If you missed it last week, Apple updated their iPod touch line to include a new version of the 16GB entry-level model. It now includes a rear camera and color choices, bringing the specs in line with the 32Gb and 64GB versions. Despite its premium pricing of $229, he previous low-end model was severely knee-capped when it was first introduced, with no choice of colors and no rear camera. Prices have also been adjusted to a more reasonable $50 difference between each model. Value increases as you move up the line, with the most expensive 64GB iPod touch offering the most value at $299. Only $100 separates the 16GB from the 64GB. When you compare pricing to the iPhone 5s, each incremental jump costs you an extra $100. Double. That’s a nice profit for Apple, but has that ship sailed? Should we expect similar pricing when the iPhone 6 is introduced?
Apple doesn’t break out just how many 16GB iPhones they sell compared to other models. With its lower price point, it wouldn’t be a stretch to assume it’s their most popular selling iPhone. That’s likely even more so with the iPhone 5c, where consumers are looking for the most value. They don’t even offer a 64GB version of the iPhone 5c. Before buying a new iPhone, it can be hard to quantify just how much space you’ll need. If your previous iPhone had only 16GB and you didn’t have space issues, the decision is much easier. When you’re committing to a 2-year contract, you want to be sure you get what you need. A good portion of customers buy on price. They’ll buy the cheapest iPhone 5s or the cheapest iPhone, selecting the 5c. There is nothing inherently wrong with that decision, but it often puts folks in the unenviable position of managing their storage. It’s similar to iCloud storage pricing, which also puts customers in a bit of a storage quandary. Offer 5GB free, a paltry amount for sure, and then proceed to offer expensive upgrade options. Thankfully, Apple’s iCloud storage pricing will become competitive this fall. Also with iCloud, your storage options are scalable. You can order more as you need it. With iPhones, you have no upgrade options. Some phone manufacturers offer microSD expansion, allowing you to turn phone with16GB of storage into 80GB after a $30 purchase at Amazon. It might not be as elegant or efficient, but it is consumer friendly. Need more storage, buy a card or two or three.
Everyone knows that Apple has higher margins. Most folks have no problem paying the added cost for what is often a superior product. Navigation in a BMW costs more than navigation in a Ford, but there are differences in what each may offer. There is no differentiation in storage. When you aren’t comparison shipping, you often don’t notice the value or lack of. Apple’s iPhone storage pricing is awful, for consumers, but it’s only a small part of a bigger value equation. When you compare to an Android or Windows Phone, it is an apples to oranges comparison. The storage pricing on the iPod touch is different. These are Apple prices on Apple products. It may cause customers to pause when reviewing the pricing of the iPhones. For those purchasing 32GB or 64GB models, the pricing has got to sting. Motorola prices their 16GB/32GB/64GB variants in $50 price increments, following the same pricing structure as the iPod touch. While I’m not suggesting this is reason to start looking at a Moto X, it does present for an interesting comparison. Apple makes more money on their best customers, if you align best with those spending the most money, with less return.
So is the iPod touch pricing a sign of things to come? Can we expect to see a 32GB iPhone 6 priced at $249 this fall? I doubt it. Apple will want to capitalize on the buzz generated by the bigger iPhones, one that could be the biggest upgrade cycle yet. It wouldn’t be surprising to see Apple shift pricing up to $249 for the base 16GB. It would be the first time in recent history that a new iPhone didn’t debut at $199. When you factor cost of materials, the move might be inevitable. I suspect there would be little outrage over a $50 cost increase for a product that is vastly different than anything we’ve seen – from Apple. By shifting the base model up, it offers more room for the value iPhone to breathe. I say value because as proven by the iPhone 5c released last year, Apple doesn’t do cheap. Maybe Apple keeps the iPhone 5s in the lineup. It could serve double duty as a product that occupies the $199 price point and satisfies customers who don’t want a bigger display.
As for storage pricing, my expectation is that we’ll see more of the same pricing, with value skewed towards the lower end. I fully expect the 4.7-inch iPhone to be priced at $249/16GB, $349/32GB, $449/64GB. If Apple thought for one moment that customers would start fleeing to other platforms, you’d see storage pricing that is more in line with reality. The iPod touch is a product from 2012. It’s not using an A7 processor or the latest camera optics. Older components allows Apple to still generate nice returns, despite offering customers more value based storage options. New pricing also helps stir up interest in a product that’s almost two years old. Companies like Motorola cannot command the same markup on storage, without significantly impacting demand. When the iPhone 6 ships, it will be best in class, but this time with a big screen. Any discontent over storage pricing will be overshadowed by strong demand. If you are put off by the high prices of storage, remember that you don’t need the one with the bigger geebees.
Will Apple finally relent, offering what most would perceive to be fair pricing on storage?