Should Apple manufacture a mini iPhone ?

January 9, 2013 0 Comments

Apple is working on a less expensive iPhone for non-US markets, reports the Wall Street Journal.  In my opinion this is a very difficult decision for Tim Cook and Apple. If one were to review this decision from Game Theory point of view, the decision is actually an easy one.

Lets consider the scenario in which Apple does nothing to address large low-end smartphone market addressed by rivals like Samsung, HTC, Nokia, and others.  We don’t need an oracle to predict that in few years every phone for sale will be a smartphone irrespective level of smart features of the phone and apps will become the major source of revenue.

So If Apple wants to survive in this highly competitive smartphone industry, it can’t rely on selling high-end phones and high margins. At the same time, low-end smartphones can potentially become a desktop alternative to many of the users in India, Africa, China and other developing countries. So there is huge market potential for mini smartphones.

So if Apple doesn’t manufacture one this year it will be forced to manufacture one in the coming years.

Now lets consider the scenario in which Apple does manufacture a mini iPhone. First and foremost Apple is going take a hit on its higher end smartphone sales and  the average Apple smartphone sale price will go down.  That’s a big red flag for Apple long-term investors.

The only smart move that Apple can make  in this scenario is to increase its app store size and relevance in the market so that it can make the money it lost on phones by selling apps.

Interestingly in both scenarios app store ecosystem becomes the key to Apple’s success.  So Apple might as well manufacture a  mini iPhone now and focus on building a stronger ecosystem with a happy and large application developer community.

Let me know what you think and please leave a comment.

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