Apple and emerging markets

iPhone 5C

More than a few people seem to be confused about the pricing strategy for the iPhone 5C. There are probably only two articles you need to read about that: John Gruber’s Thoughts and Observations on Today’s iPhone 5C and 5S Introduction, and Ben Thompson’s The iPhone is Apple Doubling-Down On What It Does Best.

But even those articles don’t address a complaint that I’ve seen quite a bit of over the past couple of days: that Apple is trying (and failing) to expand into emerging markets. Here’s an example from a bizarre Memeburn article called Dear Apple, don’t try to be Nokia:

…the iPhone 5C — supposedly targeted at the emerging markets and presented as a low-cost device…

And tweets like this are everywhere:

It’s important to point out a few things here.

First, everything flows from the pricing strategy, and the only people calling the 5C a “cheap iPhone” are tech bloggers. It’s not a cheap iPhone. It’s an iPhone that replaces the previous strategy of selling last year’s model at a slightly cheaper price. As Gruber points out:

The prices of the iPhone tiers remain the same as last year. What changes with the 5C is that the middle tier is suddenly more appealing, and has a brand of its own that Apple can promote apart from the flagship 5S.

Second, the vast majority of mobile connections in emerging markets are pre-paid, not contract-based. For example, in Africa 96% of connections are pre-paid (source). This means that in emerging markets people buy phones that aren’t subsidized. The cheapest iPhone 5C costs $549 off-contract. This makes it a virtually unattainable phone in the pre-paid emerging market.

Here’s the thing though: does anyone think Apple doesn’t know this? Is the assumption that Apple is trying to break into the emerging market with a $549 phone? That would be insane, right? But that’s not what Apple is doing at all, and they never said that they are.

The iPhone 5C is not about expanding Apple’s share in emerging markets. It’s about increasing their share of the high-end phone market, while simultaneously increasing their profit margins on those phones because of cheaper manufacturing costs.

So, yes. The iPhone is still too expensive for most of the emerging market. But Apple doesn’t need the emerging market to be insanely successful. They just need to keep selling a ton of phones in subsidized markets at a healthy profit margin. And that’s exactly what the iPhone 5C will accomplish.