The new iPhones were much the most predictable part of Apple's event - widely leaked and impelled by an irresistible logic - the customer is always right. For all that Apple thought and argued that you should optimize for the thumb size, it turns out optimizing for the pocket size is a better metric. *
(Of course, this isn't the first time - Steve Jobs famously said that no-one would watch video on an iPod, and that small tablets should come with sandpaper for your fingers).
Meanwhile, Apple did not, as I and others have argued it now could, make any real change to its pricing strategy. We still have a new model at $600 or so (plus another that's even more expensive) and older models at $100 and $200 cheaper, together with a (very) large secondary market act to address some of the top of the mid-range, but no more.
Instead, these phones are a direct move against premium Android.
Apple currently has about 10% of global handset unit sales, at an ASP of $550-600, and Android has another 50% at an ASP of $250-300 (almost all the rest are feature phones, now also converting fast to Android at well under $100). But within that Android there is a lucrative segment of high-end phones that sells at roughly the same price and in roughly the same numbers as the iPhone. To put this another way, Apple has 10% of the handset market but half of the high-end, and Android has the other half of the high end.
That Android high-end is dominated by Samsung, and by screens with larger screens than previous iPhones. Until now.
How much of an impact will these new iPhones have on that segment? There are a bunch of reasons why someone would buy a high-end Android rather than an iPhone:
- Their operator subsidies an Android but not an iPhone - this has now ended, with Apple adding distribution with all the last significant hold-outs (Sprint, DoCoMo, China Mobile)
- They don't particularly care what phone they get and the salesman was on more commission to sell Androids or, more probably, Samsungs that day (and iPhones the next, of course)
- They have a dislike of Apple per se - this is hard to quantify but probably pretty small, and balanced by people with a dislike of Google
- They are heavily bought into the Google ecosystem
- They like the customizations that are possible with Android and that have not been possible with iOS until (to a much increased extent) iOS8 (more broadly, once could characterize this as 'personal taste')
- They want a larger screen.
Splitting these out, the first has largely gone, the second is of little value to an ecosystem player and nets out at zero (i.e. Apple gains as many indifferent users as it loses) and the third is small. Apple has now addressed the fifth and sixth, and the massive increase in third-party attach points means that Google's ecosystem (and Facebook's incidentally) can now push deep into iOS - if Google chooses to do so.
That is, with the iPhone 6 and iOS8, Apple has done its best to close off all the reasons to buy high-end Android beyond simple personal preference. You can get a bigger screen, you can change the keyboard, you can put widgets on the notification panel (if you insist) and so on. Pretty much all the external reasons to choose Android are addressed - what remains is personal taste.
Amongst other things, this is a major cull of Steve Jobs' sacred cows - lots of these are decisions he was deeply involved in. No-one was quicker than Steve Jobs himself to change his mind, but it's refreshing to see so many outdated assumptions being thrown out.
Meanwhile, with the iPhone 6 Plus (a very Microsofty name, it must be said) Apple is also tackling the phablet market head on. The available data suggests this is mostly important in East Asia but not actually dominant even there - perhaps 10-20% of units except in South Korea, where it is much larger. Samsung has tried hard to make the pen (or rather stylus) a key selling point for these devices, but without widespread developer support (there is nothing as magical as Paper for the Note) it is not clear that these devices have actually sold on anything beyond screen size and inverse price sensitivity (that is, people buy it because it's the 'best' and most expensive one). That in turn means the 6 Plus could be a straight substitute.
Finally, not unlike Nokia for much of its history, Apple remains the only handset maker of scale making phones with a premium hardware design. Both Nokia and HTC also made equally desirable hardware but for different reasons have faded from the scene, while Samsung appears unable to make the shift in approach that this would necessitate. Several Chinese OEMs are making significant progress here (most obviously Xiaomi), but are not yet in a position to challenge Apple directly, and indeed are much more of a problem for Samsung, which finds itself squeezed in the middle.
Setting aside the OEM horse-race commentary, the important thing about this move is how much it tends to reinforce the dominant dynamic of the two ecosystems - that Apple has a quarter of the users but three quarters of the value.
We know from data given at WWDC and Google IO that Apple paid out ~$10bn to iOS developers in the previous 12 months and Google paid out ~$5bn. Yet, Google reported "1bn" Android users (outside China). Apple, depending on your assumptions about replacement rates, has between 550m and 650m active devices (though fewer total human users). That is, Apple brought in twice the app revenue on a little over half the users. (I wrote a detailed analysis of this here.)
We used to say that of course the average spend for Android users was lower, because the devices were available at any price for $80 to $800 where iPhones average $600, and sold well in poorer countries, but the premium Android users were bound to be worth much the same as iPhone users. This new data showed that this was not true.
If premium Android users were worth the same as iPhone users, but the mid-range and low-end Android users were (naturally) worth less, then the Android number should have been (say) $11bn versus Apple's $10bn. But it's $5bn. So, even the premium Android users, the very best ones - even the people buying phablets - are worth much less to the ecosystem than an iPhone user. And now Apple is now going after them too.
This takes us to a final question - is it the users or is it the ecosystem? If Apple converts a big chunk of premium Android users to the iPhone 6 when they come to refresh their phones (and note that since they won't all have bought their phones in September 2012, they won't all be up for upgrade as soon as the new iPhones come out), will their behavior change? Are we seeing less ecosystem value for these users because of differences in the platform they're on, or is there something different about those users' attitudes?
And, of course, if those users do leave, what will the Android metrics look like then?
* Just as for multitasking, and the new extensions in iOS8, Apple had to work hard to make this possible - in this case it had to move away from pixel-perfect layouts to something more responsive. This of course is where Android started - since it was predicated on a wide range of devices it had to allow for different layouts, where Apple started from one screen size. This, I think, reflects a broader trend - that Android and iPhone started in quite different places and have converged over the past 5 years.