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Apple's 16GB IPhone 6S Is a Serious Strategic Mistake
HughPickens.com writes: Matthew Yglesias writes at Vox that Apple's recent announcement of an entry level iPhone 6S is a serious strategic mistake because it contains just 16GB of storage — an amount that was arguably too low even a couple of years back. According to Yglesias, the user experience of an under-equipped iPhone can be quite bad, and the iPhone 6S comes with features — like the ability to shoot ultra-HD video — that are going to fill up a 16GB phone in the blink of an eye. "It's not too hard to figure out what Apple is up to here," writes Yglesias. "Leaving the entry-level unit at 16GB of storage rather than 32GB drives higher profit margins in two ways. One, it reduces the cost of manufacturing the $649 phone, which increases profit margins on sales of the lowest-end model. Second, and arguably more important, it pushes a lot of people who might be happy with a 32GB phone to shell out $749 for the 64GB model."
But this raises the question of what purpose is served by Apple amassing more money anyhow. Apple pays out large (and growing) sums of cash to existing shareholders in the form of dividends and buybacks, but its enormous cash stockpile keeps remorselessly marching up toward $200 billion. "Killing the 16GB phone and replacing it with a 32GB model at the low end would obtain things money can't buy — satisfied customers, positive press coverage, goodwill, a reputation for true commitment to excellence, and a demonstrated focus on the long term. A company in Apple's enviable position ought to be pushing the envelop forward on what's considered an acceptable baseline for outfitting a modern digital device, not squeezing extra pennies out of customers for no real reason."
But this raises the question of what purpose is served by Apple amassing more money anyhow. Apple pays out large (and growing) sums of cash to existing shareholders in the form of dividends and buybacks, but its enormous cash stockpile keeps remorselessly marching up toward $200 billion. "Killing the 16GB phone and replacing it with a 32GB model at the low end would obtain things money can't buy — satisfied customers, positive press coverage, goodwill, a reputation for true commitment to excellence, and a demonstrated focus on the long term. A company in Apple's enviable position ought to be pushing the envelop forward on what's considered an acceptable baseline for outfitting a modern digital device, not squeezing extra pennies out of customers for no real reason."
Actually I see another reason to keep the base model at 16Gb. App development is crucial to the iPhone (and any other smartphone out there), and many developers don't like to do the extra work to keep their application sizes sane. However, as long as the base model is 16Gb, app developers need to keep this in mind when developing their apps.
If this encourages even only some developers to keep their applications down to a sensible size (knowing that anyone with a 16Gb device will either avoid their application, or delete it as soon as they run low on space) then I guess it's worth it.
I'm not saying the extra money in Apple's pocket isn't a factor, but I'm sure there are other factors at play here, this theory being just one of them.
-- Pete.
Monochrome - Probably the UK's largest internet BBS
I am still using an iPhone 4s and have never had a problem with storage since I don't fill it up with millions of games and I don't take lots of photos...
Just because it is not good for you or some people, doesn't mean that the cheaper option should not be available for those that really don't need the space.
I primarily use it for a "modem" link and for getting messages and checking messages and keeping connected....
"Leaving the entry-level unit at 16GB of storage rather than 32GB drives higher profit margins in two ways. One, it reduces the cost of manufacturing the $649 phone, which increases profit margins on sales of the lowest-end model. Second, and arguably more important, it pushes a lot of people who might be happy with a 32GB phone to shell out $749 for the 64GB model."
First you say it's a serious strategic mistake, then you give two perfectly (corporately) good strategic reasons for doing it. Make up your mind!
systemd is Roko's Basilisk.
"But this raises the question of what purpose is served by Apple amassing more money anyhow."
Fundamental misunderstanding of how the world works.
I personally don't think 16GB is enough, but the article is just an unsupported click-bait rant with no supporting evidence. "struck sour for even some of the company's biggest fans" - not just any fans, "biggest" fans. "But it suffers from some skepticism about its long-term prospects." - from the author no doubt. Having a 16GB phone is "... just a vague hedge against eventual future bankruptcy." WTF? How can you hedge against an "eventual" bankruptcy? "That's a somewhat understandable impulse for an incredibly successful company that actually experienced a near-bankruptcy back in the late 1990s." Yep, they're acting on "impulse". Can't even be specific about the date - sometime back in the... 1990s? A thoroughly researched article with a well reasoned and persuasive argument.
There's no monopoly for Apple to keep, and never has been. Apple has less than 20% of the market for smartphones which is dominated by the various Android manufacturers and isn't even the largest single player overall by many accounts (that would be Samsung), with several other major players and very long tail of also rans. I'd say the smartphone handset market is actually pretty healthy and competetive at present, the smartphone OS market not so much, but there's still a reasonable choice with nice hardware on several platforms. It's a similar situation for tablets, and in pretty much every other market they are currently in Apple is essentially an also-ran in terms of market share - definitely no monopolies.
What Apple does have though is a disproportionate amount of media coverage (both paid for advertising and articles), so perhaps that's skewing peoples perspectives?
UNIX? They're not even circumcised! Savages!
I think Apple understands that one day it will be Microsoft, or IBM -- behind the curve in some new area that seems all-important, and needing a big warchest to sustain the years of decline and mis-steps while they figure out what to do.
> When is Apple gonna wake up from the reality distortion field and make a product that makes technical sense.
When they stop being the largest and most profitable company in all of recorded history, with the number 1, 2 and 7 best selling phones on the planet?
Duh.
One problem is not Apple offering a 16GB iPhone, it is that those who want more must pay 20 times Apple's cost.
Your cost analysis isn't a useful one though I think I understand the point you are trying to make. Apple has gross profit margins around 40% and around 56% of their revenue comes from the iPhone. Gross profit is revenue minus cost of goods sold and is a crude measure of the raw profitability of a product before you pile on the costs of running the company and selling the product. While Apple doesn't break out their numbers for cost of goods sold for the iPhone line, it's not hard to prove that even if everyone were to buy the more expensive product, Apple doesn't receive anywhere close to a 20X bump in gross margins. The marginal profits received from the more expensive models is meaningful but it's not an improvement to the degree you are implying.
(Disclosure, I'm a certified accountant in my day job - among other things)
Steve Jobs did everything necessary to positioning Apple products at the top.
They position their brand near the top but not always the products themselves. Apple often starts their products at or near the top of the market but they routinely sell products that are no where near the top of the market. In phones and tablets and ipods this is simply their older models which they continue to sell. In PCs they sell computers that are designed for market tiers below the top. I have a Mac Mini myself that even when it was first introduced was no where near state of the art and wasn't designed to be. Apple HAS to provide products that aren't at the top of the market because if they didn't their competitors could easily undercut them from the bottom end of the market. Apple doesn't want to compete on price alone but they cannot ignore lower tier market segments.
Offering a new model of iPhone with only 16GB is a sure way to get negative comments, and it did.
Only by people who wouldn't buy one anyway. The 16GB model is probably not intended for you. It is intended for people like my Dad who uses about 3 apps and doesn't take a meaningful amount of photos or video and isn't trying to store a Library of Congress worth of music on his phone. He uses less that 8GB of storage on his phone and that isn't likely to change. Providing a 32GB model would cost Apple money and really only benefits a relatively tiny group of users who happen to need more than 16GB but less than 32GB. I'm pretty sure Apple has done the research and if a 32GB unit would result in them selling more units then they would make one. I am certain that there is a very large group of users like my father who want the basic features of an iPhone but simply don't use much storage.