Apple Announces Colorful New iPhone 5c, Starting at $99 on Two-Year Contract

[Eidorian]

Nothing is stopping you from buying a 5S. Apple will be thrilled if you do. Heck, I even think that's part of the point. This is a beautiful example of product differentiation in luxury goods (despite claims to the contrary, this stuff is still nowhere near commodity economics). All I'm saying is that a ton of people will find the 5C attractive. You get the same screen and power as the top-of-the-line from two days ago at half the cost (subsidized), or $100 less unsubsidized. Really, what's to complain about? I don't get it.

Smartphones are commodity electronics. Though I am not going to solely place blame on Apple for the outrageous prices on their phone. Many other vendors have +US$600 flagship phones but it is still possible to obtain another model for much less.

I draw the line at US$299 and I'm not even part of the emerging market. It's just a phone.

 

[john123]

Smartphones are commodity electronics. Though I am not going to solely place blame on Apple for the outrageous prices on their phone. Many other vendors have +US$600 flagship phones but it is still possible to obtain another model for much less.

I draw the line at US$299 and I'm not even part of the emerging market. It's just a phone.

Sorry, but that's you. That's like arguing that cars are commodities. Some are, and some are not. You're lumping too many products under the term "smartphones". In economics, the word "commodity" has a very specific meaning. Examples include petroleum, gold, and of course, frozen concentrated orange juice. It doesn't apply here in the slightest.

 

[Eidorian]

Sorry, but that's you. That's like arguing that cars are commodities. Some are, and some are not. You're lumping too many products under the term "smartphones". In economics, the word "commodity" has a very specific meaning. Examples include petroleum, gold, and of course, frozen concentrated orange juice. It doesn't apply here in the slightest.

Would you please expand upon this?

 

[Lancetx]

My only issue with the 5c at all is that I simply think it's priced $100 too high for what it is. They should have had a 16GB model only and it should have been priced free on contract and/or $449 contract free.

I'm almost wondering if by the first quarter of 2014 that will be precisely what the 5c will be priced at. Apple cut the price of the original iPhone in 2007 by $200 after just 2 months, so it's not like a reduction would be unprecedented.

 

[RTT]

I would be very surprised if Apple did not do some market research and a costing exercise before deciding to produce and sell a product.

Everybody has assumed that Apple were making a 'cheap' phone, but did Apple say so.

 

[Eidorian]

I would be very surprised if Apple did not do some market research and a costing exercise before deciding to produce and sell a product.

Everybody has assumed that Apple were making a 'cheap' phone, but did Apple say so.

Apple never revealed the true intentions behind the iPhone 5C. It's not for emerging markets and just appears to cannibalize iPhone 5S sales. Then again we've said this for years about Apple products.

 

[john123]

Would you please expand upon this?

Sure. I hate to use definitions from Wikipedia since they tend to be imprecise, but in the interest of readability, I'll use theirs for commodity (emphasis added).

The more specific meaning of the term commodity is applied to goods only. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them.

Where smartphones don't qualify as commodities is the fact that the market doesn't treat them as equivalent. In other words, the fungibility criterion isn't met. Certainly, the increased competition combined with the decrease in brand dominance means that there is commoditization going on in the industry. But there are enough niches in the market that are substantial in size that we're not even close to running that down. You have die-hard Apple and Android and BlackBerry fans, for starters. You also have a significant "status" effect in technology that comes from people wanting to have the latest and greatest. In fact, there is a type of goods known as "Giffen goods" in which the higher the price, the more people seem to want it. This isn't really at play so much, but it's the most extreme example of the "status" concept at work.

So what's the implication? Simply put, Apple can still get away with some degree of murder, albeit not nearly to the extent they used to. But it's the reason why the 5C is a brilliant business play. They can do the same thing they've done for the last several years (i.e., reduce the price of the previous model by $100), but by introducing a new model that has the same functionality but can be produced at lower cost, they're able to deal with the margin erosion problem that these devices created. I'm sure the analysts will do tear-downs very soon, and we'll get a good estimate of just how much Apple is likely saving over the production cost of the regular iPhone 5, but I have to imagine it's significant. And for a company that's gotten a stock beat down, and the #1 reason for that is margin erosion (sales have actually remained steady or ticked upward), that's a very good thing for them.

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My only issue with the 5c at all is that I simply think it's priced $100 too high for what it is. They should have had a 16GB model only and it should have been priced free on contract and/or $449 contract free.

I'm almost wondering if by the first quarter of 2014 that will be precisely what the 5c will be priced at. Apple cut the price of the original iPhone in 2007 by $200 after just 2 months, so it's not like a reduction would be unprecedented.

That's very possible on #2.

On #1, it's an iPhone 5 replacement, but a little less sexy (so as not to cannibalize 5S sales). I think the price is "right", especially given the subsidized pricing.

 

[Eidorian]

Sure. I hate to use definitions from Wikipedia since they tend to be imprecise, but in the interest of readability, I'll use theirs for commodity (emphasis added).

The more specific meaning of the term commodity is applied to goods only. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them.

Where smartphones don't qualify as commodities is the fact that the market doesn't treat them as equivalent. In other words, the fungibility criterion isn't met. Certainly, the increased competition combined with the decrease in brand dominance means that there is commoditization going on in the industry. But there are enough niches in the market that are substantial in size that we're not even close to running that down. You have die-hard Apple and Android and BlackBerry fans, for starters. You also have a significant "status" effect in technology that comes from people wanting to have the latest and greatest. In fact, there is a type of goods known as "Giffen goods" in which the higher the price, the more people seem to want it. This isn't really at play so much, but it's the most extreme example of the "status" concept at work.

So what's the implication? Simply put, Apple can still get away with some degree of murder, albeit not nearly to the extent they used to. But it's the reason why the 5C is a brilliant business play. They can do the same thing they've done for the last several years (i.e., reduce the price of the previous model by $100), but by introducing a new model that has the same functionality but can be produced at lower cost, they're able to deal with the margin erosion problem that these devices created. I'm sure the analysts will do tear-downs very soon, and we'll get a good estimate of just how much Apple is likely saving over the production cost of the regular iPhone 5, but I have to imagine it's significant. And for a company that's gotten a stock beat down, and the #1 reason for that is margin erosion (sales have actually remained steady or ticked upward), that's a very good thing for them.

Thanks, it looks like we agree more than I expected. My poor choice of words. I'll be waiting for that tear down as well.

 

[john123]

$100 is a big deal for those who are unable to understand the total cost of the phone including the 2 year contract and the second hand value of it.

Maybe it says something about the state of education in the low taxed unregulated US?

Edit: Or maybe it says something about the low wages in the US?

Hey Aaron, before you make snarky remarks about education, maybe you should go back to economics class yourself.

The price of the contract is, basically, a fixed or sunk cost. Either way you look at it, when doing economic analysis, a fundamental rule is that you never factor sunk costs into your short-run economics calculations.

The price of getting a basic smartphone, or whatever the minimum you'd possibly be willing to accept, is also a fixed cost. So the only thing that matters is the marginal cost versus the marginal utility. That's an individual calculus and is affected by preferences for wealth now versus later, risk aversion, utility attached to those features, opportunity cost of that money, and a whole bunch of other stuff.

Got it?

Signed,
John, a.k.a. the guy who still says "$100 matters", a.k.a. just a lowly Ivy League economics graduate here in the "low taxed unregulated US"

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Everyone is complaining about the price. No one knew the price before yesterday.

I believe it's the minority that believe the price is right.

If by "everyone" you mean the majority of people in this thread, then sure.

I've done numbers crunching for a very long time. I'm quite confident that when "everyone" has spoken—with their pocketbooks—you'll see substantial 5C sales. But I suppose we'll have to wait for sales numbers to confirm that.

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So for someone that doesn't own an iPhone yet...and my contract is up so time to upgrade...do I want the free 4s or the 5c? I've read the comments here and I fit the bill of a young mom and I do love the colors. Don't need manly here. I can do the extra $100 for the 5s, but is it necessary? The fingerpad lock doesn't do a darn thing for me.

Hi mommabean—looks like a lot of people are telling you what they would do, rather than advising you on your specific situation.

To answer the question you posed, I don't think the 5S is "necessary" at all. I think the real questions are:
• I know you said you "can" do the extra $100, but does the incremental $100 matter to you now very much? You'll likely get most of it back on resale.
• The biggest advantage I see isn't the fingerprint sensor but rather the improved camera—if you use that for taking pictures of your kids and such.
• One argument for the 5C is your kids. That plastic is probably more durable. I don't know if you intend to get a protective case for your phone (I always do), but that's a consideration that's specific to your situation. It also negates the colors issue too, since you can get a case in just about any color you want.

Hope that's somewhat helpful food for thought!

 

[Swordylove]

The 5C case is really an SMH fail.

I mean... Apple... these guys are (were?) so OCD (in a good way) that they don't want to let screws and stickers on their product exteriors, yet they allow this to happen.

Also, who cares about the price on contract? Might as well sell a $0 iPhone with a 2-year contract (that costs a total of $4800)

/endrant

 

[Gigaman]

At first I thought: It'll be low cost, that'll change things up. And then it wasn't free off contract.

Then I saw the changes and thought: Ah, so it's like a new iPhone 5. And- wait, why'd they change it again??

I only see this appealing to the people who buy android devices. Change for the sake of change, no matter how small it is.

 

[john123]

At first I thought: It'll be low cost, that'll change things up. And then it wasn't free off contract.

Then I saw the changes and thought: Ah, so it's like a new iPhone 5. And- wait, why'd they change it again??

I only see this appealing to the people who buy android devices. Change for the sake of change, no matter how small it is.

You're forgetting about shareholders. A device with the same functionality that is less expensive to manufacture is a win-win for the company and its shareholders.

 

[Kensai]

Apparently like the attention you put into your spelling.

Apparently I am not a native English speaker and I don't try to sell you a product.