
IPhone 5C: C is for Cognitive Illusion - kjhughes
http://www.asymco.com/2013/09/11/c-is-for-cognitive-illusion/
======
Cbasedlifeform
Interesting analysis by Dediu as usual (I'm a big fan and listen to his
podcast regularly). I think a lot of people (including Horace and yours truly)
are surprised by the 5C pricing strategy -- it's not 5C(heap) but 5C(olor). I
just looked at real world photos on Ars of the new models and from my POV the
5C models look like they are designed for kids. (A matter of taste, of
course.) If Apple cut the price by another $100 they might make sense as a
pricepoint but at only $100 less than 5S it seems crazy to me.

It's notable there's no black (or 'slate') 5C. I guess if one wants a more
'dignified' (again, a matter of taste) one has to go 5S.

I commend to all the interesting Steve Jobs quote found at the end of the
comment by markwilcox:

 _" What ruined Apple was not growth … They got very greedy … Instead of
following the original trajectory of the original vision, which was to make
the thing an appliance and get this out there to as many people as possible …
they went for profits. They made outlandish profits for about four years. What
this cost them was their future. What they should have been doing is making
rational profits and going for market share." \- Steve Jobs._

As a long-time Apple fan and former shareholder I'll be very interested to see
how this pans out.

~~~
coldtea
> _I just looked at real world photos on Ars of the new models and from my POV
> the 5C models look like they are designed for kids._

That's a western male perspective. In Asia (including India), adults will jump
to get those colors. (And women in the West too).

~~~
diydsp
I think you think you called out sexism, but in actually, you have perpetuated
it. PP shared his/her own opinion with no attempt or claim made to speak for
other people.

Your contribution was to declare which opinions belong to each sexist grouping
you architected. You have said, "Your opinion is a western male one," but I
doubt you know PP's origin, so you are shooting in the dark.

You have said, "Asians are like _this_. Women are like _that_. Men are like
_this_. Indians are _that_." That is prejudicial, and even worse, normative,
behavior by you, compelling others to conform. If I were an Asian adult who
didn't like the colors, your comments might make me feel hurt right now,
whereas PP's comment was acceptable.

~~~
baddox
Or perhaps its a claim based on (perceived) statistical truths about the sorts
of colors and designs various groups of people prefer.

------
austenallred
"Apple is recognizing that the market is actually “segmentable”. This is the
notion that one size does not fit all–a radical idea for the brand."

Apple has always had products for higher end and lower end markets as soon as
that product becomes established. iPod video (I know that's not the formal
name) came out at roughly the same time as the Nano and shuffle. MacBook Pro
had MacBook. iPad and iPad mini. Mac Pro and iMac. This isn't new, it's just
the first time it's been so deliberate and noticeable.

~~~
JimmaDaRustla
Author refers to smart phone market as "segmentable", not other markets. Your
statement doesn't really disprove his.

~~~
untog
Yes but the author also states that it is a "radical idea for the brand",
which it isn't. It also isn't a radical idea for the smart phone market, as
Android manufacturers have been doing it for a long time.

So we have a brand with experience in segmenting approaching a market that has
already been segmented by competitors. Not such an interesting story.

~~~
JimmaDaRustla
True, that's a better statement.

It seems that Apple has done this out of market demand (of course they did,
any company would rather have one clutch device over a smorgasbord), but with
the 5C still being a high-end feature phone, why'd they do it? I'm guessing
they are just creating a foundation for a radical iPhone 6?

~~~
criley2
I like MG's take. The iPhone 5s is evolution of a pre-Ive design.

The iPhone 5c is Johnny Ive's first shot at a decidedly Ive version of the
iPhone.

~~~
untog
Hasn't Ive done the hardware design for a long time - only recently also
controlling software?

In either case, launching an extra device because your designer wants to put
their stamp on the world seems like an absolutely awful business strategy.

------
kyro
The iPhone 5 has become relatively less stale in the total mobile phone market
compared to what the iPhone 4/4S became. The current model of the phone can
still compete, it's good enough. Apple recognizes this, but also knows that it
needs to innovate to keep its early adopters happy. And so they split their
product to tailor to these two market segments -- those who _need_ innovation,
and those who would be perfectly happy with the current specs. These two
market segments do not differ greatly in their purchasing power. Splitting the
product wasn't to create a mid-tier and high-tier phone for the respective
price points. It was a targeted refresh of the product for two equally
valuable market segments.

I suspect that as the mobile phone landscape changes, the iPhone 5C will begin
feeling more obsolete, and it will then be relegated to the level of n-1
offering, and all attention will then go to the iPhone 6, which should
presumably be a huge leap in innovation and design.

~~~
derefr
To me, what this looks like is a final submission by Apple to the economics of
their own supply-chain.

Apple has never been able to make enough iPhones of each successive generation
for people to get their hands on during the first few months after release.
Whereas, once they've ramped up production, they tend to have all these parts
left over in the pipeline[1] that they have to sell off as N-1 gen hardware to
price-sensitive late adopters. (This is also why the iPod Touch was originally
created, to serve as a sink for N-2-gen parts.)

Now, Apple are trying to shift the purchase frenzy to the N-1 gen, and
position their new gen-N tech -- whose production hasn't yet been ramped up --
as something for early-adopters only. In other words, to switch from an (N-1,
N) view of the world, to an (N, N+1) view.

Everything in the S will filter down to the C of the next gen. They'll get
their pipelines saturated with 5S parts just in time to wrap them in plastic
and call them 6C parts. As long as more people buy Cs than Ss, this works out
perfectly.

\---

[1] By "in the pipeline", I mean the more general "economically incentivized
to produce units of, instead of units of the new model, by contractual
obligations to factories, training costs of factory workers, etc." Apple
actually keeps their literal pipeline of hardware-produced-but-not-yet-
shipped-as-a-product quite low.

~~~
kyro
That's interesting. Do you have any links to read more about their supply
chain and the origins of the iPod Touch?

------
Touche
This is classic innovators dilemma. Apple cannot release a true low-end, mid-
range, or even "low high-end" phone because it risks eating into the iPhone's
legendary profit margins.

Smartphones are becoming cheaper; Apple cannot hang on to the iPhone's profit
margins forever. As it ignores the trend it risks creating a generation of
smartphone users not in the Apple ecosystem. It's happening right now.

------
crusso
Such a big deal is being made of this initial pricing strategy for the 5C when
it's really such a transient situation.

Apple is going in with a high price on the 5C to keep the brand solid and
scoop up profits from early adopters who will just have to have the latest
pretty colored iPhone.

My guess is that the 5C's price will erode much faster than the 5S. Apple will
do its best to balance the mix to ensure that the product is sold and out
there.

~~~
simonh
This is exactly what I came here to say. This is another case of Apple skating
to where the puck is going to be in maybe 2 or 3 years time.

There is no point in Apple introducing a brand new truly low cost iPhone
because such a device would by necessity only be in the market for a short
time before it would get obsoleted. The 5C is set to be manufactured for the
next 3 years, so they will extract maximum scale effects and maximum sales
volume over the lifetime of the device.

The 'C' may well stand for 'Cheap', but not now. It stands for where it will
be positioned over it's lifetime. Other manufacturers bring out a new device
and only care about it for maybe 6 months, after which they're on to the new
thing and ready to forget the old one ever existed. Apple thinks really long
term about their device's full economic life cycle.

For example the iPad Mini was criticism for being too expensive, but that was
taking a short term view. I fully expect the current mini to continue to be
manufactured at a lower price point for another year, cutting off the air
supply to the cut price Android tablet market, but Apple is in no hurry to get
to that point.

~~~
Touche
> This is another case of Apple skating to where the puck is going to be in
> maybe 2 or 3 years time.

That phrase doesn't mean what you think it means. It has nothing to do with
planning for a long product life.

"Where the puck is going" is towards affordable off-contract phones and
cheaper carrier monthly costs. The 5C is Apple _doubling down_ on the carrier
subsidy model. It's the model that makes the 5C seem competitively priced.

It's ironic because Apple is often credited as standing against carrier power,
when in reality the status quo is exactly what will allow Apple to keep making
those legendary profit margins on iPhones.

Once unsubsidized becomes the norm (as started by T-Mobile and now being
adopted by others) they're going to be forced to compete on price at the
expense of margins. They can stay exclusively on the high end if they want,
but the high is going to be ~300-400 at most.

That's where the puck is going. Selling a 2012-grade 5C for competitive price
in 2015 is not "where the puck is going".

~~~
simonh
>That phrase doesn't mean what you think it means. It has nothing to do with
planning for a long product life.

It means acting now to best position yourself for the future.

I absolutely agree with you that affordable off-contract phones are going to
be a big part of the future. Previous iPhones were premium products that were
too expensive to manufacture for that to be viable, but the 5C is designed to
be much cheaper to make. While it's selling at premium prices now it's far,
far better positioned to become a strong medium end product in future.

------
Terretta
The article text states the _exact opposite_ of its own headline:

 _“Under the old model the n-1 variant was meant to be a modest volume
contributor to the portfolio, being essentially a cognitive illusion which
encouraged buyers to stick with iPhone n at the expense of competitors.
However, the new n-1 product (the 5C) has a distinct positioning that makes it
seem fresh and not a lesser, stale version of the flagship. It is designed to
appeal as a legitimate upgrade for iPhone 4 /4S users. It is, in other words,
_not_ meant as an illusion, and not focusing attention on the flagship[3].
Rather, it is meant to be a genuine, core product.”_

IOW, the iPhone 4 vs 4S was cognitive illusion, the iPhone 5C vs 5S is not
cognitive illusion. So, C _is not_ for Cognitive Illusion.

Opposite headline is better link bait, though.

~~~
taeric
I think the reading was that this model is to address the old cognitive
illusion. That is, the old n-1 model rested on a cognitive illusion to work.
The argument here is that this model is to take that place. (Make sense?)

------
akrymski
Obviously Apple is trying to turn the iPhone 5C into the plastic Macbook of
2006 - the best-selling laptop ever.

The MacBook was also more expensive than the competition, however consumers
(even students) paid up.

Arguably the price difference wasn't as extreme, but I'd be surprised if Apple
didn't lower the price to $499 or less, and announce a white+black models of
5C very soon.

However, I'd argue that the main reason consumers bought the Macbook was not
the Apple brand, but the vast gap between OS X and Windows XP. They bought
into the operating system, and that's what drove sales of other Apple products
from then on, because after all, that iPhone/iPod works better with a Mac.

Fast-forward to now, Apple's competitor isn't MS Windows. It's Android, which
doesn't cost a premium the way Windows did, and is arguably not inferior to
iOS.

OS X was more "open" compared to Windows, and not just due to its Unix
underpinnings. It didn't come with pre-packaged software and DRM restrictions,
but it did come with better software. It didn't force you to consume content
the Microsoft way, it embraced developers creating great apps like VLC without
charging them.

No more. iOS is a walled garden, even more so than Windows ever was. Sure
Google isn't a saint in that regard, and yet Android encourages competition.
It has no issue with Amazon's Kindle app selling e-books. It has no issue with
developers writing apps to replace "core functions". It knows that selling 10
units with a 10% margin is better than selling 1 unit with a 20% margin. It's
thinking long-term.

I still love Apple for its design and attention to product detail, but if
their greed and hubris continues to escalate, history may just repeat itself.

------
hacknat
Why is nobody talking about the camera improvements, the speed improvements,
and the fact that this is the first 64 bit phone? The improvements to the 5S
are actually dramatic, you just can't see them yet.

~~~
timdellinger
I'm wondering if those improvements will actually matter to customers - I'm
seeing diminishing returns with respect to putting R&D money into phones.

~~~
hacknat
A lot of the apps that you know and love wouldn't be possible without
performance improvements. Of course customers won't notice the improvement
directly, they'll notice in new software capability they previously didn't
have.

------
nicholassmith
As Hacker News users we can all consider ourselves in the top N percent for
technology product interest, so the iPhone 5C seems weird to us. It's plastic?
It's how much? In those colours? With those specs? I was talking to my
girlfriend and some friends who are distinctly not interested in the wonderful
world of tech and to them the iPhone 5C does genuinely seem fresh (although
pricing was a bit split). Apple's positioning the device to recapture the
interest of a market who's been saturated with many devices.

~~~
baddox
I consider myself in that same top N percent for technology product interest,
but I'm not at all confused about the 5c. Most smartphones, even flagship
smartphones, are plastic, and some have spectacular build quality. The price
is extremely competitive. I think the only complaints about price are
influenced by the rumor that the 5c would be the _free_ subsidized tier.
Ignoring that and looking at the 5c on its own terms, it's certainly a
competitive $100 subsidized phone.

------
weisser
Wouldn't pricing a new iPhone (regardless of version) too low have a negative
effect on the perceived value?

If the iPhone 5C had the same core components as the 5S I would get it instead
because the plastic is probably more durable and I'd like a colorful device as
a change of pace from the white and silver Apple products I own currently.

------
whichdan
A small point that's usually overlooked: assuming you're on AT&T, there's a
~$35 upgrade fee, $30 for a case, sales tax, and maybe an extra charging cable
or other accessory. A $99 phone is more like $200 for the average person, so
the comparison should be closer to $200 vs $300 rather than $100 vs $200.

~~~
joonix
You're not required to buy a case and accessories at the AT&T store. If
someone is price conscious, they will know they can get it cheaper elsewhere.
And I suspect a lot of people won't put cases on them since the shell is
plastic and the color of the phone is a selling point.

------
Cthulhu_
Could just be a sales strategy. "The 5C looks tacky, the 5S looks much better
and is only $100 more expensive!" And teenagers will probably go for the 5C,
breeding a new generation that likes tacky smooth glossy plastic in bright
pastel colors.

~~~
iwasakabukiman
What's tacky today might be fashionable tomorrow. Fashion is very fluid.

~~~
JohnTHaller
Not quite as fluid as some people think. Gold has been tacky for a while now,
at least in the states.

~~~
iwasakabukiman
But it's wildly popular in other parts of the world. Apparently it's the
number one color for aftermarket modifications of iPhones.

Look at the design of Sony products over the past 50 years. The design has
changed radically. Heck, even look at the Apple design language over the past
decade or so.

Things change. Everyone thought that OS X 10.0 looked very stylish at the
time...now it looks dated.

------
colinm
Apple's problem is that they are only relevant in a handful of countries while
competing in a global market. Android is crushing them.

~~~
CmonDev
It means that Bentley and Ulysse Nardin also have a problem.

~~~
danieldk
And the car analogy still does not fly. A Bentley will work fine on the same
roads a Volkswagen does. However, an iPhone will not run, say, Android apps.
If Apple's marketshare drops under a certain percentage, it becomes less and
less interesting to treat it as a first-class citizen.

~~~
GFischer
Network effects are very important, however, for now Apple users outspend
Android users by a very significant margin, so they can get by with a
relatively low market share.

As long as the spending trend continues, developers will continue delivering
products for the platform.

------
freakyterrorist
I think this opens them up to new experimentation at the top of the market.
The 5C becomes the everyday model that suits the average consumer. The 5S will
become the experimental super phone. Following on from this I would not be at
all surprised to see a larger screen phone join the 5S as a high end lower
volume model for those who can afford/want it.

------
zeckalpha
I think they decided they couldn't make the 5 any cheaper in the short term,
so they changed their product cycle.

~~~
ckayatek
Is it possible that Apple will settle for lower market share as long as they
retain a majority of the profits? I mean look at the PC market where Apple
sells relatively few units but controls nearly half of the profit. What does
it matter if you only control 10% of the market if you control 90% of the
profit in the long run.

Of course the issue in this argument is the App store. You could argue that by
building a huge user base could allow you to shift your profits from hardware
to software in the long run.

~~~
ZeroGravitas
I don't know if the numbers are hypothetical but Apple is probably going to
have roughly 10% of the smartphone market this quarter, but they'll also have
slightly less than half the profit share, which is some way off your 90%
figure. And both numbers are trending down from their peaks of ~25% and ~90%.

I'd also look to Intel and Microsoft if I was wondering where the profit in
the PC market went. I'm guessing your figures for PC profit don't include the
little known Wintel duo?

------
chrisdevereux
Agree that the purpose of the 5C is to keep margins up rather than grow market
share.

The interesting relationship isn't between the price of the 5C and the 5S,
it's between the price of the 4S and 5C. It seems to be targeting people who
would have bought a 4S, not people who wouldn't have bought an iPhone at all.

------
pioul
Interesting analysis. This shift in the number of flagship products might also
give a fresh start to the brand in the mind of iPhone users. Now that
everybody has an iPhone, "Think different" might regain some credibility if
you start using the new, more than good enough iPhone 5S.

------
lnanek2
Not really strange at all that the specs don't differ much besides the case.
Apple has always done this. Make a minor change like flash memory size, and
charge a heck of a lot more for the higher end version than the difference
actually costs to produce. They retain an easy to develop for ecosystem by not
having much difference and gain economies of scale on production. Whoever this
is doesn't really know much about the computer industry. He probably doesn't
even realize desktop processors are often produced as one model and cheaper
ones just clocked down to create artificial differences which retaining
efficiencies of only having to make one thing.

~~~
iwasakabukiman
Actually, Horace Dediu is a pretty well respected writer who does know what
he's talking about. Go read some of his past posts, they're pretty insightful.

~~~
ZeroGravitas
But skip the ones where he predicts success for RIM and Nokia (this is pre-
Windows Phone, which he predicted they would never move to), and failure for
Samsung because the former are "integrated" and the latter is "modular" (even
though they make their own silicon, screens, RAM, etc.).

And the one when he says Android will never have more than 15% of the
market... (currently at 80%) and certainly never more than Microsoft
(currently 3.7%).

And any when he mentions open source, which he doesn't understand at all.

------
mpg33
I dunno...assuming the original iPhone 5 would have been bumped down to the
same price as the 5C is releasing as... I would rather have the iPhone 5.

