Much has been written about the new iPhone, that was not launched in the typical Apple June refresh. Most of the articles written have been rumors and speculation about what the new iPhone will look like or what technology will be included. I call this the “what” stories. They include stories that evaluate purported component manufacturer design changes to conjure up new iPhone specs such as a bigger home button, different screen sizes, etc. In the meantime, the more important question (at least from an investor standpoint) goes unaddressed.
Why was the new iPhone delayed?
Was the delay driven by a series of tactical circumstances, or reflective of a deeper strategic perspective at play? Let’s examine the possibilities and try to reach a conclusion about the most likely reasoning. This reasoning will make a big difference in what we think will happen to the competitive landscape post launch.
On the tactical front, we may attribute the delay to unforeseen development or supply chain caused issues. In essence, the design was not done, or some key component was not available or quite ready for prime time. Or, the software changes they were making to the new iPhone were harder than anticipated, and so they bought time (since IOS 5 was already announced as being available in October). With Apple it is hard to know exactly if this is the case because they never set expectations on when things are supposed to happen (except when they are ready to get it out the door, and pretty assured it will get out). They have been less guilty of “vaporware” announcements than many other competitors in the consumer technology landscape.
It is plausible that the delay of the new iPhone was entirely tactical, but my view is that it was not. My hypothesis is that the delay was not tactical, it was part of a strategy, it was deliberate. And, my belief is that Apple has delayed the new phone launch to inflict pain, to expand it’s lead, and to drive a stake into the competition. Let me explain why I think so.
Apple is the “thinking” company. They have a long view, learn fast and make tough decisions that create advantages, that are rarely understood by competitors. Take for example the decision not to include a keyboard on the iPhone (remember Microsoft, Nokia and RImm reaction?), or the exclusion of flash (Microsoft just announced Windows 8 will not have a flash plug-in, in contrast to the entire industry reaction when this announcement was first made). So what lessons do we know apple has learned?
- Unlike competitors, Apple did not need to deliver a new iPhone model in June. Amazingly, even though it’s competitors churn out new models more frequently, the iPhone 4 which is over a year old, continues to outsell the competition and gain market share as a device. The buzz continues to grow, and even rumors of a new iPhone has not been much of a damper on demand for the current model (ancient is what the competition would like you to believe, but the market does not seem to agree). This meant Apple was at leisure to pick the timing of it’s next launch. That the timing would be such to have strategic value is a logical conclusion.
- The iPad lesson is that a product with dramatically enhanced feature set, at a price point hard to match by the competition, is a killer combination. We have seen the carnage in the tablet market as Blackberry Playbook, and HP Touchpad have failed to gain any traction. At the same time, Samsung is having a tough time dealing with the multiple lawsuits around the world which keeps them from selling the Galaxy tablet.
- There are dramatic advantages in Apple design and the ability for the supply chain to react flexibly. The fact is they have the most streamlined line-up of products on a global scale, from a supply chain perspective. They can achieve differentiation with software and much simpler changes of memory chip sizes, than the competitors who have multiple designs, internal electronics etc. So, the bet when Apple goes from one design to another is relatively safer and less costly than the competitors. For example, The Touchpad bet on launch required a commitment against some 500K devices, which if unsuccessful (as they were) cost a pretty penny. The supply chain bet for competitors to go up against Apple have been increased dramatically because of the scale of the bet. The Apple Samsung injunctions, for example, mean that Samsung might have products built or commitments made to technology that will likely have to be revised (or worse obsolete) by the time they are able to resume deliveries.
- Timing matters. The competition have all been practicing “fast follower” strategies. Apple makes an announcement of a new product with a delivery some time in the future, and the competition scramble to deliver a near capable solution before Apple ships. HTC and Samsung were both able to do this on the original iPhone launch. Fortunately for Apple, the device alone is not the sum of its offering (a lesson that most of the competitors have not learned yet as they frequently focus on their better specs, appealing to the least profitable segments of the market). While the competition has gained market share (from Blackberry and non-smartphones), they have been far behind Apple in profit share.
So what happens if we put this all together and Apple delivers a killer product line up in the most critical selling season, with no reaction time for competitors? We know that the last quarter of the year is the biggest selling season. Supply chains gear up well in advance to provide holiday treats and goodies. Rest assured many new iPhones will be sold this year also. The question is which device will have all the buzz? If the new iPhone lineup has a combined world chip (GSM and CDMA), it’s scale could allow it to deliver a single design globally, perhaps at costs below what a competitor might be able to deliver just one of those of those technology standards. If they announce a new lineup with a short delay for shipment, say two weeks, that will not give competitors enough time to ramp up “fast follow” pre-emptive design and delivery. If they deliver in October, they will have the whole season for buzz to build. If a great competitor can follow say six weeks later (which would be a quite remarkable feat), they would be trying to launch in mid-November. This will make the bet extremely expensive and risky for any competitor. It will require extremely high volume commitments and occur at a time when supply chains are constrained. And, what happens if those devices don’t sell? Ask HP!
We will find out shortly what the new iPhone looks like, and may be able to infer the reasoning for the delayed launch. For now, I am betting that Apple will deliver a well thought out line-up which is deliberately timed to create a large iPad like competitive gap between the iPhone and it’s competition. What do you think?