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The iPhone 6 era is just 10 days old, but for Apple it was already underway sometime last year. By April 2013, company executives understood they had a strategic vulnerability. The booming smartphone market had expanded remarkably in 2012, growing from 494 million units the year before to 722 million sold. While 70% of the gains occurred in phones below $300 -- a market Apple had no intention of partaking in -- the rest came from phones with screens larger than the iPhone's 4-inch display. Worse still, premium-priced phones with 4-inch screens actually was a shrinking segment, down 22 million. That Apple managed to sell more iPhones was a remarkable achievement but it meant challenges lay ahead.
We know these numbers from Apple's own internal documents, made public in the patent trial with Samsung. While we don't have the follow-on data for 2013, smartphone shipments again boomed, crossing 1 billion units. Apple managed to grow iPhone sales 13% last year, but that was barely 1/3 of the 38% industry-wide figure. Given the recent pattern of iPhone revamps -- a physical redo in the first year followed by internal changes in the follow-up -- Apple's strategy discussion last April surely never touched upon making changes to the iPhone 5s. It was simply too late to do anything about that. But the long build up to the iPhone 6 and 6 Plus, with the larger screens already favored in the premium (and sometimes not-so-premium) Android segment was inevitable.
The iPhone has become Apple's most important product in numerous ways. Not only does it represent more than half the company's revenues, expected to be $180B for the fiscal year ending tomorrow, but it contributes even more of the company's gross margin. It's also the iPhone that drives app development, where Apple's App Store continues to get more new apps first, despite iPhone's smaller market share. With the least expensive iPhone still running at $450 unsubsidized, Apple is clearly not targeting the lower price bands. But it couldn't continue to miss out on growth in the premium segment it had come to define and dominate.
In choosing two models to fill the void, Apple is playing a clever game. It can satisfy customers who feel the need to have among the largest screens while also creating an "anchor" that makes the basic iPhone 6 seem less big. The effect here might best be understood by way of example. Several years ago, Sharp introduced the first mainstream 70-inch televisions. While they did manage to sell some, customers were intimidated by the size and buying the "biggest thing out there." Not long after, Sharp brought an 80-inch model to market. With sales almost a secondary goal, a major reason for the larger model was to make the 70-inch look less intimidating in showrooms. It worked quite well, Sharp execs told me at the Consumer Electronics Show. Sales of the 70-inch rose nicely and the effect was so successful the company later started selling a 90-inch model which boosted sales of the 80.
The iPhone 6 Plus similarly helps sell the iPhone 6. That's critical for Apple because right now it has chosen to continue another iPhone tradition: Selling mostly one model while offering several. Though we won't know the real ratio of iPhone 6 to 6 Plus until the latter is more readily available (right now it's about 6:1), we can assume from Samsung's experience with Galaxy that the smaller model will be the far bigger seller. Knowing that, Apple is likely already ordering more of the 4.7-inch screens and the smaller chassis and batteries by far. Of course, should the mix vary from what's planned, the company can adapt. But the lead times on some of these parts in the mammoth quantities Apple uses them make having some foreknowledge critical.
In choosing to create the 6 Plus, Apple made it clear the future is mainly the 4.7-inch screen . This was a clean break from the 4-inch design of the 5/5s and the even smaller 3.5-inch display of the 4/4s. Some long-time iPhone users will find the transition uncomfortable, which is why the 5s will remain on sale not just this year, but also almost certainly next. While resolutions may converge on the 1920 x 1080 of the iPhone 6 Plus eventually and perhaps the display will gain a tenth or two of an inch, the physical size will likely as a maximum for some time.
But the main focus of offering larger models wasn't to attract people already happy with iPhones*, rather it was to offer up something Android users could consider as an option. It goes back to than anchoring effect. I spent about 6 days with an iPhone 6 Plus. Personally, I didn't care for it finding the device too big to use at all with one hand and awkward in general. But something remarkable happened when I placed a 5s back in my hands after relinquishing the 6s. It felt downright tiny and almost toy-like.
Basically, in less than one week a device size I'd used daily for two years -- admittedly with some frustration, but constantly nevertheless -- went from reasonable to ridiculous. My brain and hands had become acclimated to the bigger keyboard and screen that quickly. It's certainly true this effect can work in reverse. There are Android users who have given up a Moto X or Galaxy S4 in the past year and come over to iPhone and adjusted. But Apple had to understand that mentally the transition from large to small was difficult and few would make it, especially when the initial visceral reaction is: This iPhone is really puny.
After about half a day back with the 5s, I picked up an iPhone 6 and it felt pretty close to perfect: The design makes it feel smaller than it is, yet the extra screen real estate provides much of what I found wanting in the iPhone 5s. The 6 is slightly smaller in size to the current Galaxy S5, but far more comfortable to hold thanks to the contoured edges. (Apple gives up .4 inches in screen size to get there, a tradeoff many Android users could likely live with as the diagonal is nearly identical to the Galaxy S3, Moto X and others.) There's a lot more to say about that comparison, which I'll leave for an upcoming post. But for now, it's important to understand that with Apple, little happens by accident. The company saw the weakness in its product mix as demand shifted toward larger models, especially in the high-end segment where it plays. Arguably, it took longer to respond than it should have but in coming to market with a complete lineup, it closed nearly all of its vulnerabilities at once. The one hole still to fill appears to be in the $300-$350 range. But that, too, is a much longer conversation.
* Another important segment, those potentially leaving iPhone for Android's bigger displays, matters too. That they exist at all, however, further points out the need to attract Android users to iPhone.
