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The iPhone 5C Is Not A Failure, Despite General Believe

Jun 17 2014, 1:10am CDT | by , in News

The iPhone 5C Is Not A Failure, Despite General Believe
 
 

If Sony were offered 24 million unit sales on their previous flagship, the Xperia Z1, I’m sure Sony would be happy with those numbers. If I were to offer the 24 million sales to Samsung for the Galaxy S4 mini, many in the media would be talking about the continued success of the South Korean manufacture and a year-old handset design. HTC would bite your arm off if the HTC One M8 handset could get even half of  those numbers.

Estimates show that Apple’s iPhone 5C has sold over 24 million handsets (*), in which case why does every mention of the 5C go down as a failure for Apple?

It’s important to look back at the period before the reveal of the iPhone 5C. Analysts and industry watchers were expecting Apple to release a ‘budget’ model. This would increase the volume of sales, it would increase the margins available to operators and retailers, and it would allow Apple to enter new markets with a cut-price machine that these markets were built around. In the church of market share, the only way for Apple to gather more users was to sell more devices at a lower price.

Apple has never really cared for market share numbers.

It’s also important to realise that the mainstream media who had created the story of Apple ‘needing’ a budget handset decided to force the iPhone 5C into their narrative of a cheap handset. That was never the role of the 5C.

The iPhone 5C Was A Better Profit Machine Than The iPhone 5

Apple’s retail strategy for the iPhone has always been to have three tiers; position one is the ‘brand new’ handset, position two is the previous ‘flagship’, and position three is the ‘free with a two-year contract’ model that is two generations back. Before last year’s iPhone announcements these positions were occupied by the iPhone 5, the iPhone 4S, and the iPhone 4.

The expectation was the iPhone 4 would drop out, the 4S would take position three, the iPhone 5 would take position two, and the newly announced model would be at the top of the podium.

In a way, that’s exactly what happened. But the iPhone 5 was replaced with the iPhone 5C. Rather than one new product in position one bumping everything else down, Tim Cook debuted two new products, moved the 4S down a rung, and end-of-lifed the iPhone 5.

While Apple did alter the iPhone 5 specifications with the 5C (the addition of LTE, improved battery life, and the removal of some camera features), the 5C is essentially the iPhone 5 of this product cycle. By reworking the design to use a polycarbonate case, and exploiting advances in fabrication, the 5C has a lower bill of materials than the iPhone 5. That means position two in Apple’s current portfolio is more profitable than it was before.

it also allowed the 5C to be advertised as a new handset, compared to previous launches where the flagship model became ‘last year’s model but without the price premium’. That increased sales of the iPhone 5C, and the handset has likely sold more than a one generation older iPhone 5 would have achieved.

The iPhone 5C made a huge amount of sense when it was launched, and it continues to be a strong seller in Apple’s portfolio. Apple has also addressed the carrier subsidy issue by making the iPhone 5C 8 GB variant. There’s no question in my mind that the 5C was the right thing to do, and it is nowhere near the ‘failure’ that the media continues to label it.

The question for me is this. Why could Apple not get this story out through the usual press channels? Why has the myth of the 5C being a failure taken root? Apple quickly lost control of the public narrative, and while the iPhone 5C continues to sell amazingly well, it still has the smell of failure around it.

In a sense, the iPhone 5C is a failure of Apple to tell the correct story around the handset. Addressing this issue is going to be one of the challenges facing the new head of marketing, no matter who gets the job.

The Lesson In The iPhone 5C For The iWatch

It’s clear that Apple has issues in explaining the role of the iPhone 5C. Because the colourful smartphone was not exactly as expected by the analysts, markets, and the media, it was cast in a negative light. Could sales have been higher given a more favourable media response? That’s a fair assumption.

The Apple watchers are expecting Tim Cook to reveal another product in the fall. The anticipation around the iWatch is at a high intensity, and Cupertino’s entry into the current wearables market is unlikely to do everything that everyone expects of the iWatch. The media decided the iPhone 5C would be a phone that represented a strategy that Apple chose not to follow, and it is likely that the iWatch strategy chosen by Apple will not match the expectations of many in the media.

The 5C was a small part in the strong brand that is the iPhone, and iPhone as a whole could absorb the disappointment and the ‘failure’ tag the 5C now carries.  Apple cannot afford the same mistakes to be made with the launch of the iWatch and lose control of the story that Apple wishes to tell about the new wearable.

Apple needs to shape the story of the launch, before the launch. Samsung is a past master at this, but that open approach is the opposite to Apple’s normal approach to these things. Can Tim Cook find a middle ground to set expectations while still creating the air of suspense and the joy of the reveal that is Apple’s hallmark?

 

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(*) Estimating iPhone 5C sales is a bit tricky as Apple has not released a breakdown on 5C/5S sales. The April 2014 earnings call noted Apple had sold 43.7 million iPhones, split over the 5S, the 5C, and the 4S. If we were to apply the same ratio on these numbers as Seeking Alpha’s look at the Q4 2013 data (which handed the 5C 12.8 million sales of the 51 million iPhones sold), Q1 2014 saw 11.8 million iPhone 5Cs sold, giving a combined total of 24.6 million units.

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