iPhone nano a no-no: Everything you need to know

Apple [AAPL] will introduce a smaller and cheaper phone, but it won't be called the iPhone nano. When might Apple introduce such a device, what could it look like and why won't it be an iPhone? Here's what I've learned.

Fact or Fud?

Bloomberg claims Apple is working on a smaller, cheaper version of the iPhone for sale off contract. The prototype is alleged to be around one-third smaller than the iPhone 4. It boasts a processor, display and other components similar to the current iPhone 4, and will be available off-contract. The kicker? It will cost around $200.

Of course, this is all speculation.

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Peter Cohen at The Loop warns that Bloomberg's original report cites completely unattributed sources. He points out that the report even warns, "Apple often works on products that don’t get released," it states.... "Casting the veracity of everything noted in the report into question," Cohen thunders.

However, TechCrunch cites a separate source who confirms Bloomberg's claims.

iPhone nano claims aren't new. They go back many years, I've been reporting them since 2008. Apple's history adds a little credibility to the idea: It introduced the iPod mini (Jan, 2004) just over two years after it launched the iPod classic (Oct, 2001). This history proves it knows how to widen and diversify a market in order to protect market share.

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Get connected

Informa Telecoms & Media principal analyst Malik Saadi was one of the voices who derided the iPhone nano claims when they began in 2008. He didn't think the time was right. Now the time is right.

"In June Apple will reveal its new strategy on the iPhone 5," said Saadi to me today. "The iPhone ecosystem is maturing now. Apple has managed to build its brand image in the mobile market, but at prices which mean their brand hasn't yet reached the mass market. I believe Apple could leverage their brand and create a new family of connected devices."

Such moves make some sense. Here's why.

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Mobile is an incredibly competitive industry straining against huge pressures leading inexorably to market consolidation. This week's ill-fated Microsoft/Nokia deal ("It is inevitable that within two years Nokia will move to Android," Saadi said) confirms my many predictions of consolidation. This is only the beginning of that consolidation.

Apple will never dominate the smartphone sector in the same way it does the PMP space -- a sector in which the iPod classic remains the fifth most popular player. Despite that Apple will do whatever it can to widen, diversify and protect whatever share it does carve out. The iPhone brand stands proud and strong as the very definition of the high-end smartphone -- but Apple now needs to create new opportunities.

Innovation, not fragmentation

ABI Research has previously characterized the smartphone market as one with considerable room for innovation, not just in terms of "feature innovation" but also in "cost reduction innovation".

There's numerous pressures which lead me to think it isn't just a question of "if" Apple is looking for a way to reach more customers with lower cost handsets, it is a question of "when" -- and also "how".

"I doubt Apple will go to value phones," Saadi says. "They will aim at the highest pricing category of each segment, they will not aim at the value conscious mass market."

The industry is beginning to realize that the future of computing will  be defined by the unholy trinity of mobile devices, social and location-based networks/data-collection and cloud-based services, Apple knows that to cede an inch in this evolution is to lose a mile. Widening the market is a strategic imperative.

GSM Association content editor, Steve Costello wrote last year, "The big challenge for RIM and Apple will be in maintaining growth, while Sony Ericsson, Motorola and ZTE snap at their heels."

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He noted that Apple's newly-introduced CDMA iPhone will sell in volumes through China Telecom and various operators in India and Latin America. He also warned, "These are also price-sensitive markets, where the potential customer base for the iPhone may be constrained."

Should Apple make a move to widen and diversify its market with a new connected device it would be an aggressive move to expand from the high-end handset market into a sector that's currently dominated by RIM in the UK, US and Latin America.

When is an iPhone not an iPhone?

Except the new device won't be called an iPhone nano.

"Apple needs to protect the iPhone brand. I believe Apple should develop a new family of connected devices to target the mass market but I don't agree the category should belong to the iPhone brand. That's because there's a risk of low-end devices in the brand damaging the prestige of the flagship devices," says Saadi.

Some industry watchers think Apple may introduce a device that's similar to the LG Optimus V, which has features which marry well with the Bloomberg description of the purported iPhone nano.

  • 3G & WiFi
  • 3.2-inch touchscreen -- resolution matches the iPhone 3GS, so apps would look fine.
  • Virtual QWERTY keyboard
  • App Support (it runs Android, so add iOS instead)

However, I think the features and the appearance of a lower end iPhone such as this one and the predicted features of the iPhone 5 are far, far too close. Why buy an iPhone 5 at all? This lower-end phone does everything I think I want to do. This won't be how Apple plays its cards.

Apple's brand appeal is huge. In the mobile space it has created an identity for itself as the leading and most high-quality device on the planet with the much-coveted iPhone. That brand has its own currency, and needs to be protected.

Brand appeal

The new low-end phone is much more likely to be part of a new family of connected devices, it makes sense, think about: a music device, a messaging device, for example.

"If I were an Apple designer I'd take advantage of Apple being a popular consumer electronics brand," says Saadi. "Why not create a new category of application-specific phones, music phones, for example, and top these devices with connectivity. In this case the company leverages the Apple brand, and not the iPhone brand."

Think how many people might purchase such a phone -- it would still be a device from the King of consumer electronics, Apple.

iOS is a high-end operating system that demands high-end components. Apple is unlikely to want to damage its brand with the introduction of devices that don't work as well under its valuable iPhone name.

Delivering sub-$200 systems capable of being peer players in the company's oh-so-shiny iOS universe might also be a challenge. Not to mention the risk of fragmenting the development ecosystem Apple has worked so hard to unify and to build.

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Outside the box

So here's another idea for an iPhone nano. The iPod nano. An iPod you can make calls on. Wear it on your wrist or clip it to your clothes. It plays music. It has an iOS-like user interface (though it doesn't run iOS). It lets you:

  • listen to music,
  • watch video,
  • send SMS messages,
  • check maps
  • make voice calls.

It has Bluetooth and WiFi, and supports VoiceOver: "Call Eric", "Read email from Alice", "Book appointment at 4pm". It will have a Clock function, a calculator function, and the Remote App to control your iTunes library from your wrist.

It will boast some form of ARM processor, 8GB flash memory. It will cost under $200 and you might be able to insert your own SIM into the device, so will surf carriers and countries at will.

This is all speculation. But it is the best that I, a person who isn't ever likely to be employed by Apple's product design departments, can currently come up with for a new family of connected devices.

"It is the right time for Apple to target the low end smartphone market with a new category of devices," Saadi says. "I believe it is not possible for Apple to call it iPhone or iPhone nano," he adds.

Millions, millions, millions more

I think Apple will sell millions of these things when it does eventually introduce them just in time for the Christmas 2011 market (maybe).

It will be an utterly disruptive move.

The Apple brand and sexy additional features will cause many low end mobile phone consumers to spend more than they're used to, if only to say "It's a Apple".

Add support for Apple's future and much-delayed cloud-based iTunes services and there won't be a teenager anywhere who wants to be without them. In mobile marketshare terms combine iPhone/iPad-led iOS share with this new Apple-branded mobile play and you'll see Cupertino's slice of the phone market triple.

It is inevitable Apple will make moves to expand its hold of the mobile market. We only ask "how", "why" and "when". Your move, Cupertino.

UPDATED: Over the weekend the Wall Street Journal published a report which basically matched most of my predictions: the iPhone mini will (apparently) be:

  • Half the size
  • Half the price
  • Has an edge-to-edge screen that could be manipulated by touch
  • Virtual keyboard and voice-based navigation
  • MobileMe improvements. 

I'm now even more convinced these things aren't Unicorns.

These are my thoughts on Apple's future connected devices. I hope you've enjoyed reading them as much as I've enjoyed writing them. Let me know your thoughts on this in comments below and if you'd like please follow me on Twitter so I can let you know when I post new reports here first on Computerworld. (And I'll sometimes tip you off with breaking Apple news, too).

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