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Why is there no iPhone 5?

Oct 5, ’11 9:15 PM
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I’ve been asked what will be the effect on the market of the iPhone 4S. Actually the question was what would be the effect on the market of there being no iPhone 5.

I’d answer that the iPhone 4S is a product designed to compete for two markets: (1) half the current iPhone users who bought a phone prior to the iPhone 4 and (2) non-iPhone users, typically non-smartphone users.

I’ll describe each market briefly.

The current iPhone users

Tim Cook said that half of all iPhones sold to date have been iPhone 4′s. That means that about 70 million iPhone 4′s have been sold. Those are not a target market because of three reasons:

  1. The vast majority of those users are still paying for their iPhone 4 through the subsidy model used to sell them and to change phones today would incur a cash penalty.
  2. Customer satisfaction surveys show that they have 90%+ satisfaction rating for their iPhone 4 and we can therefore assume that they are not looking for something better
  3. Their iPhones are practically new and they still work and are upgradeable.

The other 70 million or so iPhone users have either a 3GS or a 3G iPhone. These are a very different market for three reasons:

  1. They have already paid off their iPhones. They would not face any extra costs in switching to a new iPhone
  2. Earlier customer satisfaction surveys showed that they once had 90%+ satisfaction with their product so they are likely to stay with the brand.
  3. Their iPhones are getting old and beaten up after two years of use.

The current non-iPhone non-smartphone users

This market is so vast that it’s practically infinite. Over 1.5 billion phones are sold each year and Apple only has about 5% share. Therefore there is a vast pool of users who probably have been interested in getting an iPhone. These potential buyers will find the iPhone 4S an attractive alternative to buying a non-smart phone. They will also notice that there is now a range of price points for various iPhone models starting as low as zero.

Current non-iPhone smartphone users

I’ll add this market to complete the picture. This market is similar to the current iPhone 4 market because, except for Blackberry, most smartphones have been purchased in the last 12 months. This is especially true for Android phones. These owners of smartphones are unlikely to be interested in switching a phone that is “brand new” unless they have a very poor satisfaction with it. If they are not satisfied, there are many options, and iPhone is one of them. There are too many conditionals in this market and I therefore don’t think it’s a good target for the iPhone 4S.

So What are the prospects for the iPhone 4S (and other iPhones)?

The market for the new iPhones could then be summarized as follows: 70 million early generation iPhone users who are eager to upgrade (with 90% probability) plus a subset of a billion buyers of new phones next year who are looking for their first smartphone. These two markets iPhone 4S is targeting are “easy” because the competition is weak. It’s either “don’t upgrade my old iPhone” or “buy a dumb phone or another smartphone for almost the same price as an iPhone”.

I don’t see the result for units sold being different if there was a hypothetical iPhone 5 vs. the current iPhone 4S (and 4 and 3GS as a portfolio). In fact, a “better” iPhone would not be better at winning this competitive battle because the bar is so low.

So to answer the question in the headline: because an iPhone 5 is not needed meaning that it would over-serve the market and price itself out of contention.

The question will be very different a year from now when most early Android buyers will be looking for a new phone and when most iPhone 4 users (all 70 million of them) will be looking for a new iPhone. That would seem like a good time to introduce a new iPhone “5″.

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  • Anonymous

    One key fault to your argument is that I do not incur a penalty for upgrading from a 4 to a 4S. Just started a new 2 year contract. I’m also getting a benefit since my wife will inherit my 4 (she had my old 3GS).

    I agree that the 4S was a little bit of a let down with the expected hype about a 5, but it’s a decent step up for those that want to make the jump.

  • Chrisleake800

    The way i see it is like this…….since iphone 4 release they have had all this time to develop all these new features which are great but why…..and i cant stress highly enough!!! Why couldnt they design a nice casing (new phone) and bang bobs your uncle iphone 5 is here!!!! Its mind bogling. Now i see your point about most peoples contracts not ending until next year but sales would stil be astronomical if it was released now or next year……its just mind boggling to me. Its almost like they designed all this stuff but could not be bothered to design a new handset. As it happens my iphone 4 contract is up for renewal this month and i wont be upgrading to 4s…..pointless im guna sit it out and wait for 5 or whatever they call it.

    • http://www.asymco.com Horace Dediu

      Do not be surprised if the iPhone 5 does not look any different than the 4S or 4.

    • http://twitter.com/PaulMaxime Paul Franceus

      Why do they have to change the casing? The iPhone 4 is arguably the best looking phone out there by far. Apple doesn’t make aribtrary casing changes to any of their products if there’s not a reason to. They aren’t producing throw away products – they design things to last. You don’t see them arbitrarily changing the appearance of their computers every time a new one comes out, except for minor refinement.

      Every once in a while they make a wholesale change, but not all the time.

  • Cwjj

    “Therefore there is a vast pool of users who probably have been interested in getting an iPhone.”
    I was with you up to this point. But to assume that nearly all, a majority or even a double digit percentage of Android or other Blackberry users are even ‘interested’ in switching is nonsensical. The entire analysis falls apart after that.

    • http://www.asymco.com Horace Dediu

      The phrase you quoted is in the section titled “The current non-iPhone non-smartphone users”. That market does not include Android or Blackberry users. They are included in the last segment whose title is “Current non-iPhone smartphone users” which I identified as uninterested in the new iPhone.

      Do you still think the analysis falls apart after that?

    • GeorgeS

      Every survey of smartphone owners I’ve read about has found that Android phone owners are far more likely to change brands and even OS than iPhone owners. The percentages are usually well into the “double-digit” range.

      • http://www.twitter.com/brianleo Brian Leonard

        There are new Android based phones coming out almost monthly, one is usually more bad ass than the next, of course they are going to be more likely to switch than an iPhone user who gets to see a new release every year.

      • deV

        They sure do change phones with so many great options available. As often as the contract allows.

        But most do not change OS. Looking at the numbers, there is no mass exodus from Android to any other OS. Android just keeps gaining a few percent from every OS except iOS, which is also gaining a fraction of a percent per quarter.

    • Yonikatzir

      Me, My wife, and my mother are all current blackberry users, and are all switching to iPhone next month

  • Latifa 7

    I have a question that’s so irrelevant to this article please if someone would reply to it i’d appreciate it alot
    So I cant really make up my mind on whether to get the iphone 4s alone or get a blackberry 9900? and is really iphone 4s worth the money im just afraid it would becomes so out of date when the actual iphone 5 comes out. which do you think is better and why

    • http://www.facebook.com/profile.php?id=1614917547 Ken Heins

      I had a Blackberry Curve for one contract of two years, two replacements under warranty, switched to IPhone 4 when available, and have no clue why anyone would want a Blackberry.

      Not trying to be a wise guy here, but I have FAR fewer dropped calls with the iPhone (90% of the “dropped” iPhone calls may have been caused by ME accidentally hitting Mute, honestly. Haven’t had a real drop in months.)

      and I am at least twice as fast texting on the iPhone. Go figure.

      • Latifa 7

        I’m going for the iphone 4s then :D

    • ADVILL

      Ask users, you are one of the billion Horace is mentioning, but it seems that you have to ask….a lot

    • Butos

      Ok, simPly put it this way, blackberry is obsolete as we speak. So buying an iPhone 4s is worth the money and the upgrade. Keep in mind that Apple pride themselves on the software and features. For example, I am completely satisfy with my iPhone 4 but want the new one because of Siri and mirror image to my Tv. It all comes down to what you want. If you like me, you will upgrade your phone every year and it does not cost me a dime. Why? Because I can sell my iPhone on eBay for the same price I bought it. Go ahead do yourself a favor and get you an iPhone 4s, you won’t regret it. Crackberry is yesterday’s news.

      • Latifa 7

        Thanks for your reply, Im certainly going for 4s.
        thanks alot for helping me out

    • Dan Woods

      It sounds like you’re concerned about your phone being obsolesced.
      The iPhone upgrade path is accounts for a 2-year lifecycle. The 4 is much better than the 3G, but only marginally better than the 3GS, The 4S is much better than the 3GS, but only marginally better than the 4.
      It would be safe to assume that the 5 will be a marginal improvement on the 4S, but a huge boost over the 4.
      The iPhone 4S will still be a great phone for at least 12 months, if not 24 or even 36 months.

      RIM believe that QNX-based Blackberrys will be available early 2012, making the 9900 as obsolete as a Motorola ROKR.

      • Latifa 7

        Appreciate the the time you kept to answer my question, you made me want the iphone 4s even more haha!
        I was just disappointed with apple as they didnt change the design of the 4s, I was waiting for a slimmer design that’s all. It doesn’t make sense to wait for iphone 5 as it wont be coming out until the end of next year.
        I also asked alot of BB users, and they were pretty much disappointed with their devices, it doesn’t take long for it to freeze and crash sometimes.
        Overall I shouldn’t look at the outer look of iphone4s but the inside of it. I pretty sure as well I wont be bored of it since there are plenty of things to do not to mention my assistance Siri. I will purchase the white one as it would look great with color cases! Iphone 4s all the way

      • Ludwig

        I was formerly using a Black Berry and switched to iPhone. When I it happened, I had the impression of moving in the Twenty First Century. Since five years not, I am attending Friday’s morning meeting with consultants from several companies: within a year or so, the all traded their Black Berry for IPhones! All of them!

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  • Wade

    I think this article is way off considering many iPhone 4 users (users who got the iPhone 4 when it was released) will be eligible to upgrade at the full discounted price as early as November 18th. I LOVE my iPhone 4, so why wouldn’t I want an iPhone 4S which is the iPhone 4 and MORE. Do you really think an 8MP camera and 1080p video aren’t worth while upgrades?

    • MT

      No.

    • Anonymous

      No, they’re not for the majority of people. You are forgetting that most people just want a phone. Some also like the ability to use it to take photos and listen to music and use apps. But they don’t care about or don’t know anything about the number of mega pixels. And you can do all that with iPhone 4. The people that actually care for a few more MP are the technology junkys (which I am by the way) and the ones that just like to be on top of the latest trends. But Apple wants to sell to mass and this group is small. They just seem bigger because they’re the one doing all the noise on the internet.

  • http://twitter.com/theiphonedoc Iphonedoc

    A brilliantly written article. I agree with most of your points on this. I think that the expectations for an iPhone5 were blog and media generated. Apple is on schedule. Nothing, with the exception of the obvious, has changed. It was always going to be a minor upgrade.

    The question now is whether iPhone5 will be released in July or is October the new iPhone release date?

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  • http://www.twitter.com/brianleo Brian Leonard

    I’m an iPhone 3GS user and my phone is shot, I don’t just want a new phone I need one. I was hoping for the iPhone 5 announcement because I wasn’t that impressed with the 4 and I can’t wait until next year for another announcement, so I’m switching. So in my situation, their strategy failed.

    • Bayland61

      I don’t get it. You’re disappointed that you can’t choose a fictional phone that never existed and therefore had no specs to attract your interest, so you will switch to a non-Apple phone? If you weren’t impressed with the iPhone 4 or 4s, what leads you to believe that an iPhone 5 (whatever that is) would impress you. I can’t think of a strategy that would have succeeded for you. Curious to know what you will switch to and why.

      • http://www.twitter.com/brianleo Brian Leonard

        What you call a “fictional” phone that never existed actually had rumors of features and specs that I would have been interested in. People want more than just a few additional specs, I really want a phone with a larger screen and hdmi connector. Based on rumors, others as well thought that the new iPhone would have a larger screen. What spec wise really changed with the iPhone 4S? New chip and a better camera? Come on, after almost a year and a half, that’s it? Most of the major changes are in the OS, not the phone.

      • GeorgeS

        Brian, do you base your life and decisions on rumors? If so, you’re setting yourself up for continual disappointment, as rumors will always exceed reality.

        If you want an HDMI outlet, just get the Apple Digital AV adapter.

        The better camera you pooh-pooh is, apparently, greatly improved. It’s not just a few more megapixels, which is usually the route other manufacturers have taken. (That results in a WORSE camera, by the way.) The optics are imporoved, you can take photos from the locked screen, and more.

        A larger screen? If it were physically larger, with the same number of pixels, it would look worse. If it had more pixels, apps would have to be redesigned to fit. (Just ask the Android developers.) It might also be physically larger.

      • http://www.twitter.com/brianleo Brian Leonard

        No arguing with fanboys. Theres’s more than one color in a Skittles bag folks.

      • Silencio

        Way to admit defeat graciously. Bayland and George present logical counterpoints, you play the fanboy card.

        If tech specs and feature checklists are more important to you, I’m sure you’ll enjoy Android.

  • http://twitter.com/mblumenthal Mike Blumenthal

    One presumes that the iPhone 4s is the free phone two upgrade cycles from now… could it also not be viewed as a way to future proof profits by having a single form factor/design for every market?

  • deV

    I underestimated the iPhone 4S. The A5 in it is actually quite fast, according to benchmarks released last night. It appears to be the fastest phone on the market.

    In practical terms, what does this mean? First off, it is the best phone for mobile gaming. And it may attract more game developers due to that. Could continue to put the hurt on Nintendo.

    It also likely has web browsing performance surpassing that of the Galaxy S II. The S II could zoom and pan while playing Flash animations with completely smooth rendering. iOS does not attempt to play Flash, but the rest of the page should be even smoother than smooth, whatever that means. In case it’s not clear, I do not see much advantage for iOS/A5 on the web browsing front. iOS doesn’t even attempt anything difficult.

    iOS does not attempt to do anything interesting on the home screens. No widgets, live tiles, or any sort of display of useful information short of opening an app and getting the information that way. There’s also no live wallpapers or any other sort of eye candy. So the processor does not help anything as far as the home screens.

    Siri may or may not make good use of the processor. Additional uses may include photo or video processing of some sort, though most of that would obviously be relegated to larger devices, just based on practicality of the workflow. I certainly would not want to edit that kind of thing on a small screen, especially when the resolution is far below the source and output resolutions.

    So Apple really complicates decisions with this phone. It does so many things right but leaves so much to be desired. Just combining the processor with a 4″ display and I may have become a convert. Nah, maybe that’s not even true. There are too many places where iOS could take advantage of that great processor and doesn’t. The smallest-in-class screen is a huge -5 on the feature list. It’s unfortunate that there is no phone out there currently that is “the best” in all of the major features.

  • http://jmmxtech.wordpress.com/ jmmx

    BAHH HUMBUG!

    Buan ziua Horace,

    Normally I agree with you, but this time, while I am sure Apple people talked about this, I think it is not basis of their decision making.

    See: http://jmmxtech.wordpress.com/2011/10/10/bahh-humbug/

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  • http://twitter.com/augustoferrei augusto ferreira

    Yes it does make perfect sense. I am your perfect example, I have the 3gs and will upgrade now.

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  • Saltysol64

    So called “expert” bloggers don’t seem to be capable at actually producing much of anything…other than hot air so I’ll add my own. Apple puts a great deal of effort into the design of their products and then typically stick with the design for a couple of years before changing the form factor. The expectations for a completely new design were largely driven by a blog-o-sphere run amuck.

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    i am just wondering when it will come out, i think this phone is gonna be really hard to manipulate this phone will set a bar that rivalry phones cant match.

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