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Tim Cook may regret dismissing low-cost smartphones as ‘junk’

September 20th, 2013 at 12:40 PM
Apple CEO Cook iPhone 5c Analysis

The most striking takeaway from Thursday’s big Bloomberg Businessweek interview with Apple CEO Tim Cook was that he views smartphones that are priced in the $300 to $450 range as “junk” that Apple wants nothing to do with. While it’s certainly true that Apple has made its money by selling high-end products such as MacBooks, iPhones and iPads to well-off consumers in developed countries, Cook should realize that people in emerging markets who are buying cheap smartphones aren’t simply destitute peasants who will never be able to afford Apple products. Rather, they’re part of a rising class of consumers in economies that are growing very quickly — in other words, potential future Apple customers.

And this is why Cook’s view on low-cost phones being “junk” is potentially destructive to Apple’s interests: He is seemingly shrugging off low-income consumers in countries such as China, India and Brazil whose economies have been growing fast and whose populations total nearly 3 billion people.

In theory, Apple could have developed a smartphone that was cheaper to produce and could have priced it at between $350 to $450 to make it more affordable to people in these three markets. This would have certainly given the company a good foothold in those countries since consumers have shown that they’re willing to pay a premium for Apple products as long as they don’t have to sacrifice feeding themselves to buy them. But instead Apple released the iPhone 5c at $550 off contract and arrogantly declared that “we’re not in the junk business.”

I don’t expect this to hurt Apple in the short-term since its customers in North America, Europe and the Asia-Pacific region will continue to buy high-end iPhones at a healthy clip. But in the long-term, having a minimal presence in China and India is not healthy for the company.

App developers in these countries will start making apps for Android and even Windows Phone first and foremost if the iPhone’s share in these markets keeps tanking. And by the time the “junk” buyers in emerging markets see their incomes rise to the point where they’ll be able to afford an iPhone 5c or 5s, they might still stick with Android and Windows Phone simply because that’s what they’ve grown used to and it’s where all their favorite apps are.

I’ve learned to not second-guess Apple’s business decisions over the years because the company has absolutely shown that it knows what it’s doing. At the same time, though, I can’t help seeing writing off billions of consumers because they’re supposedly interested in “junk” as a strategic mistake.

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