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The Potential Storage Options for the Apple Inc. iPhone 7

By Ashraf Eassa – Mar 26, 2016 at 11:30AM

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Here's what this Fool thinks Apple will bring to the table with the iPhone 7 Plus (and/or Pro).

Apple's latest iPhone, the iPhone SE, could negatively impact iPhone ASPs. Image source: Apple. 

There has been a lot of grumbling among Apple (AAPL -0.34%) customers around the fact that the base storage models of its iPhones still come with a paltry 16 gigabytes of NAND flash. As my fellow Foolish colleague Evan Niu points out, this is an excellent upsell strategy on Apple's part that has helped contribute to the noticeable increase in iPhone average selling prices.

With the iPhone 7, I believe that Apple will retain its current storage tier structure of 16/64/128 gigabytes. However, I think with the iPhone 7 Plus and/or the rumored Pro, Apple will actually go ahead and change things up a bit. Allow me to explain.

Did you see what Apple did with the iPad Pro?
With the iPad Pro, Apple offers three storage tiers. The base model starts at 32 gigabytes, with two higher-priced models offering 128 gigabytes and 256 gigabytes of storage, respectively. I think this is a harbinger of what to expect from the larger iPhones this fall.

For the regular iPhone 7 Plus, I could see Apple offering storage capacities of 32 gigabytes, 64 gigabytes, and 128 gigabytes, at the $749, $849, and $949 price points, respectively. For the iPhone 7 Pro, I could see Apple offering variants with 32 GB, 128 GB, and 256 GB just as we've seen with the iPad Pro models.

These phones could sell for $849, $999, and $1149, respectively. Certainly quite pricey, so they had better be best-in-class across the board, but there are certainly many iPhone buyers who are fairly price insensitive and simply want the best iPhones that money can buy.

Here's why this pricing structure would work nicely
The goal of Apple's pricing structures has always been to try to convince customers that for each additional $100 spent moving up a tier, Apple is actually giving an incrementally better value. Indeed, if we look at the pricing structure for the iPhone 6s, Apple gives the customer an extra 48 gigabytes of storage for the first $100, but an additional 64 gigabytes of storage for the next $100.

The pricing scheme that I suggested above would have a similar effect. In going from the $749 iPhone 7 Plus to the $849 iPhone 7 Pro, the customer not only gets an extra 16 gigabytes of storage, but a superior camera. The value of the iPhone Pro increases vis-a-vis the vanilla iPhone Plus model when we get to the 128 gigabyte storage tier, where the incremental cost of an ostensibly better camera subsystem works out to just $50.

And, of course, for customers that find that even 128 gigabytes is not enough for their needs, only the iPhone Pro in this case would give them the extra 128 gigabytes of storage that they want. One has to figure that the kind of person that would need that much storage space in a phone is the same kind of person that would be taking a lot of 4K videos with her/his phone -- meaning that they'd probably want the better dual-camera subsystem anyway.

Apple has an interesting opportunity here
In a world where smartphone upgrade cycles are set to lengthen, Apple is best served by trying to extract as much revenue per unit at the high end as possible. Introducing higher tiers of iPhones with additional features/storage capacities is, in my mind, the right thing to do to capitalize on this opportunity. 

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. 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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