Could it be...
... that Apple is now looking to widen market share as much to funnel traffic into the App stores as to actually sell phones?
If they're going to make the cash up later the initial phone can be that much cheaper.
Apple isn't working on a smaller iPhone, contrary to previous rumours, but it is trying to make the handset less expensive. So claim the inevitable unnamed sources "briefed on Apple’s plans" - our assumption would be Apple PR people speaking off the record, but that is just an assumption - who spoke to the New York Times. Why …
Apple spend around $500 million a year on marketing [they spent $690 million all told launching iPhone4 & iPad spread over 2 fiscal years] - rather more than they make from the App store or are likely to this side of Hades cooling.
They'd do better giving away Apps and music than dropping the $200-odd a handset margin. If they're making a cheaper handset it will be to account for this year's markedly increased production costs eating into profits as much as anything else.
Shrinking the display significantly would be an issue, as UI controls have a certain size in pixels (points actually) and shrinking them would cause them to be too small to touch. So there is a software impact to physically shrinking.
Having a retina display or not is no problem, but any non-integer scaling factor would be disasterous.
Worse display on an iPhonre than an iPod Touch? I doubt it.
All the rumours can be true at once, assuming that Apple are constantly working on several different form-factors, plus prototyping.
Do many people buy the 3GS, now that 4 is out? If so, then there's no problem. Apple can make even huger profits selling the year old phone - with no production lines to change, and component costs will have dropped even further.
Apple's one model a year policy must be such a great advantage to them. If they make $100 margins on day one, they'll probably get up to $150 margins by day 365, as components get cheaper.
So if Apple can sell the older phone as a budget one, why bother with an iPhone nano? However, if sales aren't good, because it's difficult to differentiate the products, then a smaller iPhone might make sense.
The other question is, do Apple think it would cannibalise sales of the iPhone 5?
In the PC market they've been happy to keep their sales smaller, but extremely profitable, and have made no effort to move into a cheaper price bracket. Yet with the iPod they've done a bit of both. They've kept margins high, in comparison to the competition, but they have issued models at all different budgets.
It seems to me that the phone market is different to the PC one for Apple, in that they're making lots of profit from after sales, with iTunes, Apps, 30% on subscriptions etc. So every extra customer brought in is more profit - as well as more negotiating power with content producers. So market share is important to increasing their profits, which it isn't with PCs.
However, that may not be how it seems to Apple... So I guess the answer is, who knows?
Did I really just waste all those words to say that? Yes. Sorry. And you wasted all that time reading it too. Such is the world of the Apple rumour merry-go-round.
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