On one hand, Apple has been very successful in maintaining the Average Selling Price (ASP) of its latest flagship handset offering by effectively implementing enhanced features. The attractiveness of these enhanced hardware and software features is key to stimulating sales of the latest handset while maintaining consistent pricing over time. Meanwhile, when a new model is introduced, the price of the previous handset in the line is reduced and thus offers a lower price point to attract more cost-conscious buyers. This is enabled by the component price erosion that allows this price reduction.
“Apple differentiates itself from its competitors by maintaining a mobile handset product portfolio that is limited to only two models at a time,” said Steve Mather, principal analyst, wireless, for iSuppli. “One model, the flagship, offers the latest and greatest features, while the second model is the previous lead model. In the most recent announcement of the iPhone 4, the iPhone 3G was retired and replaced by the iPhone 3G S at a $99 price point. In this way Apple modifies the typical approach to handset pricing by establishing a base level for its handset offerings—rather than pursuing the lowest price possible by aggressively reducing the cost and price of its handset over an extended period of time. ”
This approach also allows easier management of production and provides Apple higher leverage in sourcing.
This strategy has worked extremely well for Apple, allowing the company to rise to the No. 6 position in the overall handset market in the first quarter of 2010, up from ninth place in the fourth quarter of 2009.
Preserving the Ecosystem
Beyond spurring consumer interest, Apple’s annual iPhone updates serve to reinvigorate the technology ecosystem that is essential to maintaining the vitality of the product line.
“Every June, Apple releases a new and improved iPhone,” Mather observed. “We’re confident Apple will extend the platform again in June 2011. This consistent release schedule stokes the fire of ecosystem interest. Apps developers, content firms, accessories providers and technology suppliers are confident enough to commit for the future, which is not always possible with other OEMS given their variety of phones and models.”
The ecosystem’s confidence and the consistency of the product introduction are a subtle but important differentiator for Apple that has translated into enormous strength for the iPhone franchise.
The Human Touch
Beyond the high profits generated from iPhone sales, Apple’s continued participation in the smart phone hardware business allows the company to focus on a critical area in today’s technology industry: the Human Machine Interface (HMI) for mobile platforms. The latest development in this area is yesterday’s introduction of the iOS4 operating system.
“Apple’s combined expertise in hardware and software give it unparalleled insight into the mobile HMI,” Mather noted. “Consumers are ready to quickly adopt new Internet behaviors. And Apple’s storied history of integrating hardware and software solutions into a compelling end-to-end HMI experience makes the company uniquely suited for today’s changing wireless marketplace.”
Apple’s hardware acumen and HMI know-how are paving the way for the company to seize the next great opportunity in the wireless world: mobile ads.
“iOS4 represents the first real platform for monetizing mobile ads in a big way,” Mather said. Steve Jobs yesterday said that 70 percent of ad revenue goes to apps developers hosting the ads. “This will spur significant development on the ad front during the next 12 months. The potential for Apple is huge, with 10 ads per day running on 100 million platforms, yielding 1 billion opportunities daily.”