Two brilliant moves that helped create the Apple iOS powerhouse

http://daltoncaldwell.com/2-brilliant-moves-created-apple-ios

by dalton • 14 years ago

100 49 14 years ago

daltoncaldwell.com

danielamitay• 14 years ago

Move #2 is really big at the moment. Apple is still able to create market segmentation with it's 3-year old device.

As of last quarter, the top selling smart phones [1]:

1. iPhone 4S

2. iPhone 4

3. iPhone 3GS

4. Samsung GALAXY S II

5. Samsung GALAXY S 4G

[1] https://www.npd.com/wps/portal/npd/us/news/pressreleases/pr_...

brazzy2• 14 years ago

Um... where exactly can one get previous iPhone models for $99 or $0? I recently paid EUR 200 for an iPhone 3G (not S) on ebay.

No, plan-subsidized prices do not count.

It may be true and a great idea that Apple does market segmentation by keeping to sell older models, but it is very limited. They're only segmenting the upper end of the market.

Which may eventually bite them when cheap Android phones become affordable to billions of people in the 3rd world.

zaptheimpaler2• 14 years ago

Why don't plan-subsidized prices count? As long as we're comparing iPhones on plans, I see no reason not to count them. The article compared the $0/$99 iPhones on a plan to $0/$99 Androids on a plan.

I think you have a valid point about segmenting only the upper end of the market though. Apple has always catered more to the upper end than anything else, but it works for them. Segmenting this end of the market is still a very lucrative proposition for them. Also, the fact that the top selling smartphone in the US is the iPhone meaning they're currently able to cater to the whole of the smartphone market very effectively, not just the upper end.

I agree this isn't a good strategy when the 3rd world countries start going strong on smartphones, but that doesn't mean it's not a good strategy now. Perhaps when that happens they will fundamentally have to shift their focus from catering only to the upper end of the market to a broader one, but I don't think that will happen soon enough for them to change their strategy now.

jerguismi2• 14 years ago

I guess there can be so many different plans, and I have no idea what kind of plans do you have in US. It makes more sense comparing the actual device prices than some plans.

bosie• 14 years ago

because plan-subsidized prices depend on the negotiator, i suppose?

the network company i am currently with offers a plan for the iphone/android cellphones too. i can get the Samsung Galaxy Note or HTC One X for the same price/same contract as an iPhone 4.

I am not sure i would say "inexplicably runs Android 2.2, looks like a Hummer, & has 3 hours of battery life" about either the Samsung Galaxy Note or the HTC One X.

edit: and since i pay around EUR 6,00 per month for my mobile telecommunication needs (EUR 4,00 for internet, rest for voice, EUR 0,00 for text), I am not sure I care about plan-subsidized phones either (unless they are attached to a EUR 5,00 plan).

nextparadigms• 14 years ago

You're not taking into account plan prices. All three iPhones come with a $70 plan, right? Well even the "free" Android phones can come with plan prices of $20. I don't know how much of a big deal that is in USA, but in the rest of the world it's a huge deal. Almost nobody has plans than go over $20-$30, except maybe in UK.

justincormack• 14 years ago

I think you overpaid, at least based on uk used prices, thats more like a high 3gs here, a 3g should be cheaper. But. Apple does sell for more, the segmentation from the second hand market is important for them too. Still not cheap, although some people misprice plan subsidies.

brazzy2• 14 years ago

Well, to be exact it was EUR 185 + shipping, and about 5 months ago.

av500• 14 years ago

Minor nit: The Archos mp3 players required no desktop software at all, they appeared as a USB mass storage device and you could just copy your files over - for me still the preferred way over any other "music sync" solution...

raverbashing• 14 years ago

Correct. Most mp3 players work that way

But of course, in "corporate" they are going to require a "user friendly solution"

It (was) usually a VB program done by people with no UX talent, on a budget an a short timeframe and with no testing as well. Also they make file copies take magically 3x as much time than copying using Windows explorer.

Not to mention iTunes is a better solution, because it's your music library integrated with syncing. It's different for example than having one program to sync and another to listen. (Similar solutions like Amarok + iPod plugin work great as well)

antidaily• 14 years ago

The Jukebox was a great device. The Rio Carbon was also smaller and better than the iPod at the time. Then the Mini came out.

jerguismi2• 14 years ago

"Getting back to Apple, right now you can go out and “buy” the flagship iPhone that was originally released 3 years ago for $0 (or the one released 2 years ago for $99) -OR- you can get an entry-level Phantek Astroglide which inexplicably runs Android 2.2, looks like a Hummer, & has 3 hours of battery life."

Are those like real prices, or are they contracts? I hate when people quote prices that are actually tied to some kind of contracts. It doesn't make any sense to compare those numbers.

(I always get my phone and contract separately)

praxulus2• 14 years ago

>It doesn't make any sense to compare those numbers

Well, it's a valid comparison, since it's apples to apples. Even the numbers themselves can be considered valid, given that a large portion of American mobile customers get their phones with their contracts.

DougBTX• 14 years ago

At least in the UK, the price of the contract depends on the phone. SIM-only contracts are also available, which will be even cheaper each month. The only number which will give an apples-to-apples comparison is the total cost (initial cost + monthly cost * contract length). Some people seem to say that monthly cost and contract length are fixed in the US, making the initial cost the only variable, but I find that hard to believe.

dagw• 14 years ago

Is there only one "contract" in the US? Don't you also need to know the monthly cost and exact details of the contract you are tied into?

ubernostrum• 14 years ago

There are certain topics which, whenever they come up, really just need to have an automatic disclaimer of "yes, we know that" to deter automatic replies people will always post.

* Anything that mentions regex needs to have an automatic disclaimer of "yes, you know the formal mathematical definition of regular expression and how it differs from what most programming languages now offer, good for you".

* Anything that mentions SQL needs to have an automatic disclaimer of "yes, you know that Database X isn't really relational according to a strict interpretation, good for you".

etc., etc.

Any article which discusses mobile phone pricing similarly needs to have a "yes, you noticed that it talked about contract-subsidized prices, good for you".

Because, to be perfectly honest, such comments add not one good goddamned bit of insight or information to the discussion (as here, where subsidized iOS phone prices were compared to subsidized Android phone prices, which is roughly as fair a comparison as one can get of how up-front cheaply such phones can be acquired), and typically are just restating something most readers already know.

zaptheimpaler2• 14 years ago

YES! We need to get one of these disclaimers so we can stop the endless stream of needlessly pedantic comments that contribute nothing to the discussion. Of course, given the volume of those comments on HN, it would be a long, long disclaimer.

And we'd have to make sure to restrict pedantic comments trying to find workarounds to the disclaimer (by taking overly literal and meaningless interpretations of them of course) to one giant pedantic orgy thread.

In all seriousness though, I see this happening on every sufficiently busy thread on HN, it's annoying. It's not all bad though, as that kind of attention to detail is sometimes also what facilitates insightful discussions on the threads.

stephengillie• 14 years ago

One of my college professors discussed the business strategy in keeping iPods locked-in to Apple PCs at first, and later opening the device up to Windows users.

Early adopters were buying a device that wouldn't work with their current PCs, and many ambivalent Windows users started buying Macs. They didn't see it this way, but they bought into the Apple ecosystem.

For many people, longer they live in the Apple ecosystem, the more difficult it is to leave - your non-Apple device looks different, feels different, acts different[1], and won't dock in music players or anything else, and needs a different charging/data cable. It's an eyesore like having a yellow door on your black car. For the large fraction of the population that values image, this is unacceptable, and Windows is equivalent OSX for most computing needs. The iPod served to funnel this group into this ecosystem.

After they had acquired most of the users who would willingly switch, Apple removed the lock-in to allow more users to purchase their device. This allowed both device and software (app+MP3) sales to continue to people less willing to switch from Windows.

In effect, it's also time-delayed way of creating different price points - early adopters had to pay extra to purchase a Mac, but later adopters saved that money.

[1]Unless it's a Samsung Galaxy Nexus?

Hoff• 14 years ago

iTunes first supported an Apple iPod and also first supported OS X in October of 2001.

A version of iTunes arrived on Windows 2000 and Windows XP in October of 2003; two years. (October 2003 also saw the announcement of Panther, 10.3.)

Prior to the availability of iTunes on Windows, MusicMatch Jukebox was commonly used with Windows, and that package was included with various iPod devices.

The general market acceptance of OS X didn't really get rolling until the Intel port, and that was announced during the 2005 WWDC. (I don't have that plot handy; that's from memory.)

Here's a plot of iPod sales, and note the sales trend and the years: http://www.macobserver.com/tmo/article/charting_apples_growt...

For more plots on sales of iPod and Mac devices (as well as iPad and iPhone), see the Asymco site. Here's one of the many available plots: http://www.asymco.com/2011/07/26/apple-has-moved-on/

And in a business, recognize too that Apple would have been foolish to constrain the potential sales of their then-new iPod product (and now iPhone and iPad) from the volume computing market, and that market was and remains Windows. And first with MusicMatch Jukebox and later with iTunes, they didn't. And they still don't. Their statements and their history of intentional self-cannibalization among their products points to this, too.

And in general, always question what your professors tell you. Always. That's part of what college is supposed to teach students, even if your individual professors don't or won't.

MBCook• 14 years ago

Remember that the early iPods used FireWire, something that the vast majority of PCs at the time didn't have. If they did have a FireWire port, many had the tiny 4 pin connector without power that Sony would refer to as iLink.

There was a market for Windows users to use the iPod, you knew that because there was software out there for it. You could go down to CompUSA or Microcenter and buy a boxed piece of software for $60 or so that would do all the syncing. All you had to do was provide an iPod and FireWire. There were a lot of people (at least gadget nerds) who were really interested in the device despite the difficulty of using it unsupported. I doubt more than a handful of people purchased a Mac just for an iPod, since ~$150 in software and hardware would let you use the 1st gen with Windows.

The iPod that was released with Windows compatibility was the first one to support USB, which was a necessity in the Windows world. If they had tried to sell to Windows users with only FireWire, I think the reaction would have been pretty bad.

shalmanese2• 14 years ago

I disagree that #2 is necessarily smart, Apple is doing it because they have no other choice. They don't have a low end competitor to bring into the market and so their previous high end device has to fill that role.

The needs of a high end consumer 3 years ago is different from the needs of a low end consumer today and different technologies age at different rates. The iPhone 3GS is still using a 65nm processor which means it's using almost twice as much silicon for the same number of transistors as an iPad 2, driving up cost. At the same time, features introduced into later phones like better cameras or the gyroscope would probably be worthwhile even in a low end phone.

Additionally, high end finishings like steel and glass might be attractive to a high end consumer but low end consumers would rather take the cost savings from using plastics.

At the same price point, the iPhone 3GS is not at all competitive hardware wise with modern low end phones. The only reasons they sell so well are because a) They grant exclusive access to the iOS ecosystem which trumps performance issues and b) the modern American way of pricing phones confuses most consumers. If the phones were priced at $649, $549 & $449, a lot more consumers wouldn't find a 30% discount for 2 year old technology that good a deal.

oemera4• 14 years ago

I strongly disagree. A phone which was mind blowing awesome this year will be pretty good next year and for a lot people attractive even after two years because you have decent hardware and the latest software. If you buy an low budget model Android phone, you get the Android version which was released 4 years ago. I think no one would buy an 3 GS at this point if Apple would sell it with iOS 3.

A lot of my friends have a iPhone 3 GS and they are happy with it and see no need to change. It's not the same with Android low-end models.

Please don't get me wrong I don't want to bash Android here but I want to make how smart this decision was / is. People are buying the old hardware ( which was awesome) and getting it with new the software for a good price.

Maybe I should also point out that people have also seen the same product last year and friends using it. Think about it. Would you buy a new phone which just came out as low-end model or would you buy the product from last year for a better price? Apple shows that the second choice wins.

watmough2• 14 years ago

Interestingly, the original iPhone 4 is a more attractive device than the iPhone 4S because it doesn't rattle when you put it down.

I can't believe that slipped though. It's a blot on the impression of the iPhone 4S as a solid thing.

shalmanese2• 14 years ago

The Android clusterfuck is a completely orthogonal issue to whether last year's high end model makes for a good this year's low end model. For $450, it should be perfectly possible to build a faster phone, running current software with a better screen and better battery life than the 3GS.

In fact, I wouldn't be surprised at all if the 3GS processor is costing Apple more at this point than the 4 processor due to a larger die size and outside licensing fees. Paying more for a worse processor is something that you would never do if you just built a low end phone from scratch.

edit: For example, the Samsung Galaxy Nexus (http://www.amazon.com/Samsung-GT-i9250-Smartphone-Touchscree...) is $450, is running Android 4.0, has twice the Mhz, twice the storage, 3x the resolution and 1.6 times the camera megapixels, all for the same price.

justinschuh• 14 years ago

I strongly disagree. I bought a discounted iPhone 3 when the 3gs was first released. Within a year my phone was pretty worthless, because the iOS 4 updates made it so interminably slow that I stopped using it as anything other than a dumb phone (which it was never great at anyway). And, of course, I still had a full year left on a two-year contract at that point, so I was not a happy customer. Maybe the situation is better from the 3gs onward, but it sucked for me.

Tloewald• 14 years ago

I just looked at a random "free" android and compared it spec wise to a 3GS and, leaving aside the fact that the Android was on 2.2, the 3GS is ahead on storage and behind on MHz (probably a wash on performance) and camera MP.

I'd say that overall the 3GS looks like a better deal.

Sure, pricing is confusing but that cuts both ways.

nicholassmith• 14 years ago

I think number 2 nails it. Apple doesn't do low end, they've never needed to compete in the area as it's not their dog show. However there's a market, there's people who dearly love the iPhone but can't justify the full price device, or kids or someone who's transitioning to their first smart device.

So Apple has a situation. Go low end and basically go against the corporate ethic, or allow Moore's Law to let them price the previous generation down so they're still making a profit but allows them to fight at a lower price point. And that's smart, as it covers the bases, and that's what Cook has brought to the table.

welp2• 14 years ago

Regarding #1: "Taking their beautiful hardware and subjecting it to Windows users must have been controversial inside of the company. It just didn't seem like something Jobs would do." -- Having read Jobs' biography, it wasn't something he would do: he argued against it, and even said that Windows users could use iPods "over my dead body." However, business sense prevailed, and Jobs realised that it made sense to open up the iPod world to Windows users.

Jobs was a proponent of porting iTunes to Windows, but Schiller didn't want this. As a result, Apple joined leagues with MusicMatch, and they made a music player, but Jobs said it was a terrible piece of software:

"To make the iPod work on PCs, we initially partnered with another company that had a jukebox, gave them the secret sauce to connect to the iPod, and they did a crappy job. That was the worse of all worlds, because this other company was controlling a big piece of the user experience. So we lived with this crappy outside jukebox for about six months, and then we finally got iTunes written for Windows. In the end, you just don't want someone else to control a big part of the user experience. People may disagree with me, but I am pretty consistent about that."

So Caldwell appears to be right in both points: it was understood that it would bring a lot of value back to Apple, but it also took a lot of smart people to convince Jobs to let it happen.

jiggy2011• 14 years ago

It seems like it would have been an odd decision to keep the iPod locked to the mac. Either they assumed that it would stay a niche product that would only appeal to apple fans and gadget freaks. Or they really thought that people would throw out their PCs and get Macs just to use the MP3 player. Bear in mind that this was the time before Intel Macs , so getting one instead of a PC would greatly restrict your software choices.

joezydeco• 14 years ago

However, business sense prevailed, and Jobs realised that it made sense to open up the iPod world to Windows users.

Here's the Jobs quote from the biography:

"'Screw it,' he said at one meeting where they showed him the analysis. 'I'm sick of listening to you assholes. Go do whatever the hell you want.'"

I don't think Jobs should get any credit for the iTunes/Windows port. It's for the people that finally managed to wear Steve down and get the decision made.

welp2• 14 years ago

It was my impression that that was Jobs' way of backing down and admitting that others are right. But I may well have misinterpreted that.

speg• 14 years ago

#2 is the reason why we'll be getting my Mother an iPad (2). She wouldn't appreciate the high resolution screen, so we'll save a few bucks and she can still FaceTime the kids.

ben1040• 14 years ago

Also, it seems Apple enhanced last year's iPad; new ones are starting to show up with a newer 32nm CPU with better battery life:

http://www.anandtech.com/show/5789/the-ipad-24-review-32nm-a...

15-30% more battery life is nothing to sneeze at, and certainly seems like they are committed to still selling as many of "last year's model" as they can.

mwsherman• 14 years ago

Moore’s-Law-as-segmentation is not driven by manufacturing ease, though it certainly benefits from that. Rather, it’s much easier to explain to new customers.

They could introduce three new models a year (high-mid-low) and spend months advertising what they are. Or, they could introduce one new model a year, and market that.

Brand new, but low-end, customers already know the product because it’s been in the market for a year or more.

Two brilliant moves that helped create the Apple iOS powerhouse

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