Apple Can Save $3 Billion Making iPhones With Pitiful Storage Capacity

December 28, 2014 0 Comments

People like to brag when they show me their brand new iPhone 6 (or 6 Plus). I’ve had mine since day one, so I never really saw the point of doing that. Afterwards, I always ask how big is their storage capacity, and the answer is always the same: 16 GB. It might be ideal for someone who uses their phone for exactly what it is, a phone; however, I found this capacity option to be senseless, especially for the 6 Plus model. Why exactly would you get a phone that’s practically masquerading as a tablet if you’re not going to get adequate storage space for it. Well, it turns out, according to Above Avon  that it could be tactic by Apple to make money in the long run.

After Apple announced the release of the iPhone 6 & 6 Plus in September, we learned that developers have doubled to storage space of the 32 GB and the 64 GB respectively, while keeping the 16 GB intact. By doing this, Apple’s marketing objective was already clear: get people to buy the 64 GB option. After all, you’re getting double the storage space for the same price as the original 32 GB. However, Above Anon shows that the issue is a bit more complicated, using an exhibition model of the average consumer. The model is based on a three tier system (16, 32 and 64 GB) within a three year timeframe. The model assumes that the iPhone will eventually outstrip the needs to the consumer and the consumer is looking for more storage at a lower cost.
With Option A, if Apple decided to keep the 16 GB storage and users of that particular capacity decided to upgrade to the 64 GB, they will be more likely stay at that level in the future. This is because users will develop a dependency on the 64 GB as the 16 GB outstrips their needs. Also, owners of the 64 GB are more likely to stay at that level even if Apple decides to double the storage space of the 16 GB.

With Option B, users will be more likely to downgrade to the lower storage capacity if Apple decided to upgrade the storage for all phone models in Year 2. With both Option A and B, the most popular iPhone models will be the same.

In this particular model, Above Avon estimates that 30% of previous 16 GB users will upgrade to the 64 GB to take advantage of the better deal. As a result, the 64 GB will be the best selling storage option, which I personally believe it is. While its not the same as the iPhone, I attempted to purchase an 64 GB iPad Air 2 sometime around Black Friday, only to find that the only choices available was between the 16 and th 128 GB (Apple also decided to upgrade the storage capacity of the 32 and 64 GB). Considering the $100 Black Friday sale, I was ultimately forced to purchase the 128 GB, which of course translated into an extra $100 in revenue for Apple.

It is estimated that if Apple decides to upgrade the 16 GB option to the 32 GB without changing the price, it will continue to be the most popular tier, which will incentivize people who had a 32 GB with the previous model to downgrade and save money (as shown in the first photo). Considering this, its estimated that upgrading the 16 GB model to the 32 GB would lower Apple’s profit by $3 million.

In this chart, we can see the direct impact of offering ‘more for less’ with iPhone storage. Neither of the storage differences is likely to have a direct impact on unit sales, however, in Above Avon’s model they estimate that people with middle tier models (32 GB) are more likely to  upgrade to new lower tier models to save money. This directly effects the average selling price (ASP), which effects revenue and ultimately effects profits in the long run. Because of this, it is suspected that Apple will keep the 16 GB iPhone 6/6 Plus model for years to come.

I may have said that this is a tactic instituted by Apple to make money, but this may be bigger than that. Apple would be using this tactic to guide users into more high capacity phones considering all of the technological advances made with these phones, as 16 GB seems rather insignificant for anyone using an iPhone for anything more than just a phone. At some point, even the 32 GB feels inadequate (I had a 32 GB iPad that I used as a conduit for my iPhone, and I ran out of storage space in a matter of months). As apps, movies, music and documents become more advanced, more storage will become necessary for newer iPhone models (thus, warranting an upgrade for the 16 GB model). Until then, this seems like a pretty cost efficient way of weeding users into higher capacity models.

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