Try googling “iPhone Nano”, you’ll get 43.9 million hits. It seems a lot. A closer look at Google’s results shows them to be reasonably legit, no spamming. (Bing is less expansive with only 103,000 results, 400 times less than Google…)
The putative iPhone Nano appears to be in great demand. But is popularity a predictor? Are all these “hits” a sign of a product to come? Or is it merely what a critic calls the iPhone oNano, a fantasy?
The iPod story provides an inviting template: Over the years, what we now call the “Classic” begat a large family of Mini, Nano and Shuffle versions. And the iPod Touch, which I’d rather call an iPhone Minus for today’s purpose, meaning it’s not part of the iPod class. (Another wag calls it the iPhone Honest: the one that clearly labels itself as unable to make phone calls. How unfair.)
So, let History repeat itself. Let’s start a family of iPhones, beginning with the cuter iPhone Nano. Right?
Perhaps not.
Looking at the iPod again, one thing never changed: all versions played the same music. Other attributes were added and sometimes taken away: size, screen, physical and logical controls, video… But the core purpose never varied: playing iTunes digital music files. (As the iPod Wikipedia article makes somewhat clear, you can use an iPod without iTunes, but that’s not a statistically significant reality, it’s not relevant to the iPod ecosystem’s business model.) The iPod’s DNA evolved a few accessory strands here and there, but the core genes have been left unchanged. And, going back to the iPhone and the iPod Touch, we see iPod genes living inside a larger DNA sequence
Speaking of the iPhone, what is its main purpose?
Is it making calls, browsing the Web, doing email, synchronizing calendars and address books? It does seem that way: the iPhone provides such services with varying degrees of felicity. (In my sample of one, during the Summer of 2007, when I saw the amount of Web browsing time spent on my infant iPhone, I realized my treasured Blackberry was a goner.)
But these de rigueur, taken for granted functions are necessary but not sufficient to make an iPhone. What does make an iPhone an iPhone is its huge and still growing collection of applications served by the iTunes App Store.
The iPhone is an App Phone.
The App genre (the apps themselves, their distribution system, the development tools) is now fully embraced by the smartphone industry and by its customers. I realize we’ll keep saying “smartphones”, but “app phone’’ gets us closer to the genre’s core reality, to what drives enthusiastic user adoption — and close to triple-digit year-to-year revenue growth.
The apps are to the iPhone what digital music files are to the iPod.
Moving to the Nano suffix. What can we remove from today’s iPhone “Classic”?
Memory, processor speed, storage? Not really. Those permutations are available already. Either in current iPhone configurations, or in the previous generation pricing games: a 3GS iPhone for $49,
while the iPhone 4 trades for $199, both with a 2-year contract. And these variations do little or nothing to change the apps that run on them.
(Out of curiosity, I went and looked for an unlocked iPhone. On Amazon, the previous generation iPhone 3GS is offered at prices between $400 and $600. I’m not sure what to make of such factoid. Grey market? Paying for the ability to then freely switch SIMs and move from one carrier or one country to another?)
Removing existing permutations leaves us with one thing to cut: the display. A smaller screen is indeed the iPhone Nano’s most frequently mentioned feature.
We won’t dwell too much on the UI issues: Dear Leader did this for us when, in October 2010, he cheekily dismissed the idea of a 7” tablet:
“It (seven-inch screen) is useless unless you include sandpaper so users can sand their fingers down to a quarter of their size.”
He forgot to mention the 3.5” iPhone screen… Imagine what he’d say about an even smaller screen.
Actually, based on Steve Jobs’ record of dissing features or products only to implement them at a later date, we can be sure he’d tell us how Great & Magical℠ this Nano-UI would be…
Then we have the margin question: savings wouldn’t go much further than the screen itself. The rest, processor (SoC), memory, sensors, radios could be cut a little, but not in any significant way, say by 30%.
Apple execs have repeatedly stated their intent to stay price competitive. The Nano’s purpose would be expanding or protecting the iPhone franchise, unit volume, market share and profits. In theory, the iPhone Nano would accomplish this with a lower price point, say 50%, and a smaller size. But, again, the $49 3GS iPhone is there already and doesn’t seem to “move the needle”.
Apps are the real challenge.
We’ve seen iPhone apps on an iPad screen, either at their original or 2X size: technically, they’re compatible. Aesthetically, they don’t work. To be successful on the iPad, iPhone apps had to be adapted, reworked to really use the larger screen and to meet changed user expectations. The iPad, contrary to Eric Schmidt’s premature evaluation, isn’t merely a bigger iPhone: the larger screen isn’t just more, it’s different.
Similarly, a materially smaller iPhone screen would need a new, and third, variant of iOS applications. Not impossible, not too hard for trained iOS developers, but fragmentation nonetheless. Is it worth it?
From a developer’s standpoint it’s a reasonably simple question of return on investment: How many Nano iPhones? How much Nano apps revenue? And for what apps? Games, Commerce, Social? A large enough increase in volume could drive developer commitment.
Another suggested variant would be a “streamlined” Nano, as in streaming content. Hardware costs would be cut by removing most of the iPhone storage used for music, pictures and videos. Such content would then be streamed from a “digital locker” provided by Apple from its already legendary North Carolina Cloud.
This brings us back to the Internet Appliance concept: everything in the Cloud, the local device is as simple (and dumb) as possible. We know what happened: customers want it both ways. We want the Cloud and its comforts. We want local processing and its advantages. In the iPhone’s case, as dominant app category is games. How to run the best games from the Cloud? (OnLive is working on an answer.) For games on PCs or smartphones, local GPUs (Graphic Processors) are the answer. Close to half of all iPhone 10 billions+ apps downloaded are games. A stripped-down streaming Nano doesn’t look realistic.
With this in mind, would Apple do an iPhone Nano?
On the one hand, we have Apple execs insisting they won’t roll over and let competitors eat into their franchise, they want to deal from a position of strength and not let a price umbrella develop above their competitors. This assumes, correctly I think, Apple’s smartphones can stay un-commoditized, meaning Apple will avoid the race to the bottom. This could be accomplished by a combination of product design, software, services and distribution. Put another way, this is Apple’s traditional strategy of owning all layers of the stack. It is working for the Mac and its steadily growing market share, it could be made to work for a family of iPhone variants. (Still, there aren’t too many OS X applications variants…)
On the opposite side, assuming Apple wants to fight hard, the company could simply decide to cut prices on current and future iPhones without resorting to a hardware and app variant.
We remember the clamor, year after year, for an Apple netbook — and the company’s steadfast refusal to do a cheap Mac.
I’m tempted to believe Apple will go for simplicity. If it decides to complicate its life and invest in another iOS variant, Apple TV might provide a different enough opportunity, one with more content sales potential than a tinier iPhone.
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17 Comments
Jean-Louis,
Can you analyze the benefits of Apple becoming a prepaid MVN like Virgin Mobile offering ‘world’ iPhones capable of connecting to any telecom on the planet?
In that situation, Apple could sell unlocked iPhones which could be used on any network and also, as an MVN, resell broadband access at massive volumes. Along with offsetting revenues from ads and digital content sales would that be a method to deliver the best phones at very low price points?
There is a long way from the price of a iPod Touch to an unlocked iPhone 4. In the Danish Apple Store the iPhone 4 unlocked cost 2.6 times as much as the iPod Touch. Apple should be able to add a 3G chip to the iPod Touch call it iPhone Nano and sell it unlocked cheaply.
The challenge would be how to easily differentiate it from the iPhone – as I don’t think they will change the screen size (to preserve access to 300K+ apps). But again there is also a difference between a Mac Book and a Mac Book Pro.
@ pk de cville: Thanks, interesting question. In a way, Apple is already an OTT (http://bit.ly/MN177OTT) player. In a broad sense, OTT, Over The Top, means using a carrier’s infrastructure as a dumb pipe and providing content or services that compete with said carrier’s offerings. For example, using your phone company’s DSL pipe for VOIP. iTunes content services can be viewed as OTT services. Carrier-savy readers may differ.
Now, Apple as an MVNO? It sounds like a lot of work for slim margins. And World iPhones would require carrier by carrier agreements.
Yes, you could jail-break an iPhone, get it unlocked. But this doesn’t mean inserting a Carrier X micro-SIM would get it to work on Carrier X’s network: some services, including Apple iTunes and updates may or may not work. I have no position for or against jail-breaking, it’s a personal decision for a technically adept user.
I don’t know if the rumor is true, but we heard Apple tried to get more carrier independence, a multi-carrier SIM or equivalent. The rumor says it was rebuffed. I think I’ll get back to the topic on a future MN currently rattling around my jet-lagged brains. JLG
I think this article is spot on. I’m angry at myself for not having written it. Not surprising, I agree with your conclusions.
There is an interesting scenario this suggests, however, and not one that requires a race to the bottom.
Open up the great and magical iPod Touch to make it a super powerful WiFi only phone. (Current app developer limitations on iOS imposed by Apple continue to make this more difficult than it should be).
Would Apple do this? Offer one or more developers unfettered access? Would it disrupt the very fundamental notions of what an app phone is? Would carriers respond by boycotting the iPhone or refusing to offer lucrative subsidies? Which is more important to Apple — those subsidies or the destruction of Big Phone? And is that magical North Carolina facility just one giant telco switch waiting to be turned on?
Regarding the unlocked smartphones, I expect they’re much more popular outside the U.S. where there is physical competition between the carriers. In the U.S., a call to AT&T threatening to switch to Verizon after five months of contract-free service will get you laughter and to T-Mobile a knowing chuckle. In Canada – far from the haven of mobile innovation and service in the first place – we now have three carriers on compatible networks, and that call gets me transferred over to retentions real quick.
“Try googling “iPhone Nano”, you’ll get 43.9 million hits.” — Come on. You know how to Google. That search includes hits for both “iPhone” and “Nano”. If you search the right way, for “iPhone Nano” in quotes — which returns hits for just that exact phrase — you get 2,060,000 results, which is still a lot, but not 43.9 million. Besides that, Google’s search result count is a notoriously inaccurate and useless number. See Danny Sullivan’s take on this: http://searchengineland.com/why-google-cant-count-results-properly-53559. Really, any blog post that starts of with “Try Googling X and you get Y million hits” should automatically be discounted as suspect.
Well, Apple offers the low end white plastic MaBook and it runs all the same Mac applications.
Why can’t Apple do same with the iPhone? Less expensive materials, slower processor, less memory, lower-end camera etc, but otherwise thesame app phone.
The problem with 3G playing this role is it’s positioning as as obsolete product, a problem easily fixed.
Simple, iPod touch with voice only calling hardware, no 3g hardware (if thats possible).
There is no inexpensive iPhone until Apple decides to accept lower margins.
Consider, a base iPhone 4 has a bill of materials around $200, and sells for $600+ sans-subsidy. Margin approx.=$400.
(I know the bill-of-materials leaves out all kinds of costs, but at the volumes Apple pushes it is likely a very good proxy for their marginal cost).
A $50 3GS is practically free—the real barrier is the cost of the contracts. But the contracts are expensive because of the subsidy…
…so, how cheaply could Apple sell an iPhone without a subsidy?
Well, if Apple could conjure up a cheap iPhone out of thin air, they still couldn’t sell it for less than $400 without taking a hit on their margins. And a $400 lesser iPhone ain’t gonna sell. $200 no contract on a MVNO? Sure, but you’d be killing your cash cow.
There may be a day when Apple has to accept lower margins, but—Tim Cook’s comment’s to the contrary notwithstanding—that day isn’t soon.
At first I was going to say: Apple won’t release a low-cost iPhone Nano because, as JLG surmises, they are in the mobile computing business, not the phone business, and they already offer a low-cost mobile computing option – iPod Touch.
But the idea above of an iPod Touch with pre-paid voice-only (internet access only through wifi) ticks three big boxes for Apple.
1. Can be offered cheaper than an iPhone without reducing margins, as it removes the largest total cost of ownership element of an iPhone – the 3G contract – which Apple don’t make money from.
2. It would expand the iOS platform by making the iPod Touch relevant to a much broader market.
3. The lack of constant internet access is an ideal differentiator, minimal iPhone cannibalisation, yet it does not reduce compatibility with the iOS platform.
It would be the phone equivalent of the iPad and iPad with 3G.
I have a bet with Jean Louis that there will be one ! However, we must balance a few other dimensions
AGAINST YOUR HONOR
1) It’s the battery stupid !
Apparently, the current implementation of the radio interface is eating between 50%-60% of power, and display around 30-35%. Better chips, smaller display can help but we need a solution for less power-hungry transmission.
. Wifi could be a way.. Why not back to 2G for Voice after all (with radio efficiencies à la old Nokia).. and download of apps via ITunes on PC/Mac..
2G spectrum is still there for a while, especially in developing countries with quite some potential for growth..
2) Cooperation with Wireless providers/SIM card activation, etc..
If one wants to offer a simple activation process to the customer, it has to be done in one shop-one click-one form.
I would bet that network providers shops and their controlled distribution are still more legitimate today to perform these tasks. Lack of push of IPad 3G in Apple’s stores is so far not a sign that they want to be burdened by SIM logistics..
FOR YOUR HONOR
1) Intimacy.
How many people have seen in subways, buses, planes, train,cars putting away their Iphone and listening to music on an Ipod !! Size does matter in one’s bag, the back pocket of my dilapidated jeans. A well designed Nano could be an object that I truly carry all the time with me, including outdoors, on foreign travels.
2) Worldwide Volume Forecasts
So far, even the wildest predictions about share of smart-phones in total share of phones do not go about 60% worldwide. There are segments in the market for more ruggedized/less costly versions (in business, in countries with no subsidies or low level of subsidies, for prepay).
I doubt that Apple can leave all these growth targets to Android (together with its asian hardware manufacturers, ready to eat them alive from above (HTC for example) or below.
3) Synergy with Ipad and subsequent tablets
I would not recommend to look at an Iphone Nano as a stand alone product. It could work Hand in hand with a tablet..
I surf, play, download, watch TV on my Ipad.
. while I talk, use the “simpler” apps on my Nano (let’s picture our children playing angry birds on it)..
The real cost of iPhone is the monthly bill. Plenty of people would buy a $49 or $199 iPhone if the bill was similar to the iPad bill: $25 to $50 per month for pure data. So driving the price down would be going data-only, with FaceTime (VoIP) calls only. The $60 per month you pay for “voice minutes” and “texts” are the killer. That is why I give creedence to the “Apple virtual carrier” rumors.
But in form factors, I think an iPhone nano that was just an iPod nano with a phone would be very popular. No App Store. Instead, Apple could ship it with built-in apps and do 3rd party apps like they do Nike.
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A different screen size would certainly complicate matters, but they could simply offer the same dimensions but with the smaller non–Retina Display pixel density. Although the iPod touch does already have a Retina Display.
Worth mentioning that the iPhone is sold unlocked in the UK (and other countries, as others mentioned): http://store.apple.com/uk/ The 3GS is barely cheaper than the 4, and more
expensive than the most basic iPad.
good insight. Too bad round here an iPhone cost around 700-800 $ (in Indonesia). So I will gladly accept if any of you want to sell some opened iPhone for the lesser price
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