Terror of cannibalization now rules Apple

Apple iPhone 5C Price

Fear is a good servant, but a terrible master. And fear now clearly rules Cupertino — the fear of cannibalization. Apple is already receiving a master class in product cannibalization theory and practice in the tablet category. The iPad average selling price has tumbled faster than projected over the past two quarters. It looks like that lesson has stung; the decision to price the iPhone 5C at $99 with a two-year contract is a substantial surprise. At this price point, there is zero chance of the “value” phone eating into the iPhone 5 or iPhone 5S sales significantly.

The unsubsidized retail price of the iPhone 5C is $550 for the 16GB model and $650 for the 32GB version. Shares of Apple stock dipped more than 2% on the news.

This is absurdly, giddily expensive in the world where global smartphone ASPs are plunging towards $370. Something like 80% of Chinese consumers buy their phones off contract. It will be just fascinating to see how the $550 “budget” iPhone will fare against the latest Xiaomi and Huawei Android phones with 8-megapixel cameras and $130 off-contract price tags.

Apple’s reluctance to get aggressive on pricing is giving the Google Gang of low-cost Android vendors a lot of room to move in coming quarters. We now know that Apple’s number one priority is to protect its handset margins — not to fight the global handset market share expansion and the explosive mobile app market growth of the Android camp.

Apple has essentially chosen to replay the PC market script from 1980s and 1990s. Hopefully with a different third act.

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