If recent reports are accurate, Apple will unveil the next-generation iPhone — or iPhones — in just under three weeks.
Every new product from Apple is big news, especially when the company goes nearly a year without a major product launch. But nothing compares to the iPhone. Apple is, at least for now, still primarily a smartphone company: It generated $18.1 billion in revenue from iPhone sales in the most recent quarter, more than all of its other product categories combined.
However, when CEO Tim Cook takes the stage next month to kick off the iPhone event, he will be pitching a product for a smartphone market that has changed in several noticeable ways since he and Apple introduced the iPhone 5 a year ago. The iPhone's success will depend in large part on how Apple has adapted to these changes.
Stronger Competition, More Aggressive Marketing
For the first two or three years after the iPhone launched, Apple was primarily competing against itself in the smartphone market. That has changed in the last several years as the quality of the Android experience in particular has caught up and, some might argue, even surpassed that of iOS.
In the past year, not only has the quality of new smartphones on the market improved, but the marketing efforts for those products has also become increasingly aggressive. Samsung is estimated to have spent more than $400 million promoting its phones in the U.S. in 2012 with campaigns that included plenty of anti-Apple ads. Likewise, Google is reportedly willing to spend as much as $500 million to market the new Moto X phone and ensure that it can compete. Apple spent around $333 million.
"It's a much more competitive market," Van Baker, VP and research director at Gartner, told Mashable. "You do have more name-brand phones with good feature sets and strong operating systems. The question remains as to how successful those brands will be."
Apple can take some comfort in knowing that it is still the market leader among smartphone manufacturers in the U.S., but the most recent data from both Nielsen and comScore suggest its lead is dwindling as Samsung gains ground. The picture is bleaker when you focus on Apple's platform market share, which has continued to decline in the U.S. and abroad during the past year, while Android's dominance has increased.
"The market is being spread more evenly between Apple and Samsung in the North American market and between Apple and more providers including Samsung in other geographies," Baker said. "It's a more level playing field out there."
The Shift Towards Larger Phones
Even before Apple released the iPhone 5 last September, there was plenty of talk about whether the growing number of larger phones — often referred to as phablets — would push the company to release a larger iPhone. Sure enough, Apple did just that by releasing a phone with a 4-inch screen, but recent consumer trends suggest that won't be enough.
More than half of Android smartphones sold in the United States during the June quarter had a screen size of at least 4.5 inches, up from just 12% during the same period a year prior, according to data provided to Mashable by Kantar Worldpanel ComTech. For Samsung, that percentage is even higher.
"The overarching sentiment was, 'These things are clumsy, they're too big, who would ever want one?' Well, it turns out a lot of people want them," Charles Golvin, a principal analyst at Forrester Research, told Mashable. "I wouldn't say that the iPhone's screen size is an Achilles' heel, but clearly there is an appetite among customers for bigger screens."
During one Apple earnings call earlier this year, Cook highlighted the many "tradeoffs" of producing a smartphone with a larger display, including screen resolution, portability and adaptability to existing apps. "We would not ship a larger display iPhone while these tradeoffs exist," he said at the time.
Golvin notes that he never takes anything Apple says at "face value," as the company has a track record of changing its mind — to put it mildly.
High-End Smartphone Saturation
Cook has said he doesn't "subscribe to the common view" that the high-end smartphone market is approaching its saturation point, but many analysts disagree.
One recent research note from Citi estimates that smartphone penetration may be as high as 80% in developed markets. Similarly, Forrester found that 79% of high-income adults who are "technology optimists," or what the researcher describes as "early adopters," own a smartphone.
"When you saturate the high income segment, then you get into a market where price is a much more important determinant of adoption," Golvin said. "As the markets get more saturated, demand for things like color and other personalization elements is more important."
That change doesn't just impact Apple, but all smartphone manufacturers. Golvin points to the example of Moto X, which lets consumers customize the look and feel of the device.
"I don't think they need to go to the Moto X extreme of multiple options for textures and things like that, but I think we're going to see something beyond black and white," he said, alluding to the rumor that the next iPhone will include a gold color option.
Slowing Growth in China
Cook has said that China will eventually become Apple's largest market, and the company has taken steps to help speed that along, including opening up more retail stores and introducing more software features geared towards living in that country. Yet in recent months, something went wrong.
Apple's third-quarter revenue from Greater China dropped 14% year-over-year and 43% quarter-over-quarter, driven by weakness in Hong Kong. During the earnings call, Cook admitted that "it's not totally clear exactly what occurred."
Some analysts estimate that Apple's share of the smartphone market in China has been nearly halved as consumers gravitate to cheaper phones from local companies.
"I do think the focus on China especially has increased because the growth in China has slowed down," Baker said. Like others we spoke with, he believes the rumored cheaper iPhone — dubbed the 5C — may help Apple boost demand in China's market. "While this has probably been in the works for a long time, I do think it's become more important given the current economic climate in China."
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