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If Apple Made a Mid-Range iPhone, Would It Devastate Google’s Android?

Apple's (NASDAQ: AAPL  ) share of the global smartphone market is slipping. According to research firm IDC, just 11.7% of the smartphones shipped last quarter used Apple's iOS, a 1.3% decline from the same period last year.

Google's (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) Android, meanwhile, continues to grow rapidly despite its already massive size. Last quarter, 84.7% of the smartphones shipped globally were powered by Android, up 5.1% in the second quarter of 2013.

These numbers are far from surprising; Apple's iPhones, which sell for around $550-$600, are simply too expensive for most of the world's consumers. Android phones, in contrast, are far more affordable.

To reverse these trends, some analysts have suggested that Apple could launch a mid-range iPhone: A $200-$300 device that would compete with the iPhone's cheaper, Android-powered rivals. Andreessen Horowitz's Benedict Evans, for example, believes that such a phone would take a "big chunk" of Android's "most valuable" customers.

There's no indication that Apple would ever release such a device -- it has, in the past, disappointed analysts with its refusal to target the low-end -- but it's an idea worthy of exploration. Would a cheap iPhone crush Google's mobile ecosystem?

Android's surprisingly small middle
In short, I doubt it.

The Android ecosystem, while large, is bottom-heavy: According to IDC, of the 255.3 million Android-powered smartphones shipped last quarter, almost 60% of them cost $200 or less. Of the remaining 40%, about half sold for $400 or more.

Buyers in both groups seem unlikely to be swayed by a $300 iPhone -- those at the bottom would still find it to be too expensive, while those at the top can already afford to purchase Apple's iPhone but don't for whatever reason.

That leaves just 21.5% of the Android market. Granted, that's still a large share of the overall smartphone market -- in fact, if Apple could convert 100% of these buyers from Google's Android, it would nearly triple its current smartphone market share.

There's already a mid-range iPhone
But such an outcome seems wildly optimistic and unlikely. For starters, it's incorrect to say that Apple doesn't compete in the mid-range segment. At present, Apple offers a mid-range iPhone in the form of the iPhone 4S. Prices vary based on location, but Indian consumers can purchase the nearly three-year old iPhone for around $330.

According to IDC, just over 15% of Apple's iPhones retail in that mid-range, $200-$400 market segment. If affordable iPhones are already available, why aren't consumers choosing them over similarly priced handsets running Google's Android? It may be an issue of quality. Although the iPhone 4S is a fine phone even to this day, its hardware is indisputable dated, and doesn't hold up well against similarly priced Android phones -- or even much cheaper phones.

The Moto G, for example, retails for around $200 in India. Compared to Apple's iPhone 4S, it offers a larger screen and more storage. Xiaomi's Mi3 -- when it's in stock -- retails on the Indian e-commerce website Flipkart for $230. Its specs trounce Apple's iPhone 4S, with a much larger, higher-definition screen, faster processor, bigger battery and more internal storage.

The opportunity is limited
To capture that segment of the market, Apple would need to sell a mid-range phone with greater quality than what it's currently offering. It could do that, but the better a mid-range iPhone, the more Apple would run the risk of cannibalizing its high-end sales.

Even then, it's not abundantly clear that it would work. Although cheap Android phones are often stereotyped as worthless products, Xiaomi's Chinese customers are more engaged than owners of Apple's iPhone. Motorola can't say the same, but to its credit, the Moto G has received nearly universal praise.

To truly dominate Android, Apple would need to offer a high-quality iPhone at a sub-$200 price point. That's never been Apple's strategy, and it seems unlikely to change. A better mid-range iPhone could certainly expand its market share, but with higher-quality Android handsets already occupying the space, conquering the $200-$400 handset market would be no easy task.  

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 22, 2014, at 7:08 PM, literacyisgood wrote:

    Android is not only dominating the smartphone market as a whole, with 85% to iOS' 12%, the superior android OS is also winning on the high end.

    If you look at the numbers, you will see that far more savvy, wealthy customers choose android devices over iOS devices. Who wouldn't? Android gives your flexibility, power, freedom of choice. iOS gives you vender lock-in, and a barrage of dishonest FUD about supposed benefits that don't survive scrutiny.

    Even this article has a misleading chart, copied from another source. To see a better representation of this data, google "Eric Richardson" and "I fixed it for you business insider"

    The numbers show that most people who can afford excellent phones, get excellent android phones.

    If you want a high end phone (but can't afford a Vertu phone, lol), please take a look at the flagships from LG, HTC, Samsung, Sony, and others.

  • Report this Comment On August 22, 2014, at 7:10 PM, literacyisgood wrote:

    My mistake, that google search criteria is not the best.

    If this link doesn't work:

    Then you can do a google *image* search for "I fixed it for you business insider"

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Leaked: Apple's Next Smart Device
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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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