Apple Needs More Than One iPhone To Compete

Since its June 2007 launch, Apple has released one new iPhone each year. In the six years it has been around, there have been just six iPhones designed and produced by Apple. In the fast-paced and cut-throat smartphone market, this is no longer enough to compete.

By way of comparison, Samsung, Apple's largest rival, released more than 30 phones in the U.S. market during 2012 alone. Among other phone makers, LG released about 15 new phones, HTC released 11, Motorola released 10, Nokia released 9 and Sony released 5. These numbers reflect models only available in the U.S., and don't include what these manufacturers made available to other markets. No matter what market we're talking about, Apple still only has one new iPhone each year.

The iPhone has always been a high-end product. The original iPhone cost $599. It was not subsidized by AT&T. iPhone subsidies didn't arrive until 2008, when Apple dropped the initial cost of the iPhone to $199 thanks to some heavy financing on the part of AT&T. Most leading smartphones cost about $199, so Apple is competing on price. In fact, each year Apple drops the contract price of the previous year's model to just $99, and the two-years prior model to free. This lets Apple remain relevant across retail price points. That's all well and good, but it still isn't enough.

[ Are iPhone sales slowing down? Read Apple Cuts iPhone 5 Part Orders In Half. ]

Apple may still be selling tens of millions of iPhones per year, but its share in the smartphone market has already peaked and is starting to decline. The reason for this doesn't have anything to do with pricing and everything to do with choice.

For example, Apple is losing on screen size alone. The first five iPhones all had screens measuring 3.5 inches. The iPhone 5, released in September of last year, was the first iPhone to change that dimension. Apple enlarged the display to measure 4 inches. This new, larger screen is still well short of what today's leading Android devices offer.

There's one real reason for the iPhone's screen limitations (and Apple's i-device problems in general): Apple is afraid of ticking off app developers.

Every iPhone, iPod Touch and iPad's display has a calculated number of pixels and dimensions in order to make it as easy as possible for developers to adjust their apps for each different device. This is why the iPhone, iPhone 3G and iPhone 3GS had the exact same display. The iPhone 4 doubled the resolution, but kept the dimensions the same, and the iPhone 4S kept the same resolution as the iPhone 4.

While keeping the screens similar in dimensions and resolution makes it an easy sell to developers, it severely limits Apple's ability to compete with Samsung and other smartphone makers that offer screens ranging in size from 2.4 inches to 6.0 inches, with every resolution from VGA to full HD.

Android is inherently more flexible in this respect. Guess what? So is Windows Phone 8. With WP8, Microsoft gave developers at least three options when it comes to resolution (800 x 480, 1280 x 720, or 1280 x 768). What did Apple do to make things easier for developers when it came to the iPhone 5? It kept the width of the display the same (640 pixels) and increased only the height from 960 pixels to 1136 pixels. Developers only have to alter one dimension of their apps to make them work well with the iPhone 5. Again, Apple is afraid to tick off developers.

It's not just the screens.

If Apple truly wants to restore some of its market oomph, it has to start varying its product mix. It doesn't need to go overboard and design 30 new phones in a year, but three significantly different models would go a long way toward helping it compete. There's no reason why Apple can't offer a low-cost (relatively speaking) model, a mid-range model and a high-end model.

Former Apple CEO John Scully thinks this is the way to go, too. "Apple needs to adapt to a very different world," said Sculley in an interview with the Washington Post. "As we go from $500 smartphones to even as low, for some companies, as $100 for a smartphone, you've got to dramatically rethink the supply chain and how you can make these products and do it profitably."

Apple is at a crossroads. It is fully in Tim Cook's hands now. The ghosts of Steve Jobs will linger only so long. The company's stock price has dropped by nearly $200 in the last three months. With its smartphone (and tablet) market share eroding, it has to look at ways to reverse those trends. The writing is on the wall. Will Apple read it? Can it even see the writing?