Apple Fall 2011: Worst Case Scenario (For Apple's Competitors)

In my last column, I discussed what I consider a fairly plausible, if unsurprising, set of expectations for Apple this fall. I called it a Best Case Scenario (for Apple's Competitors). Click through to read it, or if you need the Cliff's Notes version, that would be:1. The existing iPhone 4 remains on the market or is replaced with an 8 GB version.2. Apple introduces the iPhone 5 with a larger display, dual core processor, and camera spec bump. And it's thinner.3. Apple updates the iPod line with new colors, tweaked designs, and a smaller nano that is designed to work well as a watch.[Image credit: John Mitchell]

If the above scenario is not guaranteed, it is at least extremely plausible. It would also be considered a failure by the press, despite the fact that the launch would be followed by gonzo sales. It's the iPhone 4, the best selling phone in the world, only with better hardware and software. What could be better? Actually... there are reasons to believe that Apple could deliver more than that. I call the following speculation the Worst Case Scenario (for Apple's Competitors):

Sprint and T-Mobile could get their own iPhone 4 and iPhone 5 devices. It is not unusual outside the U.S. for Apple to sell the iPhone through several carriers, and there is no telling what type of exclusivity arrangements Apple has with AT&T and Verizon Wireless or how long they last. A Sprint iPhone could be virtually identical to today's Verizon Wireless version. A T-Mobile iPhone would require different frequencies than today's AT&T version, but Apple might be building one of those anyway in case the DoJ allows the acquisition to proceed. The iPhone is the best selling phone at both AT&T and Verizon Wireless. It would be very disruptive to Samsung, HTC, LG, and Kyocera Sanyo if it were to show up at Sprint or T-Mobile.If Apple sticks with HSPA+ and CDMA/EV-DO iPhones, Apple could be at a significant disadvantage in terms of network speed. Verizon Wireless has nearly half its network lit up with LTE already, and AT&T is starting its own LTE rollout. Conventional wisdom is that Apple will not launch an LTE iPhone until the chipsets are smaller and more efficient. Apple launched the original iPhone without 3G and fared quite well; it may choose to follow the same approach today. However, Apple has delayed the iPhone launch from its usual late June timeframe to September or October. It is certainly possible that it did so to wait for second generation LTE chipsets.

If Apple does go with LTE in this next round of iPhones, it would not only ruin the one area where competitors can claim a real-world performance advantage, Apple could leap ahead on the technology's Achilles heel: battery life. Apple can tightly tie its hardware to the OS and manage the usage of the modem. For example, the iPhone might only turn on LTE when the OS is downloading large files or a large number of files where the benefits of added speed and lower latency offset the battery life hit, and then turn it off immediately afterwards – all without any user interaction or knowledge. Things will simply be faster, without a big drain on the battery. This is the sort of thing RIM does with the BlackBerry's 2G and 3G radios, but is something that could be impossible for Android vendors to match. (Google could counter by building heavily hardware-specific versions of Android for Motorola phones, but that would open up a whole can of worms with its other Android licensees.)

Apple could use some new materials and accompanying manufacturing technique that the competition then needs to scramble to reverse-engineer.Attacking a slightly different segment of the market, Apple could extend AirPlay to enable console-quality games for the iPhone and iPad that allow the phone or tablet to be the controller, and the TV (via a $99 Apple TV) to be the game console. This would give consumers another reason to buy an iDevice and would give a huge boost to Apple TV, potentially taking off the "hobby" label Steve Jobs has given it.Apple often takes existing technology and finds a way to make it useful for consumers. NFC has been "just around the corner" for the past ten years. Google is off to a decent start with Wallet and Offers, but the installed base of Android phones with NFC is pitiful. Apple could put an NFC chip in each iPhone and within a quarter or two there would be 20 million (or more) NFC-enabled devices in consumers' hands. Apple would almost certainly launch corresponding developer tools and merchant terminals to complete the loop.iPad Pro?

Apple's iPad is dominating the tablet market, and most of the competition's high profile launches have turned into high profile flops. At some point Apple is certain to upgrade the display on the iPad to something more retina-friendly, and further distance itself from the competition. Could that point be soon?

One More Thing

[aquote]The single most disruptive thing Apple could do would be to launch a mid-tier iPhone with an unsubsidized price under $300[/aquote]

The single most disruptive thing Apple could do would be to launch a mid-tier iPhone with an unsubsidized price under $300. Nokia, Samsung, RIM, and Sony Ericsson sell a lot of smartphones in the $250 – $400 range. This price point serves both as a high end device in emerging markets and a mid-tier device in developed markets, particularly those where the majority of phones are sold without contracts and subsidies. (Nokia used to completely dominate entry level smartphones but has been undercut lately by Android phones from Huawei and ZTE). Apple is doing exceptionally well selling the iPhone, but there are large parts of the world where a $700 phone is too expensive, regardless of its attributes or desirability. A sub-$300 iPhone would end up free in the U.S. with a two year contract, or it could be sold partially subsidized by regional prepaid carriers who would use it as a way to compete with their national, iPhone selling rivals, on a level playing field.

Outside the U.S. it would be even more dangerous. RIM is struggling in North America, but its BlackBerry Curve sales in parts of Europe are soaring thanks to BlackBerry Connect. A sub-$300 iPhone with iMessage would be devastating to RIM. If China Mobile had a budget iPhone to offer, it would sell tens of millions of units, making life very difficult for Nokia, Samsung, LG, Huawei, ZTE, and Dell.

How likely is a budget iPhone from Apple? Almost assured, although the timing is unknown. Cost-reducing the iPhone is not trivial, and the end product will still have to be an iPhone in terms of design, capabilities, apps, and content. However, this should not be impossible for a Tim Cook-led Apple. After all, Apple profitably sells the iPod touch for $229, and that is essentially an iPhone 4 without WWAN voice or data. A lower cost iPhone could greatly expand Apple's addressable market, and it would give the competition fits.

Apple Rumor Column Disclaimer: Avi Greengart is the Research Director for Consumer Devices at Current Analysis. He is a market analyst, and he holds no stock in Apple or any other individual tech company. All wild guesses in this column are his own and are not based on specific information from the hairdresser across the street from a factory in Shenzhen making cases for the iPhone 5, Cupertino bartenders, or DigiTimes.