[hugh]

Apple Inc. is working on the first of a new line of less-expensive iPhones and an overhaul of software services for the devices, people familiar with the matter said, moving to accelerate sales of its smartphones amid growing competition.

Notes:

The new phone—one of its code names is N97—would be available to carriers at about half the price of the main iPhones.

Apple also looking at making MobileMe service free

 

[TorontoColin]

The N97 codename is interesting. I wonder if it is in any way related to the recent Nokia smartphone by the same name.

It's about time they released a lower end model. Apple is passing on a lot of money by not doing so, and they're clearly comfortable with scaling models with their iPods.

 

[jvincent]

I can see the less expensive part but making a smaller iPhone doesn't make sense to me. Most people will have a hard time with a touch screen smaller than the current one.

 

[stampeder]

The same product strategy was used successfully with the iPod: iPod shuffle, iPod mini, iPod touch, iPod nano, so this is already in Apple's DNA and will work well for them with the iPhone. Each iPhone product would be a step up/step down from the others.

 

[scrooloose]

Perhaps by smaller they just mean slimmer and lighter.

-Mike

 

[jvincent]

Slimmer and lighter would be OK, assuming it's not too fragile.

The shuffle/mini/nano paradigm doesn't hold for a smartphone IMHO. I would (and have) argued that for a touch phone the current size of the iPhone 4/HTC Desire is ideal. Small enough for a pocket but big enough that you can still type.

If it get's any smaller our fingers will need to go on diets.

 

[BGY11]

Agreed with jvincent. I couldn't imagine typing on a touchscreen smaller than an IPhone display; even with a good autocorrect system in place.

 

[Jase88]

Developing nations want to get in on the Apple fun as well....it's about time.

 

[TorontoColin]

I could see something with specs like an iPhone 3G (including the 3.5 in but lower resolution screen) but with everything around the screen shrunk down as the components can be made cheaper, smaller, and more efficient.

 

[Gino Cerullo]

Geez, not this again.

For all the same reasons Microsoft failed with the KIN this will fail also. I don't think Apple is that clueless.

First, Apple doesn't give a rats behind about market share, they care about profit. So, for the same reason they don't make $500 laptops only to turn a $50 profit they won't make $200 phones only to make $20 profit. And if you think that it is even possible to make more than that on the phone you have nowhere further than to look at the price of the iPod Nano 8 GB. It costs $149.

Now, compared to the iPod Nano, a device with at least 3-times the screen size, the addition of a cellular chip, Wi-Fi, Bluetooth and a larger battery, it's going to cost at least three times as much.

Apple already sells a cheap iPhone. It's the previous generation hardware with 8 GB of memory sold on contract for $99. People are not going to pay $200 for the privilege of owning an cramped, unlocked iPhone. Believe me, at 1/3 the size it will be cramped. And even if they could get it on contract for free. It's the data plan that will kill this just like it killed the Microsoft KIN.

If Apple releases this, I swear I will eat yellow snow.

 

[Jase88]

You don't have an understanding of the Apple business model with regards to wireless devices.

Apple doesn't make money off the iphone hardware. They take a cut of the monthly fees for data, as well as their cut from software sales.

 

[TorontoColin]

LG has managed to release a variant of it's well-reviewed Optimus One Android phone with a 3.2 in screen on numerous carriers and price it around $200 off-contract. If LG can do that then surely Apple can. Consider that Apple would be almost guaranteed to sell more of these than LG, they would not require the numerous minor variations in design and software, and they have their own retail outlets already established. If LG can make profit selling theirs at $200 each, imagine Apple's profits at $250 with higher margins and lower overhead.

Not to mention that they would sell a ton more apps and build their own ecosystem.

 

[Gino Cerullo]

Jase88, that might have been true with AT&T when they had an exclusive contract but I doubt it is true today now that the exclusivity is over. And, I doubt it is true anywhere else there isn't an exclusivity contract which is most markets.

As for making money on content sales you are correct but it is very small, maybe 5%–10% after costs. They make up for it in volume though. Remember, many apps are free and they make nothing on them but still have to absorb the storage/bandwidth fees. Small but with 360,000+ apps and 10,000,000,000+ downloads it all adds up.

No, that vast majority of Apple's profit on phones is on hardware.

 

[Gino Cerullo]

TorontoColin, I doubt Apple will go that down-market in build quality in pursuit of market share. LG is a budget phone maker. Their build quality is nowhere near Apple's. And they aren't as adverse to low profit margins as Apple is.

Also, this supposed 'iPhone Nano' is supposed to be 1/3 the size of the iPhone 4 putting it at a 2.5" screen at most, that LG is 3.2". Can you imagine? Cramped is a kind description for a touch phone of that size.

(Note: the original Bloomberg story had the phone at 1/3 size. The WSJ story linked above has the size at 1/2. Every time I hear a story about this 'Nano' phone it shrinks in size. Next it will be invisible.)

All the other 2.5" screen phones have a physical keyboard—there is a reason for that. And before you go there, the 'Nano' was described as being a touch screen phone—no physical keyboard.

Seriously, think about the virtual keyboard on a 2.5" touch screen. It would be unusable.

Sorry, there are too many things about this story that don't add up.

• 1/3–1/2 the size of the iPhone 4
• No home button. (iOS is unusable without the Home button)
• $200 price tag

I don't know what the motive is behind this ridiculous story but the fact that the Mobile World Congress Show is on this week makes me think that somebody just wants to mess with there heads.

 

[hugh]

First, Apple doesn't give a rats behind about market share, they care about profit

Agreed.

But they still sell Shuffles and Nanos that are cheap but highly profitable. Remember when everyone thought $499 for a tablet computer was pretty cheap.

Could Apple make a $200 phone that is still exceptionally profitable?

Frankly, I'm afraid to bet against Apple!

 

[TorontoColin]

The disappearance of the home button is widely expected on the next model iPhones and iPads (to be replaced with gestures).

Consider that half the size could theoretically be referring just to thickness. Also, it is possible that this phone forces you to type in landscape mode rendering it far more usable with a smaller screen.

LG is not a 'budget' phone maker; they make a variety of phones across a large spectrum of prices. They do make many low-cost phones, but they also make high-end Android and WP7 phones as well. The reason they make these low cost phones is because there is demand and profit in that market. The Optimus One range are well built phones. Apple's quality may be slightly better, but they could easily make up for this with lower overhead and higher margins.

Apple sells numerous low-end iPod models. I don't think they're adverse to lower markets, they just want to maintain their profit margins. This phone, sold at $250 each for an 8GB model, could easily net Apple $50 in profit each. If they sell 5 million (which I think is a more than reasonable estimate) they would make $250 million in profit.

 

[99semaj]

Agreed with jvincent. I couldn't imagine typing on a touchscreen smaller than an IPhone display; even with a good autocorrect system in place.

And the iOS autocorrect is far from ideal...

 

[Jase88]

No, that vast majority of Apple's profit on phones is on hardware.

Various tech magazines costed all of the parts in an iphone, and concluded that they couldn't possibly be making much profit off the hardware.

Exclusivity means nothing. Apple takes a cut of the data plan cost regardless of carrier.

 

[Gino Cerullo]

Jase88, we obviously get our information from different sources but Apple has very high margins on the iPhone.

16 GB version of the iPhone 4 carries a Bill of Materials (BOM) of $187.51 (iSupply)

Now of course this is just the cost of the hardware and doesn't take into account costs for OS, R&D, Marketing and other overhead etc., but I think you get the picture.

 

[Gino Cerullo]

As for the comments about Apple selling cheap iPods. I don't consider them cheap, I consider them appropriately priced for the device category. You have to take into consideration that these, after all, are just digital music players. The marketplace determines the pricing of these devices. In and of themselves they are probably very high margin for Apple.

But it's more than the price that has me sceptical. The size is wrong. 2.5" is reeeeeealy small for a device that only has a touch interface. For comparison purposes have a look at the new HP Veer with it's 2.6" screen. Can you imagine using that without the physical keyboard? Be honest!

As for the Home button disappearing in favour of gestures. I heard the same rumour but take a look these videos.

This one is by Gizmodo demonstrating the gestures with the iPad. Pretty usable on the big screen of the iPad.

http://www.youtube.com/watch?v=oN5BpvrCxvo

This one demonstrates the gestures on the iPhone. Seems very clunky to me on the small screen of the 3.5" iPhone, imagine on a 2.5" version.

http://www.youtube.com/watch?v=8vj3UdA5ZlI

Some of those gestures require four fingers. FOUR FINGERS! If the Home button was removed from the iPhone I think I will need to re-evaluate my future smart phone purchases. I can't use that.