So, there were no real surprises when the curtain came down perhaps for the last time on a product presentation at the Cupertino Campus – no, we are not being morbid, they will move to a snazzier new venue next time, Apple CEO Tim Cook hinted. There was a smaller iPhone, a less expensive Apple Watch and a smaller iPad (by iPad Pro standards, that is). Of the three, it was the iPhone, christened the iPhone SE, that got the most attention, not least because it saw Apple return to the four inch display after two years. It was logical, many said. After all, Apple had championed the more compact iPhone for years against larger sized opposition. It was in a way going back to its roots.
True but then the Cupertino company itself had also abandoned that smaller form factor (except in the iPod touch) and moved to a larger one. Yes, Apple did sell 30 million 4.0-inch display devices last year as per a slide in the presentation, but it sold many more large screened ones (for the record, Apple sold 231 million iPhones in its previous fiscal year). In terms of pure global trends, the number of small display devices sold in world markets is on a decline. So, has Apple sensed some hidden need which it hopes the iPhone SE will cash in on? Or is there some other reason for the release of the second most affordable iPhone ever – only the iPhone 5C has started with a lower price tag (USD 349), even the first iPhone’s 4GB avatar commanded a princely USD 499 in 2007?
We think there is. And it lies in the land of the Great Wall. The past few years have seen China move from being just a major market to having some very powerful brands in its own right. And unlike in other markets, where “local” brands tend to fight on price, the Chinese market has seen its own relatively premium devices from the likes of Oppo, Vivo and Huawei, who offer devices in the range of USD 400-600 – devices which look good and perform well, and are priced well below the USD 800 price tag of the iPhone 6S in the country. And then of course there are the likes of Xiaomi and OnePlus that fight on premium specs at surprisingly low prices. And notwithstanding all the huff and puff of the established order, these players have been grabbing market share at a rapid rate.
And well, we have a feeling that the iPhone SE is targeted at these players in China. The reason for this is the pricing of the iPhone SE – it starts at RMB 3288 (USD 505) in China. Which might still keep it at a distance from the likes of a Xiaomi Mi 5, which starts at RMB 1999 and goes up to RMB 2699, but definitely brings it into touching distance of a Huawei Mate 8 which is retailing at around RMB 3000 or a VIVO X6 Plus, which is priced in the vicinity of RMB 3200.
So, at its current price, the SE will do something that the 6S (which costs about USD 800 in China) is incapable of doing – it will gently swing into contention the moment any consumer thinks of a high-end Chinese alternative, be it from Xiaomi, Huawei, ZTE or OnePlus. Yes, it costs more (in some cases, much more) than some of them even now, but the difference is not as exponential as with the 6S. And well, it would be naive to expect Apple to try and undercut the competition on pricing – the SE charges a premium (which helps reinforce its ‘aspirational’ brand status), but it is a lower premium than the newer iPhones do. Which makes it more accessible than its predecessors.
And significantly, it does so while not compromising too heavily on the spec sheet. It is not as if Apple had not tried releasing as slightly more affordable iPhone in the past – the iPhone 5C after all was released at USD 349. What makes the SE different is that while the 5C was introduced as the affordable sidekick to the 5S (which pretty much remained the flagship), the difference in the spec sheets of the 6S and 5SE is not that massive, although the former does have a larger, higher resolution display and 3D Touch up its sleeves. Many pundits’ initial reaction to the iPhone SE was “this is a shrunk version of the 6S,” a far from the derisive (and perhaps undeserved) “this is a plastic iPhone 5” that accompanied the 5C. In fact, it was interesting to see the spec sheet of the device being highlighted at its launch – Apple is a company that generally talks ‘experience’ and not specs.
Will the iPhone SE harm the prospects of its elder brothers the 6S and 6S Plus? Honestly, common sense dictates it will, as people now will have the option of buying a reasonably well-specced and “new” iPhone instead of opting for an older model that has received a price cut. But our surmise is that the folk at Cupertino are reckoning that what they might lose in terms of 6S sales could be pulled back by a massive surge in SE ones. For, more significantly, it will also make those thinking of investing in a Mate 8, a Vivo X6 or a Mi 5 pause and consider it. They might not end up choosing the SE over them, but the very fact that it will be considered should make things very interesting indeed.
Of course, this is just assumption. It is possible that Apple has indeed spotted an untapped section of the market that seeks a smaller phone but simply does not have good options in that segment, but honestly, given the fate of the last “great” small phone, the original Moto X, we are not too sure that it is the size that drives the prospects of the iPhone SE. Nay, we suspect it is price. And the enemy (we think – and we concede we could be wrong) is not in Korea but in its neighborhood. In China.
Somewhere in the world, Ren Zhengfei, Lei Jun and Tony Chen will be getting ready for one hell of a battle, but a battle on a battleground that is more familiar to them than it is to the Cupertino giant, which had until today, always gone by the “you want to play, you have got to pay” philosophy.
Congratulations, gentlemen, we think you just made Apple blink.