What could the iPhone Nano be?

Apple are certainly thinking about an iphone Nano, but won’t do it until they feel that they’ve gotten it exactly right.  Getting it right is a much more complex question than shrinking the screen and casing. Anybody who is thinking about differentiation just in view of the specs of the current, or any particular model,  is getting it fundamentally wrong. The next iphone generation, should it include the Nano, has to be looked at in connection, and possible upgrade paths for the iphone 5 and further iphones have to be taken into consideration.
I did not want this first post to be about Apple. While Apple make undoubtedly make good products for their target customers, I’m most definitely not one of these customers. I’m especially allergic to iTunes, and so quite protected from temptation of entering the iCosmos.
So why write about Apple? Well, Apple has just had a record quarter, and is now the world’s biggest handset maker by revenue. Hardly a story is written about this fact that doesn’t itself contribute to the rumours about an iPhone Nano by reporting on them. There are no leaked prototypes, spec sheets, blurrycam shots or inventory management order numbers – not one of the things that usually serve to keep gadget blogosphere rumours alive. Yet this is one rumour that won’t die.
It is, however, not as easy as a lot of the writers and analysts out there make it out to be. I find most analyses out there to fall short of giving the full picture. They concentrate on one or two aspects of what is in reality a complex problem for the people in Cupertino. I do not want to make any predictions here as to whether Apple will release an iPhone Nano this year, or what specific features such a model would have. Aguring Apple products is just that – a guessing game. What I do want to do is discuss the parameters which Apple can tweak, and the general considerations in connection with extending the iPhone line.

WHY AN IPHONE NANO?

The main reason that Apple is believed to be thinking about an iPhone Nano is price. The iPhone is marketed and sold as a premium smartphone. With explosive growth in the smartphone market in developed countries, with affluent customers who can afford to buy premium products, Apple was able to grow with the market. Once the main growth comes from converting cheap featurephones into cheap smartphones, and from developing countries where customers have significantly less disposable income, Apple will have a problem if it wants to keep up market share. An iPhone Nano that could be sold at significantly less than the iPhone could be a solution here.
Differentiation of the product range is another reason cited, though much less frequently. Apple is the only manufacturer to have only one model, while others offer different sizes, form factors and feature set to have something that appeals to everybody. I don’t think this is much of a consideration for Apple, if at all. They never differentiate their product range more than necessary. “The iPhone” is currently an iconic product, and there seems to be no need to change that for a more complex marketing approach.

GENERAL CONSIDERATIONS

The Nano would have to be a variant of the iPhone that leaves the main user experience intact. Its design would need to strike the balance between incorporating enough of the iPhone design language that people can’t mistake it for anything else while at the same time being distinguishable from the iPhone at a glance. It would, last but not least, need to have a lower bill of materials (BOM) to enable Apple to sell it at a lower price than the top-end iphone (hereafert only refered to as “The iPhone”).
One remark that keeps cropping up in the comments to stories about the Nano seems not entirely unreasonable at first in light of these requirements: “There is an iPhone Nano – it’s called the 3GS.” Apple are  selling last year’s model, with a lower spec than the current model, at a reduced price compared to the current one. Both look markedly different.
On closer inspection, this cannot hold water though. The current situation with the 3GS cannot be abstracted to a strategy of always selling last year’s model as the cheaper version.
The iphone 4 was a complete redesign, the first after three previous models of slight tweaks. Last year’s model as a cheap alternative would mean two things:
Once the new model is out, the present owners of last year’s model, who bought The iPhone, are suddenly downgraded to the Nano. Imagine buyes of MacBook Pros who don’t upgrade once a year suddenly finding that the have the regular MacBook of the masses. Apple may want to encourage yearly update cycles, but they are unrealistic for most people, and pissing loyal customers off this way is not really something they would want to do.
Secondly, Apple would have to come up with a new design once a year. These would all have to be different enough to be immediately distinguishable, but share enough DNA to also immediately be recognizable as an iphone. With two models out at any time, there would be at least four different iphone designs out there in use at any one time. While people may point to the iPod mini and nano as examples for where Apple is doing exactly that, Apple’s handling of the iphone design so far clearly shows that they see it more akin to the MacBook line, where major desing overhauls are a rarity. They want to anchor one design in the people’s mind, and last year’s model at a discount just doesn’t work with that.

Enough general considerations, let’s look at some specific factors here:

PRICE

The first thing to take a close look at is the price itself, or, rather, price as perceived by customers. The handset market is very different from that for any other consumer electronics item because of the operator channels as the main means of distribution in many markets. In countries such as the US, customers have no idea about the true cost of a handset. Smartphones have price tags in a very small price range from $ 0 to $ 199 – with a two-year contract. (As to the problems of a two-year contract where the replacement cycle for the subsidized handset is now significantly shorter, that is for another post.) The true range is much wider – from $ 100 to $ 1000, depending on the market. Yes, there are countries like Germany where an unsubsidized iPhone 4 16GB will cost you close to $ 1000 dollars.
An iPhone Nano, with a significantly reduced BOM compared to The iPhone could not reduce the subsidized prices by much.  My guess is that they don’t want to offer any iPhone for $ 0, ever, because that would diminish the brand cachet by being perceived as “cheap”. So there is a maximum $ 150 price differentiation between the iPhone and the iPhone Nano for subsidized handsets in the US. With current Apple profit margins way higher than the rest of the industry, Apple could offer The iPhone at $ 150 less and still be hugely profitable. So for this market, a reduction in the BOM matters less. The Nano is mainly a strategic consideration, not one of manufacturing costs.
Then, however, there is that part of the world where there are no, or very minimal, carrier subsidies. Most developing countries fall into this category, plus an assortment of countries where laws (no bundling of contracts with hardware subsidies) or other factors have derailed this model. Additionally, in a lot of markets with carrier subsidies, an increasing number of customers prefer unsubsidized, non-carrier locked handsets and the freedom to switch contracts or use multiple SIMS as they like. In these markets and for these customers, price ranges are much wider, and customers see the real cost of the handset. A Nano at $ 150 less than The iPhone would increase sales, but be hardly revolutionary. Half price would be a real proposition here. This would mean a significantly reduced BOM. It would also mean that Apple has to find a way to distinguish the model enough that The iPhone is not perceived as price gouging. And, of course, they have to find a way to extend the iPhone cachet of desirability to the half-price Nano.

SCREEN

This is something that a lot of people concentrate on, since it seems to offer the easiest differentiation. Make the screen 3″, and just make the Nano smaller than The iPhone. Instant differentiation in looks without the need for a separate design. The problem is that iOS phone UI is unlikely to scale to a 3″ screen. The portrait QWERTY keyboard most certainly isn’t, and one just has to remember the ridicule at Nokia’s N8 for not having a portrait QWERTY to know that this can’t be good. So there is a minimum screen size – and it’s closer to 3.5″ than 3″, if a smaller size works at all in the opinion of Apple. If Apple want to differentiate on screen size, then the only real way to do this is to enlarge the screen on The iPhone, and use the current, or very slightly smaller screen size for the Nano. So a future The iPhone could have a 3.7″ screen and the Nano a 3.4″ one. Enough to be noticeable, but probably within a range where Apple feels that the UI works the same. Maybe Apple would like to distinguish this even further by joining the superphone race to 4″ screens and beyond.
There are other aspects to the screen than size. The 3GS and the iphone 4 differ in resolution. A low-res screen would be a clear differentiator for the Nano – and would reduce the BOM. Seeing that with the ipod touch Apple decided to upgrade the latest generation to the higher resolution, Apple seem to be trying to ensure one screen resolution across the handheld iOS devices. I’d guess that means that the 3GS will be the last iOS device with the low-res screen. Looking at the market in general, this makes sense as well. It’s increasingly not just top-end smartphones, but also mid-tier devices that have more than a 480 x 320 screen resolution. I doubt that Apple, much as they detest numbers in marketing, wants to be trumped in a metric such as this that is so easy for the consumer to grasp.
What Apple do with the ipod touch screen to save on the BOM is to just use a lower-quality panel. I’m not entirely sure this would be a good idea on the Nano. The ipod touch and the iphone are markedly different products. In a lot of respects the touch is an iphone without the radio, but I don’t think it’s really perceived that way. The touch and the iphone don’t compare directly. With The iPhone and the Nano, it’s the same device category. The Nano should be perceived as the ‘smaller’ phone, but side by side a crappy screen compared to The iPhone is a differentiation on quality, not on features. Apple always take care to market their products as top quality, so this would fall somewhat outside their usual practices. Of course having two different screen qualities would work if they found some new technology/marketing term differentiator here, something that makes the new The iPhone screen even more “magic” than the “retina display”, and upgrades this, so that the Nano screen is just plain ‘ol “magic”.
That differentiator will almost certainly not be a 3D screen. As the Nintendo 3DS shows, 3D for mobile screens is still a technology in its infancy. Apple would trade screen resolution, brightness, battery life and viewing angles for a doubtful benefit. The UI and the vast majority of applications gain nothing from a 3D screen. Some games would benefit, and Apple might work some itunes movies marketing magic with 3D offerings – that’s about all. Having the 3D screen just on The iPhone would introduce platform splintering regarding a feature that Apple would have to market as essential and magical. Not easy to explain then why it’s not on the other devices.
Overall: Different screen resolution no, different screen size only if the iphone screen is increased in size, 3D screen on the iphone a clear no at the moment, different screen qualities possible, and certain if they find some new differentiator her that makes the Nano’s screen not seem cheap

MEMORY

There have been rumours about a streaming-only Nano. These point to Apple’s new data center as an indicator – but they are completely divorced from reality. An iPhone model that doesn’t play music, or do anything else really on the subway? On your drive across the country? On a plane? Abroad? That stops working once you’ve exhausted your data cap? Plus one only has to look at the grief that Amazon is getting from the labels to see that Apple won’t unnecessarily get into either the trouble, or shoulder the cost that a deal for streaming music from the cloud would bring with it. Sure, they are in a very strong negotiating position, but you can almost trust the labels to be exceptionally stupid in their fear of all things digital.
Differentiation on flash memory, on the other hand, is a no-brainer. With the current memory ranges, the Nano would be offered with 8 GB and 16GB, while The iPhone has 16 Gb and 32 GB. This could always be kept so that there is an overlap between the two models, but only the Nano has the lowest amount of flash memory while the highest one is reserved for The iPhone . This would mean easy differentiation regarding the BOM, and is easy to market, since the tiered GBs of flash memory are already a part of Apple’s marketing. It doesn’t mean a loss of functionality, but only of convenience – and, to a degree, status.
A difference in RAM is another possibility. This is not something that Apple are marketing – there is no official data on the RAM of any iOS device, but the iPod touch has less memory than the iPhone. If Apple see this as something that affects performance, but doesn’t degrade it to an unacceptable degree, then they’ll certainly do it. People will just notice that the Nano is a bit slower, a bit less capable when it comes to what Apple sells as multitasking – and that will be ok.

PROCESSOR

This brings us nicely to the processor. Apple have differentiated on processor speed before – between the 3G and the 3GS, between the ipad 1 and ipad 2. The latter gives us an idea what Apple could do here: The iPhone get a dual-core processor, the Nano a single core. Easy marketing message, single-digit numbers are something that Apple accepts in its marketing. Prestige for The iPhone, no loss of core functionality for the Nano. Things would run speedier on The iPhone, games would show more detail, but this is expected differentiation from the view of the consumer.
The problem with this is, of course, that this is a differentiation that would only work for at most two device generations. Yes, Apple have been playing it by ear so far with the iPhone upgade path, but a one-time hack for a possible long-term branching in the company’s cash-cow prestige product line can only be a subsidiary factor.
Overall: If there is a launch of a Nano this year, then I expect to see a single/dual core differentiation – as one of several differentiators.

RADIO

Not having wi-fi on the Nano is not an option. It’s now expected from a smartphone. Regarding the BOM – it would save an antenna, but little else with where integration is today.
Similarly no 3G is not an option. With 4G being pushed as a marketing term, and the first iphone already ridiculed for its lack of 3G, this would be a marketing disaster. Plus, again, savings are one antenna. Nothing to sneer at, but not really all that much.
So what about HSDPA, HSDPA+, HSUPA as differentiators? One only has to look at these acronyms to know that they’ll never, ever appear in any official iphone marketing message. Apple doesn’t do five-letter acronyms. There’s 2G, 3G and there’s 4G – and that’s as far as differentiation goes.
So all Apple could do here is have a 4G iphone, and a 3G Nano. The problem here is that 4G rollouts are not uniform, and neither is the used technology. Some networks are rolling out LTE, while others for the time being are uprading their 3G networks with HSDPA variants. Apple wants to keep the number of device variants as low as possible, so this is not a situation where they’d feel comfortable. And while HSDPA is established tech, LTE may still be too untested for Apple’s liking. Any kind of 4G for the next iPhone is unlikely.
Overall: If there is a Nano this year, then we won’t see a 3G/4G differentiation. Things could be different next year.

CAMERA
The Nano would be differentiated form The iPhone on the basis of different camera capabilities.
At the moment the most obvious solution for Apple would be to use the ipod touch/ipad 2 camera module. It’s small, and Apple is already buying it in large numbers. The problem here is that this is not a camera for stills. At less than 1 MPx and mediocre quality at that, this would be trumped by any low-end smartphone snapper. HD video recording is all nice and well, but not being able to take anything even approaching a decent holiday snap on your iphone is not an option. The ipod touch and ipad, as different device classes, can differentiate this way, but any iphone now needs to have at least a 3MP camera.
The 3GS camera would be to other choice, certainly if the iphone 5 doesn’t see a camera upgrade, but maybe even then. It’s good enough for a lot of people, and adding an LED flash would represent progress there already.

CASING
Small is – well, not beautiful, but different. If the screen sizes make this possible, it would be an obvious choice.
Additionally there could be differentiation, and savings, through different materials. No glass back plate, more plastic instead of metal.
Plus, of course, some design differences that clearly show that this is a Nano. No sense in me guessing anything there.

THE REST
The GPS and accelerometer are an essential part of what the iphone is, and simply couldn’t be cut from a Nano.
Some industry pundits have already declared this to be the year of NFC, and Apple are intermittently rumoured to add this to the next iPhone. I think this is definitely something that Apple are thinking about. All the itunes account credit card numbers are much too tempting not to be looking for additional uses there. The iPhone has NFC, the Nano doesn’t sounds easy as a marketing message, but doesn’t make any sense. NFC needs scale and maximum adaptation as quickly as possible to become a success. If done right, it could be an essential feature. Apple can’t reserve this for a flagship device. If they implement it, will implement it across all iOS devices.

SUMMARY
An iPhone Nano would need to be the first in a line that differentiates from the then-current iphone in at least some aspects that are sustainable across several generations of devices. Screen size (with The iPhone’s screen becoming bigger and the Nano possibly slightly smaller), flash memory and camera are possibilities here, and would most likely all be implemented. A cheaper screen depends on how this can be marketed without making the Nano seem cheap. Some design differentiation is certain, and will most likely partly be based on cheaper materials. Single/dual-core differentiation would be easy, but a one-time only thing for a 2011 model lineup. Radio, GPS, accelerometers, and, should this be introduced in the iPhone, NFC would be features of both, with 4G/no4G strong possibility for differentiation in case of a  2011 release of a 4G The iPhone, and a possibility still for a 2012 release.
Prices would mostl likely be at the current levels of $ 200 and $ 50 for subsidized phones with contract, but need to differ by more than this in absolute terms for markets where the iphone is predominantly or exclusively sold without a contract and subsidies. To do this Apple might have to accept a lower profit margin on the Nano, since costs are unlikely to be reduced as much as the price.

Advertisements

Leave a comment

Filed under mobile

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s