Apple Addresses Three Major Challenges With New iPhones

Apple iPhone 5S

Apple has launched two new devices – a high-end handset, the iPhone 5S, and a more affordable product, the iPhone 5C. Both devices run on iOS 7, the latest version of the operating system. Apple addresses three major challenges with these products.

First, the need to retain the current installed base of users that are slowly moving to products from other vendors attracted by better cameras, larger screens, different user interfaces, or new features.

Secondly, the need to attract the second wave of smartphone adopters in developed markets, who are reluctant to adopt a smartphone. And lastly, the need to address the huge opportunity that emerging markets represent, as they will become the biggest smartphone markets in the world, but where price is a major barrier to smartphone adoption.

Smartphone growth in developed markets has slowed in the last few quarters as they enter the second wave of adoption, while in emerging markets smartphones are at the beginning of the first wave of adoption. For instance, in the second quarter of 2013 the smartphone segment in Western Europe grew only 19% year on year and smartphones represented 75% of total shipments, while in APAC (excluding Japan) smartphones increased 75% from last year’s second quarter, with smartphones accounting for only 53% of the total mobile phones shipped.

In regions such as Western Europe, North America, and Japan the second wave will be driven by users who don’t need a smartphone but will not resist buying one as there will be no feature phones available to purchase in most stores. These users will, however, buy affordable handsets as they don’t see value for money in the most expensive smartphones.

Apple’s strong brand, premium design, the ease of use of iOS, and now a lower price will attract these users to the iPhone 5C. This handset will also be a major driver to consumers with a mid range LTE-enabled device, which is at the core of mobile operators’ strategies.

The iPhone 5C will also be a strategic product for Apple to grow in emerging markets. In APAC (excluding Japan), Apple only grabbed 6.1% of total smartphone shipments in 2Q13. IDC forecasts that smartphone shipments to this region will be close to 1 billion units by 2017 compared to the 500 million units estimated for 2013.

With attractive and more affordable products in this region, Apple will gain market share, but more importantly will be able to grow its installed base, which will translate into future upgrades and potential additional revenues for its iTunes content store, particularly music strongly emphasised in this launch event.

Lastly the iOS7 represents a major improvement from the previous version, giving current users a fresh user interface and an improved experience, particularly the new camera hardware and features. This is an area that consumers understand and value. Apple brings a better camera, sharper pictures, auto adjustments, auto stabilisation, burst mode, slow motion, etc. This closes the gap to competitors that have innovated and improved significantly in this area in the last 12 months.

Apple also brings biometrics to the consumers’ hands. The Touch ID is a feature that most users will find impressive and useful as everyone understands how annoying is to type a pin or password to unlock the phone, or how dangerous it can be having the personal information unprotected in case the phone is stolen or lost. And Apple got it right. Apple needs to continue the innovation in the high end where users are becoming more demanding and more knowledgeable of the different devices available from competitors.

For competitors these two devices represent a significant treat. The likes of HTC, Nokia, Sony or BlackBerry have positioned themselves in the mid range of the market, as they can’t compete with Apple and Samsung in the high end. However, as Apple moves now to lower price bands, the pressure in the mid range of the market will start to be felt.

The iPhone 5S is a major improvement from the iPhone 5 and a strong reason to upgrade as it brings a faster device and new features to end-users. The iPhone 5C will open new markets to Apple both in developed and emerging markets. And it will give users in those markets the change to experience the reasons why Apple is so successful.

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Francisco Jeronimo

Francisco Jeronimo joined IDC in June 2008 as research manager for European Mobile Devices. Based in London, he is primarily responsible for research that covers mobile handset trends across Europe. He is also responsible for the European Quarterly Mobile Phone Tracker program. Francisco has been working in the telecom industry for 10 years in countries such as Japan, Finland, and Portugal. Before joining IDC, Jeronimo was responsible for the mobile devices business of LG in Portugal, in particular developing the open market channel and the business with Vodafone. In Portugal, he worked with all the mobile operators and managed the distribution channel of the second-biggest wholesaler. He launched a mobile software development company and did project management and consultancy in mobility for several companies in different industries. Before that, in 1998, he started working for Nokia R&D Center in Japan and then in Finland. He has a master's degree in management from Oporto University in Portugal and is a postgraduate in sales management from Lisbon University with a major in telecoms. He is fluent in English, Spanish, and Portuguese.

  • Tony Cripps

    Even post-Jobs Apple still does great theatre, even if most of what was announced was unusually well-heralded in the blogosphere.

    Clearly there’s little need for gimmicks in the flagship 5S, in a launch replete with significant spec upgrades over and beyond the usual screen improvements. Apple, is certainly offering meaningful innovation here.

    Moving to a 64-bit architecture means Apple can genuinely claim to have brought something new to the smartphone party. It should certainly help the company further cement its lead as a mobile gaming platform and will give the Android fraternity something to think about in a space whose significance is sometimes downplayed beyond the gaming world.

    Ingratiating itself to the burgeoning community of health and fitness application developers with new sensors is also a good move by Apple at a time when consumer and professional interest in those categories are booming.

    Meanwhile the integrated capacitive fingerprint sensor will build legitimacy for the technology in mainstream consumer electronics, although privacy concerns are bound to raise their heads in these newly paranoid times.

    Anyone expecting Apple to come truly down market with the iPhone 5C was fooling themselves. The day that happens is the day the company signals that it has run out of headroom for expansion. It’s far from ready to concede that yet as it’s greater interest in Japan and China show, although the mooted tie up with China Mobile wasn’t announced as this comment was written.

    It does though indicate an acceptance that the consumers in the upper reaches of the smartphone mid-market are increasingly looking to distinctive devices of their own, and are not happy to accept cast offs or dumbed-down versions of former flagships.

    Colour variations and a clear design of its own is a good way to do this and clearly Apple isn’t too proud to follow its smartphone rivals in using this tactic. This change hasn’t affected Apple too much to date but would have represented a threat if the company hadn’t addressed the problem now – its once a year refresh can sometimes work against it.

    Tony Cripps
    Principal Device Analyst

  • Vince Arneja

    The latest iPhone presents new innovations in device security, if the rumours are to be believed, with a fingerprint scanner. This is certainly going to help protect users achieving more secure access to the physical device, but risks will still reside within the software perimeter.

    Certainly having a fingerprint scanner to access accounts would be more than ideal, however still key security considerations remain that require application layer protections from reverse engineering and tampering attacks.

    We analysed the top banking applications on both Android and iPhone and found that all of them are vulnerable to these emerging hacker attacks and insertion of malware exploits, essentially meaning cyber criminals can take a legitimate app, crack it open and insert malicious code, then repackage and redistribute. The issue therefore does not stop at securing the device, mobile apps still require protection before they are deployed.

    Vince Arneja
    Vice President of Product Management

  • Matthew Finnie

    The question isn’t whether biometric security makes the iPhone 5S enterprise ready. The reality is that the smartphone is now intrinsic to how people work, so it’s time for businesses to change.

    Rather than focusing on the security merits and nuances of the devices, attention should shift to how businesses should secure and control corporate data and make relevant parts securely accessible from anything, anywhere. Assume instead that employees live on the Internet and it is the job of the enterprise to make the corporation accessible to employees in their world – never the other way round.

    The resistance of many enterprises to smartphones has come from a mix of enterprise IT’s refusal to accept a changing world (their problem) and the very scary thought that their users could download any of the billions of apps outside of their control.

    Innovation is happening in a consumer driven world, not an enterprise led one. Smartphones make their way into the enterprise environment in the pockets of consumers, but have quickly become vital to the work done by enterprise IT users. If enterprises think controlling and securing that influx is about the company and its rules they are wrong.

    Matthew Finnie

  • Robert Rutherford

    In keeping with tradition, Apple has kept its cards close to its chest leading up to the release of iOS 7, but with the latest release it feels less like a marketing ploy than an attempt to hide the lack of genuine innovation.

    On the consumer side, the new OS’ facelift will no doubt divide opinion – and fuel the hype – but from a business perspective iOS 7 will leave the playing field wide open for competitors.

    In terms of innovation, Samsung, with its ‘smartwatch’ and tablet that recognises handwriting seems to be leading the way; in terms of business practicality, the suite of connected, high functioning Windows devices make some Apple products look like toys.

    Apple will remain a major name in consumer electronics but it’s doubtful that iOS 7 will help it claw back any territory in the corporate world.

    Robert Rutherford

  • Mark Ford

    Fresh new interface? Really? Have you looked at others recently? The design is looking very dated now and the new generation are moving away from Apple. They really needed to bring a fresh new perspective to their phone and they have failed miserably here. Perhaps time to confess your love of all things Apple so people can reset expectations when reading your articles. Fanboys I am not looking for. The comments below are much more balanced. Well done guys. Francisco, must try harder.