Where Apple’s iPhone Pricing Strategy (and the iPhone) Falls Apart

With the latest change to the iPhone lineup, Apple’s current iPhone segmentation strategy has come into focus:

The 2011 iPhone lineup

Rather than design a new phone specifically target the middle and lower segment, Apple simply keeps manufacturing and supporting previous years’ iPhones, which can be made at a lower cost as Apple squeezes down their component and assembly costs over time. To wit, Apple now sells the 2010-vintage iPhone 4 and the 2009-vintage 3GS alongside its brand new iPhone 4S.

There are many advantages to this strategy. Apple saves itself from the considerable engineering cost and effort of designing dozens of phones (and issuing specific software updates for them), and greatly simplifies its logistics with a smaller number of SKUs (Samsung has an astonishing 136 phones currently for sale, and that’s just in the United States).

If price were the only factor in making a phone suitable for the proverbial “next billion” or “bottom of the pyramid,” or whatever you want to call the vast majority of people who don’t live in the developed world, Apple’s strategy would be fantastically clever. Unfortunately, reality intervenes: Apple’s iPhones simply aren’t developing-world-friendly.

This isn’t mere conjecture; I spent 2 years working in India. The heat, humidity, dirt and dust, shocks and jostles, and the occasional monsoon make quick work of iPhones, whether you have them in a case or not. Of my class of half a dozen recruits, 3 of us arrived in India with iPhones, and all 3 of us had them break somewhere along the way. When my 3G bought the farm, I replaced it with a 3GS, which still managed to have its headphone jack fail, its dock connector warp, and its volume rocker mysteriously fall off in my remaining months in India–to say nothing of the white plastic housing that developed cracks and began to separate from the phone’s front. And even before it broke, my iPhone’s speaker was simply too small to really be heard in India’s crowded streets.

The developing world is where Apple’s iPhone pricing strategy–and the iPhone itself–falls apart.

Normally when one is looking to counter criticism of a particular Apple product or strategy, we can point to a chart of Apple’s gangbusters sales growth and profits as a rather effective counterpoint (“you may think not having flash in iOS is a dealbreaker, but evidently a hundred million iPhone customers disagree”). Alas, the naysayers have the upper hand when it comes to Apple’s strategy in India, where Apple sold a whopping 62,000 iPhones–fewer than it sold in such demographic giants as Belgium, Norway, and Israel.

The phone itself needs to be designed for the developing world with improved resistance to dust and moisture, louder speakers, and other features more appropriate to the wants and needs of the market beyond merely having the right price. Selling last year’s phone at a lower price is only addressing half the problem, which is why Apple continues to lose out to Android, Nokia, and RIM (RIM!!!) in India.

I have no doubt that Apple knows this. They are smart and forward-thinking. They know what they’re doing, and I’m sure they have a lower-cost, more durable iPhone in their labs. But I wish they would pull the trigger before India and the developing world–the hotbed of future mobile tech innovations–throw their weight behind Android and Nokia

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The Real Mobile Tech Revolution…

While the small sliver of people lucky enough to live in the developed world (perhaps 1 billion of the 7 billion souls now in this world) currently deal with omnipotent smartphones with screens that blur the distinction between smartphones and coffee tables, and ponder just how revolutionary our and social picture sharing apps (with badges!) and this week’s group messaging app are, there is a real revolution taking place in the developing countries that are home to the great majority of humankind.

Shafique Khan, right, demonstrates to Ghisi Lal Varma, center, a 61-year old farmer, a new grievance reporting service to use for sending complaints via text message to the government about problems in the village. (Caption & Image credits: Rama Lakshmi/Washington Post)

A recent article in the Washington Post titled “Indians use cellphones to plug holes in governance” gives a glimpse of the sort of wondrous changes that mobile technology is bringing to those who until now had never known the power of connectivity.

“The ubiquitous cellphone, with about 750┬ámillion users in India, and open-source Internet platforms are being deployed to ensure that trash is picked up on time, to track bribes and to help people learn English, find jobs and report incidents of sexual harassment on the streets.”

I spent 2 years in India working for one of India’s big companies, and witnessed dozens, if not hundreds of ways large and small that the mobile phone is transforming Indian society. It’s what inspired me to move to Silicon Valley and take part in the revolution.

What’s all the more remarkable is that they’re doing all this with phones like this:

The Nokia 1100. The best-selling single model phone (and possibly any single electronic device ever) in the world

No gyroscopes, no game monetization frameworks, and no $500 iPhones in this revolution–all it takes is the incredibly simple and deceptively powerful tools of voice (remember that?) and SMS. Gradually, as the capabilities of ultra-basic phones grow, these revolutionary services are expanding to encompass GPS and cameras, as is the case in Hyderabad:

…The local government uses Global Positioning System technology and cellphone cameras to manage the mounting problem of uncollected garbage. Sanitation supervisors take photos of overflowing trash cans, and the images are uploaded in real time. Officials say this helps hold sanitation workers accountable.

The phones may not be smart (yet…), but the people devising new ways to use them sure are.

The Real Mobile Tech Revolution will not be televised…

It will be texted.