Apple Inc. (NASDAQ:AAPL) announced that its newest model, the iPhone 5C, wouldn’t be nearly as cheap as people expected, and venture capitalist Fred Wilson is disappointed, calling the company clueless. The phones will be significantly more expensive in China than in the U.S. (smartphones are often less expensive in the U.S. than the rest of the world), but it’s the contract option that Fred Wilson is most annoyed by, writes Jay Yarow for Business Insider.
Fred Wilson on Apple’s iPhone 5C
“The C in 5C does not mean ‘cheap’ as I had hoped. It means clueless, as in clueless about how the vast majority of new smartphone users are paying for their phones,” writes Fred Wilson.
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In the U.S., the iPhone 5C will cost $99 with a contract and $549 without one, while in China the unsubsidized phone will cost more than $700. But outside the U.S. contracts are far less common. “The reality of much of the world is that people don’t sign two year contracts like we do here in the U.S.,” says Fred Wilson. “They buy pre-paid sim cards and stick them into unsubsidized phones.”
Making the iPhone 5C affordable to people on a basis that is unacceptable to them means taking into account that contractually obligated payments don’t work well for people whose income is variable. Fred Wilson is assuming that Apple Inc. (NASDAQ:AAPL) wants to capture the market entirely. Google Inc (NASDAQ:GOOG)’s Android OS is growing in popularity, and he had expected Apple Inc. (NASDAQ:AAPL) to release a cheap iPhone to spread the App Store, but that has never really been Apple’s strategy.
Same functions but high price
Apple Inc. (NASDAQ:AAPL) products are more expensive than competitor’s products with similar functionality, but people are happy to pay a premium for a product that is more aesthetically appealing, and to buy into the Apple Inc. (NASDAQ:AAPL) brand. If half the world starts carrying cheap, sub-standard iPhones, the mystique will evaporate along with the premium that Apple Inc. (NASDAQ:AAPL) now commands.
Apple Inc. (NASDAQ:AAPL) is giving people an entry model that is slightly less expensive, but it doesn’t have much interest in selling phones to people who are broke. It doesn’t matter how many people use Google Inc (NASDAQ:GOOG)’s Android as long as Apple Inc. (NASDAQ:AAPL) has a grip on the wealthier professional and creative classes.