making Android the dominant operating system in the world’s most significant growth market for smartphones. That’s something Samsung’s partners have been quick to focus on.

A story on the BBC website in March opened with the line ‘Technology giant Apple perceived as less “inspiring” than it was three years ago, a brand survey suggests’. That survey was conducted by consultancy Added Value, a subsidiary of advertising firm WPP – whose clients include Samsung. While its impartiality must be doubted, it does suggest that Samsung is beginning to inspire the kind of loyalty among customers for which Apple is famed.

What will Apple do to keep up in Southeast Asia? It’s already opening retail stores in China at a rate of knots, and seems keen to negotiate a deal with China Mobile, the world’s largest carrier, to sell the iPhone. But that alone won’t see it make the most of the possibilities in emerging markets. One option would be a less-expensive iPhone: a separate model, rather than a discounted legacy design. And that may be on the cards.

The low-end iPhone will have the same 4in form factor as the iPhone 5, but a plastic casing and no Retina display’

The low-end iPhone will have the same 4in form factor as the iPhone 5, but a plastic casing and no Retina display

According to AppleInsider, Amit Daryanani of RBC Capital Markets has told clients that he expects a cheaper iPhone in the summer. ‘The low-end iPhone will have the same 4in form factor as the iPhone 5, but a plastic casing and no Retina display’, he said, apple-focused Piper Jaffray analyst Gene Munster also told his clients, in a note seen by MacUser, that he expected ‘a cheaper iPhone in September’.

While making a cheaper version of a flagship product would be unusual for Apple, it wouldn’t be unique. And given the way that worldwide smartphone market is moving, it might just be essential.

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