Compared to its predecessor, Apple's (NASDAQ:AAPL) iPhone 6 includes many new features -- notably, its larger, higher resolution display, NFC chip, and faster processor. But this year, for the first time, Apple is offering far more storage -- as much as 128 GB -- making its more expensive iPhones much more enticing.
The move could benefit Apple, as well its customers, and distinguish the iPhone from Samsung's (NASDAQOTH:SSNLF) competing flagships.
Apple changes its storage pricing
Apple has long offered the iPhone with a wide variety of different storage capacities, but has maintained a consistency in the differences between them. The iPhone 3GS and iPhone 4, for example, started with 16 GB of memory, and, for an extra $100, customers could double the capacity to 32 GB. The iPhone 4S, iPhone 5, and iPhone 5S added a third tier, that, for yet another $100 ($200 more than the base price), allowed customers to double the capacity yet again (to 64 GB).
For the iPhone 6, Apple is offering even more storage, but has declined to bump up the base model. Instead, the 32 GB option has been dropped from the lineup entirely, leaving customers to choose from 16 GB, 64 GB or 128 GB, with a $100 price difference between them.
More expensive iPhones become more attractive
Obviously, this has the effect of making its more expensive models more enticing -- for just $100 more, customers can get four times more storage, or a full eight times more for an additional $200. Consumers, in the past, may have scoffed at Apple's pricing policies, but with the new tiers, those more expensive iPhones become far more enticing, particularly as newer apps require ever greater amounts of storage.
Video game BioShock attracted a fair amount of attention last month when it debuted on Apple's app store. Although the game was seven years old, it is widely considered to be one of the best titles released for the Xbox 360, a living room video game console. Unfortunately, the port has garnered poor reviews, due, at least partially, to its enormous install size -- at 1.6 GB, BioShock may force its users to uninstall other apps or delete photos, especially if they're playing it on a 16 GB iPhone. BioShock isn't alone, and as larger apps grow in popularity, that extra capacity is becoming a necessity.
Apple may have also felt somewhat of a duty to introduce a 128 GB iPhone, as it has decided to discontinue the iPod classic. The ever-increasing popularity of streaming music may have doomed the iPod Classic years ago, but its storage space -- 160 GB -- was unmatched by anything else in Apple's lineup. The 128 GB iPhone 6 is now an option for audiophiles with enormous mp3 collections.
When it comes to storage, Samsung is behind
Unfortunately for Samsung's customers, the South Korean tech giant does not offer storage tiers. Its flagship Galaxy S5 packs only 16 GB of internal storage, and its upcoming Galaxy Note 4 will ship with just 32 GB.
Samsung's phones do offer something more than Apple's -- the option to expand that storage with a micro SD card -- but that extra space is limited in what it can hold. Photos and music files can be stored on the SD card, but apps are another story: some can be installed on the SD card, others cannot. Samsung has included software in its Galaxy phones that allows the owner to shift their downloaded apps to the external storage, but many of the most popular ones are incompatible with the feature (Uber, HBO Go, and Dropbox, for example, are among the apps that cannot, without significant tweaking, be installed on the SD card).
The iPhone's ASP could be set to soar
For Apple, the shift in storage should benefit its business, boosting the iPhone's average selling price, and by extension, its gross margin.
Last quarter, the average iPhone retailed for $561, a far cry from the $649 base price of the iPhone 5S. That average includes Apple's cheaper models -- the iPhone 5C and iPhone 4S -- but would've been higher if Apple's more expensive, higher-capacity iPhones sold in greater numbers. The iPhone 6, with its new, more attractive, storage tiers, should be expected to meaningfully raise the iPhone's average selling price. At the same time, Apple's gross margin should increase, as more expensive iPhones generally carry greater margins.
For consumers, it would've been nice if Apple had bumped up the base iPhone 6 to 32 GB, but those that opt to pay the extra $100 or $200 are getting much more for their money.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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