Apple: Consumers want what we don’t have

Screenshot (20).pngAs Apple and Samsung head back into the courtroom, some rather interesting documents are being released that give further insight into the inner-machinations of both organizations. This time it’s Apple’s turn, with a series of slides from an internal meeting at Cupertino dated April last year, courtesy of the folks at Recode. (Embedded below.)

The documents, which pertain to Apple’s 2014 financial year, concern Apple’s shrinking smartphone market share and the reasons identified by the company for the continued erosion of its once dominant position. Between Apple’s 2009 and 2012 financial years, iPhone growth apparently slowed from 107% to a more tepid 74% — indeed, according to Strategy Analytics, Apple’s global market share stood at 15.5% for 2013, while rival Samsung climbed to 32.3%. Apple shipped an additional 18 million smartphones in 2013 compared with 2012, reaching 153 million units. Samsung? They shipped an additional 106 million units in the same period, managing 319 million smartphone shipments in 2013.

According to Apple, the reasons are clear. The fastest growing market sectors are “less expensive and larger screen smartphones,” both areas in which Apple doesn’t compete. It’s direct competitors, specifically referenced with the Android mascot — sorry, Windows Phone — are stated to have “drastically improved their hardware and in some cases their ecosystems.” HTC proved last year that Android phones could be as beautiful as Apple’s with its aluminum One smartphone, while Google has made great strides to advance Android’s features and ecosystem in recent years.

Money is also stated to be an issue working against Apple. The documents state that competitors are “spending ‘obscene’ amounts of money on advertising and/or carrier/channel to gain traction”. Samsung spent an estimated $14 billion on advertising and marketing in 2013, while HTC dropped $1 billion on its “Change” campaign alone. Carriers, too, are being as a source of malaise. Apple believes they have a “strong interest in capping iPhone”, due to the iPhone’s high market share, the cost of subsidizing the expensive handsets, Apple’s unwillingness to capitulate and allow carrier ‘bloatware’ onto its devices — here referenced as “‘unfriendly’ policies” — and a general lack of alignment between Apple and carriers.

It all culminates in one admission: “Consumers want what we don’t have”. Between 2011 and 2012, smartphone shipments climbed from 494 million to 722 million according to Apple, an increase of 228 million units. Of that 228 million? 91 million cost more than $300 and had screens greater than 4-inches, while 159 million cost less than $300. “Everything else” is stated as being down 22 million units, bringing the overall total to its 228 million units estimate.

These documents are important, as they highlight that Apple is aware of the impact not only that Android is having on its market share, but also of the limitations of its restricted hardware designs. In 2010, Steve Jobs told a press conference that “no one’s going to buy” a big phone, believing Apple’s then 3.5-inch screen to be the perfect balance between size and usability. Of course, Samsung has since gone on to sell over 200 million Galaxy S devices across 4 generations, with screens ranging from 4- to 5-inches, and its Galaxy Note devices, all three with screens above 5-inches, have sold over 50 million units across three generations. Apple increased the iPhone’s screen to 4-inches in 2012, by which point 5-inches was becoming the norm amongst Android devices.

The iPhone 5C was launched in 2013 as a lower-cost alternative to the full-fat iPhone 5S, but its cheap build and dated internals contrasted with a high sticker price. Though it was successful in America, when the iPhone finally became available in China, the world’s largest smartphone market, the 5C accounted for just 2% of sales. Consumers chose the more expensive 5S or opted for the cheaper iPhone 5. Apple doesn’t want to hurt its brand or profits with a low-cost phone, but it’s cheaper smartphones — under $300 — that give Samsung its swollen market share. “Cheap devices are not the attractive segment that normally grabs headlines,” an analyst at International Data Corp told the Wall Street Journal. “But IDC data show this is the portion of the market that is driving volume.”

For Apple, it’s clear that the company is aware of the threat Android poses to its market share. Whether it translates into comparable hardware — an iPhone with a larger screen, or a new, lower-cost model — is purely speculation, as the obsessively secretive Apple refuses to announce devices prematurely. Given the saturation of the smartphone market in developed nations, however, it’s unclear how much longer Apple can continue to rely on its core demographics to continue to drive growth. Apple is by no means struggling, especially on home turf: according to comScore, it held 41.3% of the U.S. smartphone market for the three months ending February 2014, while second-place Samsung had just 27%. Outside of America, though, consumers that want what Apple doesn’t have will likely shape the future direction of the iPhone.

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Rhuaridh Marr is one of Metro Weekly's contributing editors and covers cars, technology, gaming and world news. He is usually found with a game controller in one hand and a smartphone in the other and can be reached at rmarr@metroweekly.com.