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The Billionaire Sweet and Sour Failure of the iPhone 5c (Part 2)

The severity with which Apple is judged is brutal. Analysts, press, blogs and users minimize its successes and exaggerate its failures. That’s how it is and it’s not unfair. Apple has earned it when it was doing well and must put up with it when it is doing badly . You don’t get on a pedestal just to be called pretty. Suddenly, you’re getting the attention of millions of people and not all of them are going to like you. Pretending to be is a futile effort.

Last week we talked about how Apple does not aspire to be a universal or all-purpose company. Unlike Google, whose goal is to put a screen in front of everyone to place advertising (it does business a posteriori), Apple’s business is to sell a product and it must make money on each sale from the beginning (it does business a priori). Understanding that Apple cannot and does not want to serve everyone is of vital importance to understanding their operation, strategy and business.

The Billionaire Sweet and Sour Failure of the iPhone 5c (Part 2)
The Billionaire Sweet and Sour Failure of the iPhone 5c (Part 2)

Apple sells hardware with attractive software and services to increase its value . Pretending to change the way you make money by replacing margins with services à la Google is like asking a water fountain to give us orangeade. You would have to change everything behind the fountain to get the desired result and I don’t see Apple intending to do that.

That said, today we will see what the iPhone 5c was designed for, whether it has met its goal or failed, and how its sales compare with the rest of the phones on the market.

Who are you, iPhone 5c?

The iPhone 5c has not been, is not, and will not be the cheap iPhone that many have longed for . An iPhone low cost that would break the market. As much as we wanted it, Apple never told us it would be like this and made it clear on the day of the presentation. As concerned as some of Apple’s leaders were that the growth of the smartphone market was being concentrated in devices they didn’t offer.

With the passing of time and having gathered some pieces here and there about Apple, its limitations, its preference for high margins and seeing the iPhone 5c as a final product, these are my reasons why Cupertino’s company brought out this model (in order of importance, highest to lowest):

  1. Relieve the pressure of selling the top-of-the-line iPhone, the 5s. The iPhone is Apple’s cash cow and it always proudly says that they can’t make enough iPhones for the launch. More on this later.
  2. Attract different customers than you already have. A colorful iPhone was something new never seen in the Apple terminal, not so in other brands like Nokia.
  3. Diversify the iPhone range in a maturing market. The original iPod was big and had a lot of capacity. When Apple released the Mini and then the Nano, technology enthusiasts predicted their failure under the mantra “less capacity, insultingly high price. It was clear that Apple was going after different customers.
  4. Reinforce Apple’s ecosystem with customers who are good from her point of view and for her, (again, it doesn’t mean they are better people or that other manufacturers’ customers are bad) customers who will invest in the device, apps, movies, books, series and accessories.
  5. Take away the headache of having two aluminum iPhone models in production simultaneously. Apple is not perfect and already had problems with the iPhone 5 and the famous scratches on the outer metal and edge. Imagine walking around with 2 different but equal models on the outside.
  6. Create a replacement for iPhone 5 that’s different, has personality, and matches iOS 7. Hardware and software at last hand, that symmetry and duality Apple loves. Well, that and making it clear that Jony Ive runs the show, the result of Apple’s chief designer winning an internal war against Forstall?

These are my 6 aspects that give the iPhone 5c its raison d’être and its existence. Selling an iPhone low cost may have been in some managers’ plans and was shown to be so internally, but the final decision was that Apple does not make low cost just because it is cheaper than the competition .

Evaluating the failure of the iPhone 5c

This is getting interesting. Is the iPhone 5c really a failure? If I had to answer this question with a Yes or No, I would say Yes. But as Oscar Wilde says, there’s a grey range between black and white and in this case it’s full of colour. From the iPhone 5c, of course.

To find out, we must evaluate the iPhone 5c according to the 6 goals that Apple set itself and that we have seen above. It wasn’t an iPhone low cost nor will it ever be, so let’s leave that aside because that was never Apple’s final intention:

  1. Did it take the pressure off the iPhone 5s and help sell more models? No. At last January’s shareholder meeting, Cook admitted that they were wrong to anticipate the demand and the iPhone 5s 5c mix they had prepared was wrong. This resulted in more iPhones 5c than 5s, so not only did it not relieve the pressure, but many of the top model were not sold. It may have even exacerbated the problem by telling the consumer “Hey, look, for $100 more you get the top-of-the-line model”. Whichever way you look at it, out-of-stock is always bad because you have customers wanting to buy your phone but unable to satisfy their desire.
  2. Did you attract new and different customers? Yes, according to Dominic Sunnebo of Kantar Worldpanel ComTech, “half of the owners of a 5c come from other brands, compared to 80% of users of a previous iPhone in the case of the 5s”.
  3. Have you diversified the range? Yes. For the first time, Apple has two new models on sale in the same year. The iPhone 5c replaces the iPhone 5 in both price and features from a previous year.
  4. Has it strengthened the ecosystem? Yes. Apple doesn’t look at the overall market share but at the high-end, of which it has a large part. What would you like all high-end customers of Samsung, LG, Nokia and company to have? Absolutely. Apparently, and according to point 2, Apple has strengthened its ecosystem.
  5. Have you simplified your production chain? Yes. With only one aluminum model, it seems that Apple is telling us that it is not capable of making two simultaneously.
  6. Does it go hand in hand with iOS 7? Yes. Jony Ive’s influence on Apple is clear, both in hardware and now in software. You’ll like it more or less, but it’s clear that they go hand in hand and were always designed together.

For me, the iPhone 5c is a failure since point 1 has not only not been fulfilled but has been aggravated . The rest of the points partly mitigate the impact of not being able to serve each and every one of the iPhones that the public demanded. More units could have been sold. From the financial point of view, the expected results have not been achieved even though strategically other objectives have been met. However, what a failure it has been, let us see in the next point.

A billion-dollar screw-up

A few weeks ago, Appleinsider compared the estimated sales of the iPhone 5c with the rest of the competition. The table that paints the comparison is as follows:

Breaking down the figures we have that in the fourth quarter of 2013, when 5s and 5c were launched, sales were (these are estimates, according to the article, and it should be noted that Apple never breaks down by model as other manufacturers do):

  • iPhone 5s: 31.8 million.
  • iPhone 5c: 12.8 million.
  • iPhone 4s: 6.4 million.
  • Samsung Galaxy S4: 9 million, approaching renewal.
  • LG G2: 2.3 million.
  • Total iPhones: 51 million among all models.
  • Total Blackberry: 6 million among all models.
  • Total Nokia: 8.2 million among all models, it must be taken into account that it controls 90% of Windows Phone’s share.

I don’t know about you, but the fact that the iPhone 5c has sold more than the Samsung and LG flagships combined or more than all the Blackberry models or more than all the Nokia models makes me rethink the terms of Apple’s failure . Even if they sold half of 5c of what this estimate says, it is still a phone that any manufacturer would want to have in their catalog.

Who wouldn’t want to fail at the same level as the iPhone 5c?

Did they screw up when they estimated the sales mix? Yes. Did they correct their mistake when they realized it? Rumor has it that they changed the mix as soon as they could. Did they do anything about it to fix it? Bringing out a smaller capacity iPhone 5c, at the end of the day 6.4 million iPhones 4s with 8 gig capacity have been sold. It seems that there are people who don’t need more capacity and are happy like that.

We go back to the beginning when I said that Apple is measured with a double standard and it is true in this case too. But it’s something that has been sought, for better and for worse. Apple fails, of course, but what matters is the attitude towards failure. When it messes up it tries to fix the mistake as soon as possible and doesn’t expect the problems to be solved by itself. And you have to give Apple credit for that, too.

This article is the continuation of The iPhone 5c Hoax and the difference between good and bad customers.

iPhone 5C de John Karakatsanis, 100 Dollar Bill Stack de 100 Dollar Bill StackBen K Adams, iPhone 5S, iPhone 5C de K?rlis Dambr?ns y Comunicando 114 ¿Qué móvil prefieres? iPhone, BlackBerry o Android de Jose Antonio Gelado.

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