Bring Your Own Cannibal

If we can take the fact that the iPhone 5 is a lock, then the two mystery products for this fall are;

  1. A low cost iPhone for pre paid and international markets.
  2. The iPad 3 with a retina screen resolution.

Now there are compelling arguments against both products being released this fall.

For the low cost iPhone, Apple just sold 20 million regular $600 iPhones. There appears to be no signs that the iPhone’s market momentum is slowing. Apple’s margin on the iPhone is creating a massive cash reserve to allow for a host of future acquisitions and component deals for the rest of the iOS lineup. The business is booming.

For the iPad3, Apple owns the tablet market right now. In fact, numerous columnists argue there is no tablet market, just an iPad market. Apple’s only issue is building enough iPad’s to satisfy demand. Apple is so far ahead of anyone else that another product isn’t needed right now.

Based on those arguments alone, you’d think that both products are at least 6 months. However, if there’s been one company willing and driven to cannibalize their own products, it’s been Apple.

iPhone has been out for 4 years now. The 3 to 4 year mark is when Apple decided to extend and branch out the iPod lineup. Apple first released the iPod mini to hit the market for a smaller device with less storage as well as reducing the overall price of entry into the iPod lineup. The original iPod like the iPhone was a high value/high margin product with very little competition. The iPhone is hitting the point of maturity as a product where Apple extended the reach of iPod to meet more price points. So the lower cost iPhone extends the reach of the product and allows for Apple to enter markets where the current iPhone is price prohibitive. To continue the iPod example, with the one premium device Apple in 2003 held 28% percent of the MP3 player market (Apple right now holds about 20% of the smartphone market) and by launching the iPod Mini Apple by 2005 had over 72% market share of the MP3 market. A lead that Apple never relinquished.  Apple probably cannibalized some sales away from their premium product, but it was cannibalized by Apple not by leaving an opening for a competitor.

The iPod history also provides an example of what might happen with the iPad 3. The iPod Mini was dominating the MP3 player market and Apple in a very bold move launched the iPod Nano replacing the Mini completely and setting the standard for mobile flash storage MP3 players. Apple decided to launch a new product even while the existing product was a market leader. And Apple’s move to flash storage and their pre-purchase agreements on flash memory allowed Apple to dominate that key resource for MP3 players and never allowed a competitor to gain any kind of real price advantage. The iPad 2 certainly holds the position as market leader like the iPod Mini. Just like when Apple replaced the Mini it seems almost impossible that the product is ready to be replaced. The iPad 3 won’t be dependent on flash memory as a difference maker instead Apple may launch the iPad 3 this fall to establish dominance in acquiring a new component, the super high resolution LCD screen for tablets. Apple could seize the entire market of high end displays while every other tablet producer is still trying to compete with the iPad 2. This component pricing advantage head start could ensure Apple’s dominance in the tablet market in 2012 and beyond.

If both devices launch this fall, then it will be clear that Apple strongly believes in bring your own cannibal to the party, it’s the best way to guarantee that your market share won’t end up as someone’s dinner.

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