Apple Builds Mainstream Phones, Just Look at the Moto X

The iPhone 5c was announced almost two weeks ago to sticker shock. Analysts and pundits - a class of Hedgehogs - bemoaned that the phone was not the low price phone they were looking for. At $550 of contract, the iPhone 5c is out of the price range of the developing middle class of emerging economies such as China and Brazil.

The typical reasoning why Apple is losing market share - at least in phones sold, not usage - is that manufacturers flood the market with low cost Android phones. Even the pundits, one hopes, don’t expect Apple to compete against crap-ware. So when they want a low-cost iPhone 5c, who are they expecting it to compete against to gain back marketshare?

Samsung, HTC, and Motorola all follow the same model Apple does. They have flagship phones aimed at the high-end of the market supplemented by “mini” models1 that are lower cost. Presumably analysts also wanted Apple to manufacture a “mini” model and follow their competitors.

But how well does this portfolio strategy work? Famously, Samsung is the only Android manufacturing capturing profit. While we can’t breakout Galaxy mini profits due to lack of data, clearly the strategy is not working for other manufacturers. I would argue Samsung makes most of its money of its flagship phones, just as Apple does.

The iPhone 5c reminded me not of a “mini” phone but of another Android device with a high profile launch: the Moto X. The value propositions of both phones are too similar to be overlooked: The emphasis on color, not competing on the latest specs, and both running the purest experience of the OS. Motorola (read: Google) made a phone full of compromises after countless focus groups with mainstream consumers.

For a 16 GB model, the Moto X retails for $200 on contract, and $650 unlocked. This is the same pricing scheme the “mini” flagship Android models follow as well. Compare this to the iPhone 5c. A 16 GB 5c retails for $99 on contract and $550 unlocked. Presumably these phones are all chasing the same market, yet Apple is the one offering the cheaper option. It is Apple, not Google or Samsung or anyone else, who is making the low cost smartphone for a mass market and is making a profit off it. And it’s a quality device too.

The Moto X is clearly aimed at the American public with its “Made in America” manufacturing, while the biggest opportunity for Apple continues to be emerging markets. Maybe Apple’s strategy is still not tuned into to that consumer and the 5c is still to expensive. OK, but who else is really posed to capture that market with an aspirational value proposition? In a year, the 5c will be free on contract and $550 unlocked. That’s a very attractive option for any market.

The Hedgehogs continued to be underwhelmed by Apple’s smartphone strategy. They also continue to overlook the real playing field of competition. The Galaxy S and Moto X do squeeze Apple a little on the high-end, but unless it’s crap-ware, Apple is really the only one with a great value proposition for a mainstream consumer. I expect the iPhone 5c to be another success for Apple’s portfolio of products.

  1. Samsung Galaxy 3 Mini, HTC One Mini, and the Droid Mini