Apple's iPhone Battle Plan: 6 Factors

Apple's forthcoming iPhone 5S, iPhone 5C and iOS 7 could help the company win back some of the market share it has lost to Android devices.

Michael Endler, Associate Editor,

August 21, 2013

7 Min Read

10 Hidden iPhone Tips, Tricks

10 Hidden iPhone Tips, Tricks

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On Sept. 10, Apple is expected to release new iPhones as well as iOS 7. That Apple will make billions is a foregone conclusion -- but the devices will nonetheless face intense pressure and tough scrutiny.

There's good reason. To an extent, Apple can afford for the iPhone to trail Android in market share. But research firm IDC said Android accounted for almost 80% of smartphone shipments in the most recent quarter, which means Apple's not just trailing -- it's getting killed. CEO Tim Cook is reportedly under pressure from the company's board, which is allegedly "concerned" that Apple's innovation has slowed under his leadership.

Despite the doom and gloom, several reports indicate that Apple continues to win the smartphone battles that matter, and that it's well-positioned, with the upcoming releases, to improve its few weak points. Will Apple gain back some of what it's lost to Android, and can it fend off rising momentum from Windows Phone 8? Here are six considerations.

1. Apple beats all comers in the premium market, including Samsung.

As Android has devoured iOS's global market share, analysts have frequently commented that it is low-budget devices in emerging markets that account for much of Android's gain. Outside of low-cost models, Apple has retained an edge, but has still given up ground to premium Android phones such as Samsung's Galaxy series.

[ What killed the BlackBerry? Read BlackBerry's Collapse: 5 Key Mistakes. ]

How much premium ground has the iPhone lost? Based on an Aug. 5 note by investment research firm Consumer and Intelligence Research Partners (CIRP), Apple's still holding its own; over the last year, 78% of iPhone users upgraded to another iPhone, but only 67% of Android users upgraded to another Android device. CIRP derived its numbers from quarterly surveys conducted within the U.S., which, as a mature smartphone market, bears a strong influence on premium device sales.

In addition to better retaining customers overall, Apple also appears to have had an edge among high-end shoppers. According to CIRP, those buying a smartphone for the first time preferred Android to iOS by a wide margin, 56% to 35%. Those upgrading from another smartphone, however, preferred iOS 49% to 46%. First-time buyers tend to be less affluent, and to go for budget devices. Longtime smartphone owners tend to be more affluent, and to maintain or improve the luxury of their devices.

An Aug. 12 CIRP note added more context. It found that whereas 20% of Apple's customers come from Android, only 7% of Samsung's customers come from iOS. This is despite the fact that Samsung, according to IDC, now represents half of all Android shipments. Samsung users were also less likely than iPhone users to upgrade within the same brand.

2. Apple already achieves excellent product margins -- and they're about to get better.

Many Android OEMs have gained customers, but because most of them have done so by basically giving away phones, Samsung is the only one making profits.

Apple, in contrast, has built its empire on stellar profit margins; it's the only smartphone player reaping more profits than Samsung. Apple accomplished this, despite seeing its margins fall, because more users are buying discounted versions of Apple's older iPhone models, instead of the newest, most expensive edition.

According to ISI Group analyst Brian Marshall, Apple's low-cost iPhone 5C could boast higher margins than Apple currently is achieving with its discounted versions of older phones. By displacing low-end and mid-range sales with the higher-margin 5C, Apple will profit even if sales don't increase -- and they almost certainly will. 3. Owning the premium markets means having the customers who are best educated, wealthiest and most likely to buy accessories.

Premium device sales produce immediate benefits in the form of increased profit margins, but they also engender a number of recurring benefits.

CIRP's data suggests Apple users are more educated and affluent than Android users, for example. The firm notes these users are more likely to buy accessories, and that Apple has more users between the ages of 18 and 34, which is widely considered by advertisers to be the demographic that drives taste. As Forrester's David Johnson told InformationWeek in a recent interview, Apple still has the customers that everyone else wants.

CIRP also found that iPhone users upgrade devices more regularly than most other mobile phone users, although some high-end Android OEMs, such as Samsung, have also fared well in this area.

4. Premium customers attract premium developers.

Despite Android's massive advantage in global market share, surveys regularly show that iOS is still developers' biggest priority. Why? Some of the imbalance has to do with logistics -- Android is much more fragmented than iOS, which often forces Android developers to rewrite their apps for various OS versions and device types. Developing for iOS, thanks to Apple's stricter control, is often simpler.

But here's a bigger reason: Apple's customers are the ones spending money. A billion users don't mean much if they only download free apps. This explains why only 60% of the top 50 iOS apps are also available on Android.

Android's profile among app makers has increased over the last year, and at some point, the platform's superior volume could overwhelm whatever loyalty Apple enjoys from more affluent users. But that will only happen if Apple continues to lose ground. If the new iPhones and iOS 7 help Apple reclaim lost territory, its privileged status among developers will only become more ingrained.

5. Apple's problem: Most of the opportunity for growth is in low-end devices.

Here's the problem for Apple: Even if the company continues to hold down the premium market, all of the potential growth at the moment is in emerging markets, where first-time buyers gravitate toward cheap smartphones, and where many of the most experienced smartphone upgraders are already using Android.

Both the iPhone 5C and Apple's reported plan for a gold-colored iPhone 5S seek to blunt this trend by targeting the biggest growth market of them all: China.

Some have speculated the gold casing is aimed squarely at the Chinese market, where evidence suggests high-end smartphone shoppers associate the color with prosperity. It remains to be seen if this tactic will work, but there's also evidence that China will be receptive to the iPhone 5C. According to a study by Morgan Stanley and AlphaWise, Chinese customers might be willing to pay more for the device than Apple intends to charge. Given China's population and status in the smartphone universe, Apple can meaningfully improve its global market share by growing within this country.

6. Apple could still be its own worst enemy.

As the preceding attests, Apple has a lot working in its favor. One big variable that could stall the company's progress? Arrogance. Once-upon-a-time smartphone leaders such as Nokia and BlackBerry demonstrate how quickly a dominant player can fall.

On the hardware front, Apple seems content that new budget models and a modestly upgraded flagship will sustain sales over at least the next year. The company also seems content that iOS 7 will satisfy many users' hunger for new features. If the update is well-received, then Apple might be right. But if users perceive iOS 7 as a superficial overhaul that's more about looks than functionality, other smartphone platforms could have a chance to capitalize.

Android and Windows Phone 8 phablets are expected throughout the fall. Apple doesn't even compete in this space, and so far it hasn't needed to. But if iOS 7 and the new iPhones seem stale, Apple -- after setting the standard for several years -- could find itself playing catch-up.

About the Author(s)

Michael Endler

Associate Editor,

Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 and, pending the completion of a long-gestating thesis, will hold an MA in Cinema Studies from San Francisco State.

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