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Apple is beating Android where it hurts the most

iPhone Vs Android

Ever since iOS and Android first started going to war in the smartphone world, there’s been a clear division in the market. Apple and Samsung make money on expensive flagship smartphones, and everyone else scrapes along the bottom with $200-400 phones making up the bulk of sales (and profit).

But a new report shows that while Apple has continued to eat the lion’s share of the high-end profits, it’s also starting to scoop up an increasingly large portion of the low-end phone market, which could challenge the very existence of smaller Android brands.

Fierce Wireless notes that Apple became increasingly aggressive about pursuing the prepaid phone market in 2016. Prepaid almost always means cheaper mid-level phones, which makes sense: Apple launched the iPhone SE partly to shut people like me up about the size of the iPhone 6, but also to target the mid-level phone market.

According to Fierce, Apple secured a prepaid distribution deal with Costco and started major retail placement buys with AT&T and Best Buy. It also worked with prepaid phone carriers like Boost and MetroPCS on deals for the iPhone SE, iPhone 6 and iPhone 5S.

It looks like the strategy worked: the iPhone SE made up a huge 5% of all smartphone sales in the US in the first quarter after release, and up to 10% of market share in the UK. Data showed that a big portion of those buying the SE were new to Apple, which implies that the SE was successful in dragging in users who were previously using cheaper Android devices, or no smartphone at all.

The iPhone SE’s success also tells us a little about how Apple might play things out over the next 18 months. Traditionally, Apple’s only cheaper phone offering has been older iPhone models, which can slip to around $300 new two years after launch. But with the success of the iPhone SE, Apple might continue offering a cheaper new iPhone, especially since it sounds like there will be congestion at the top end of the iPhone market.

Some Apple pundits are claiming the iPhone 8 will cost upwards of $1,000, way in excess of the base price of any current smartphone on the market. The price is plausible, given the anticipated cost of the components to make Apple’s fancy new industrial design a reality.

But Apple’s also expected to release a new iPhone 7S and iPhone 7S Plus later this year. We’re all currently assuming that Apple will give the internals a spec bump and keep the price more or less the same. But what if it tries something different? The pricing for a mid-range smartphone is a moving target, and it’s plausible that Apple could sell a smaller iPhone 7S — or even a barely-changed iPhone 7 — for around $500. That would undercut competition like the Galaxy S8, and leave enough room between the iPhone 8 and iPhone 7S that they wouldn’t cannibalize each others’ sales.