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Point/Counterpoint: On the iPhone 5 replacing the iPod touch
A reader wrote in to us surmising that the iPod touch is on its way out, to be replaced by a lower-cost iPhone 5. It sounded ridiculous at first, but the evidence he gave sounds pretty compelling when it's all put together. According to iSuppli, "The components that make up the 16 GB iPhone 4 cost just under $188." That of course should be taken with a grain of salt. Production of the iPhone 5 allegedly begins in July, with a launch in September -- traditionally the time Apple unveils new iPod hardware. iOS 5 will debut in the fall, and major iOS releases tend to come alongside new iPhone hardware. Thus far, there is no mention of new iPod touch hardware in the iOS 5 betas. The next-gen iPhone has reached final testing stage, destined for a September launch. With the exception of an A5 processor and possibly a universal GSM/CDMA design for its 3G hardware, it is expected to be substantially similar to the iPhone 4. Unlocked iPhones are finally available in the US. Recently unearthed evidence in the iOS 5 beta suggests the iPhone 5 will use the same 5 megapixel camera as the current iPhone 4 rather than the 8 megapixel camera suggested by rumors earlier this year, suggesting Apple is focused on cutting production costs. This year, Apple's Back-to-School promotion will offer a $100 iTunes gift card instead of a free iPod touch as in previous years. Taken together, this does seem to paint a pretty stark picture for the iPod touch's future. It also sparked off an intercontinental debate between fellow TUAW writer Richard Gaywood and myself on whether Apple is likely to lower costs on the iPhone 5 enough to make it a viable replacement for the current iPod touch lineup. CR: I'll say this: if the unlocked 32 GB iPhone dropped to US$299 and a 64 GB model was available at $399, the iPod touch would pretty much have no further reason to exist. Odds of that happening? Who knows. RG: That's a huge "if" there. The iPod touch has to be cheaper to make than the iPhone, so Apple would have to slash its own margins to cut the price of the latter to meet the former. $299 is less than half the price the 16 GB iPhone 4 is selling for today. Why would Apple do that? I don't see much upside. The iPod touch is also lighter and much thinner. Or, if it was as thick as the iPhone 4, it could offer much better battery life. CR: Aside from the rear-facing camera, the GPS/3G antenna/chipset, and the case design, where's the extra cost for the iPhone 4 versus the iPod touch? They have the same SOC, the same display, the same front-facing camera. Apple's estimated cost to manufacture the 16 GB iPhone 4 is less than US$200. If the iPhone 5 is going to be essentially an iPhone 4S, the production cost isn't likely to be terribly higher than the iPhone 4's is now. The upside to discontinuing the iPod touch line and replacing it with a lower-cost, contract-free iPhone is twofold. First, that's one less piece of hardware Apple has to manufacture. The iPod line would be returned to music-only devices (the shuffle and nano), with only two multi-use, touch-based devices to manufacture: the iPhone and iPad. The upshot from a sales POV is that all the users who might have bought the iPod touch will buy the contract-free iPhone instead, which would go a loooong way to making up for the reduced per-device margins. RG: According to Anandtech, "The pricing guarantees Apple is going to continue to have incredible quarters going forward. Apple found sneaky ways to reduce the total BOM (bill of materials) cost on the new iPod touch. A cheaper chassis compared to the iPhone 4, no GPS, less DRAM on package (256 MB vs. 512 MB), a cheaper screen and a worse imaging sensor." That's in addition to the UMTS chip itself, the antenna for it, and (easy to overlook on a BoM listing), the considerable hardware engineering effort and testing that goes into making the cell phone part of the device work properly. They also use cheaper lower-density flash (the iPod touch has two chips, not one, so a 32 GB model of either handset is a single 32 GB chip in the iPhone and 2x16 GBs in the iPod touch). Note that the parts Apple skimps on -- the baseband, the display, the DRAM, the flash, the rear-facing autofocus camera -- are some of the most expensive parts in the iPhone 4 to start with. CR: The engineering and testing costs will likely be more than offset if the iPhone 5 has essentially the same exterior design as the iPhone 4, as virtually everyone expects it will. The price of the unlocked iPhone must eventually come down. The unlocked 32 GB iPhone 4 is actually more expensive than a 32 GB iPad 2 Wi-Fi + 3G. I don't see that situation persisting for very long. I also don't see that as a matter of offsetting component/production costs; I see it as a high price intended to mollify the carriers. The price disparity between a 32 GB iPod touch and a 32 GB unlocked iPhone 4 is $450, too, and I find it incredibly unlikely that the iPhone 4 costs THAT much more to produce than the iPod touch. I mean, come on. The improved camera and flash, better quality display, extra RAM, GPS/UMTS, and chassis add up to an extra $450 -- or even $300? Not a chance. Even if the $130 price disparity between the 3G and non-3G iPads truly represents the cost of the 3G hardware (it doesn't), that's still $320 for a slightly higher-quality display, an extra 256 MB of RAM, a 5 megapixel camera, three pieces of precision-cut stainless steel, and a piece of glass. With a BOM of $188 for a 16 GB iPhone 4, Apple's margin for the device amounts to $461. That's high even by Apple's standards. No, that calculation doesn't include R&D or shipping, etc., but if the iPhone 5 is going to be substantially similar to the iPhone 4, most of that is going to be offset anyway. RG: BoM isn't the whole story, though. A common rule of thumb for a R&D-heavy devices like the iPhone is 1/3 materials, 1/3 cost, 1/3 profit. If you just compare how much it costs to assemble with how much Apple sell it for, it looks like a huge margin -- but all those smart guys in Cupertino don't come cheap, nor do their swanky digs. You're not making an Apples-to-apples comparison, because we don't have a comparable BoM cost for the iPod touch. CR: You're right, BoM is only part of the tale. So let's look at profit margins instead. It turns out Apple's profit margin on the entry-level $499 iPad 2 is 25 percent. That's a healthy, respectable profit margin for a consumer electronics product -- but it's far lower than Apple's average profit margin across all products, which is a much higher 38.5 percent. Apple's profit margin for the iPhone? An astonishing 50 to 60 percent. For every 16 GB iPhone 4 sold, then, Apple makes about $324.50 in profit at the lower end of the scale. We can therefore assume that the break-even price for an entry-level iPhone 5 would be around $330; the A5 processor is slightly more expensive than the A4, but the iPhone 5 is expected to have mostly the same components as the iPhone 4. RG: Bottom line for me is this: replacing the iPod touch with an iPhone at the same selling price would inevitably require Apple to sacrifice considerable profit margin, would face carrier hostility (which might be so severe as to make them refuse to issue data plans for it), would be of marginal benefit to many consumers (customers who cared about having cell data for an iPod touch already own iPhones, I'd wager), and would cannibalize sales of the more lucrative iPhone (particularly the pre-pay models, which America might get now it has unlocked iPhones). Never say never and all that, but it doesn't feel very likely to me at this point in time. CR: After running through the numbers a bit more closely, selling the iPhone 5 for $299 looks like a net loss for Apple (which ain't gonna happen), but selling it at $399 would yield a profit of about 17 percent. That's far lower than the margins Apple currently enjoys on the iPhone, but Apple's financial guidance for the past couple quarters has warned investors to expect overall profit margins to decline. There's certainly room enough for the iPhone's margins to thin a bit but still make Apple tons of money. I'm not saying Apple will do any of this, but I will not be at all shocked if it chooses to. The iPod touch has always been a sort of an "also-ran" in the iDevice line, an iPhone-lite for people who don't want to be tied down to a contract. If the iPhone becomes available contract-free everywhere, and at a price comparable to what the iPod touch sells for today, I still believe the iPod touch would have no reason to exist anymore. Conclusion It turned out to be a lively debate, and we'll see who's right in a couple months. In the meantime, there are a couple of other things to keep in mind. First, Apple has removed the "iPod" branding from iOS 5. In iOS 4 and earlier, both the iPhone and iPad handle music playback via an "iPod" app, but in iOS 5 these two devices instead have a "Music" app just like the iPod touch. It may mean nothing, but it's still an interesting move considering the iPod was Apple's top-selling product for so many years. The other thing to keep in mind is a recent quote from Instapaper developer Marco Arment, who sums up my side of this argument perfectly: "When speculating on what Apple will or won't do, a change that gets them more iPhone customers is probably worth considering even if you think they'd 'never' do it. iPhone customer acquisition is a higher priority than almost everything else."
iPad, schmipad, give me a MacBook Air on the road
This morning Erica asked me to take a look at a post she had written about how well the iPad works as a laptop replacement. Although I agree with many of the points she makes in the post, I have to vehemently disagree with the entire idea that an iPad can be a true laptop replacement in times of need. On another vacation last week (yeah, I know it seems like I'm always on vacation), I found myself really wishing for a MacBook Air or even my old white plastic MacBook so I could get some real work done (yeah, I know I shouldn't work on vacation). Here are my counterpoints to Erica's points, and yes, we're still friends. Getting Back To Your Mac: Sure, LogMeIn Ignition and iTeleport are great, and I have them on my iPad. But I try to use them as sparingly as possible and never to do work on my office iMac. Why? Most of the time, I find that even on a fast network, the scrolling required to move around the 27" screen on the iMac is ridiculously slow. Trying to type into our content management system here at TUAW over a screen sharing connection is an exercise in frustration; it's slow and there's a lag between typing and seeing the text appear on the screen (and the system doesn't support direct editing in Mobile Safari). My only use for either of these apps is for supporting users when I'm on the road or for administering a "headless" server.
iPad apps to the rescue
"Whenever there's a fight so hungry people can eat, I'll be there. Whenever they's a cop beatin' up a guy, I'll be there... I'll be in the way guys yell when they're mad an'-I'll be in the way kids laugh when they're hungry an' they know supper's ready. An' when our folks eat the stuff they raise an' live in the houses they build-why, I'll be there." -- John Steinbeck, Grapes of Wrath The iPad is an overlooked hero. When you need it, the iPad will be there. It will be there to access data or connect back home. It will be there to let others reach out to you, or to let you reach out to others. With the right software, and the right ingenuity, the iPad can metaphorically leap tall buildings and save the day. These are everyday rescues, not life-or-death scenarios. This post isn't about how the iPhone saved one guy's life after the Haiti Earthquakes. Here's how iPad applications can fix your workday with simple, helpful solutions that will free you from the laptop and live "la vida tablet." We've got five real world scenarios, including the iPad apps that will be there for you.
Five reasons why Apple TV is still just a hobby
I'm pretty far from being a Luddite, but I've never understood the point of the Apple TV. Even after its update to the newest version, I still don't get why this product exists. Erica posted the reasons she and other members of the TUAW team feel the Apple TV is every bit as revolutionary as any other Apple product, but I disagree. There are many things keeping the Apple TV from being an appealing product, not only for me, but for millions of other potential customers, too. I've outlined five of those reasons below. 1. Apple TV is a half-trick pony. I'd say it's a one-trick pony, but that's what the old Apple TV was. With its new rental-only model, the Apple TV is now little more than an AirPort Express with video streaming. For many users, that may be exactly what they've been looking for. If you've got an iMac on the far side of the house from the big-screen HDTV in your living room, Apple TV may be a good solution for you. If you've got a MacBook, though, a US$99 Apple TV doesn't do anything that a $5 VGA cable won't do just as well. Sure, there's the tantalizing possibility that Apple TV may run apps someday, but it's only a possibility. I don't know about you, but I base my purchasing decisions on what a product can do today, out of the box. Click "read more" to view the other four reasons I think Apple TV is still just a hobby.
Five reasons why Apple TV matters
Steve Jobs admitted it. Apple TV is a hobby. He has stated so more than once. But there are compelling reasons to believe that the newly released Apple TV Mark 2 matters even more than its expected sales (currently estimated at about a million devices per quarter) might indicate. Here are some of the points that I believe are why Apple TV matters. Apple skipped PVR and moved straight to content on demand. With the concept of a shared data cloud growing ever more important, a limited storage device that feeds on streamed content offers an exciting peek at our future. Apple's rent-don't-buy model transforms Apple TV into a controllable point-of-entertainment device outside of the iTunes purchase and TiVo recording model that has dominated the last decade. If you want to Netflix your entertainment, Apple TV provides that feature at a great price point, as well. Click "Read More" to check out the other four reasons.
In defense of Dan: Why Lyons has a strong point about the Mac
Chris Rawson and I like to tag-team, and this time I pulled the counterpoint to his "Mac ain't dead" point. I'm going to enter into this conversation delicately because, like Dan Lyons, I don't think the Mac is dead. Yes, you read that correctly, I agree with Lyons when he writes, "To be sure, Apple won't kill off the Mac."[1] And that's because both Lyons and I recognize that the Mac has an important role both internal and external to Apple. You need a Mac to compile (unless you're into serious jailbreak mojo -- which Apple is not) with Apple's internal IDE and tool creation suite. You need a Mac to create professional graphics and video suites. You need a Mac for high-end publishing and so forth. So all of us agree: The Mac lives and OS X for the desktop is not imperiled.
The Mac is far from dead
Over at Newsweek, Dan Lyons, formerly famous as Fake Steve Jobs, asks the question: Does Apple's iPhone 4 signal the death of the Macintosh? He goes on to answer this question in his article with lots of attention-grabbing phrases like, "RIP, Macintosh," and "You've been dropped. Dumped. It's over." Of course, later on in the article, sandwiched in between several paragraphs of hyperbole, Lyons also says, "To be sure, Apple won't kill off the Mac." Well, okay. What exactly are you trying to say then, Fake Steve? Reports of the Mac's death may be exaggerated, but it's not hard to see why some might think it's on its last legs. As Lyons points out, Jobs didn't discuss the Mac at all during the recent WWDC 2010 keynote, instead spending all of his time discussing iPhone 4 and iOS 4. Apple also dropped its Apple Design Awards for the Mac, which meant others had to step in and take up the slack. Apple's party line on the iPad is that it's the future of computing, and eventually the only people who'll need to use a traditional computer are users doing highly specialized tasks that the iPad doesn't and might never be able to handle. But even with all that, the Mac is far from dead. Read on to find out why the Mac isn't going anywhere anytime soon.
Is my iPhone making me smarter?
I don't know about you, and I don't know about Chris, but in real life (by which I mean the normal kind of technology non-assisted existence thing that we used to have before the iPhone made its debut), I've let so many opportunities to learn and grow go by. What kind of tree is that over there with the funny leaves? Why is that building being torn down? What are the smallest countries in the world? They're passing, fleeting thoughts. Little opportunities that leave us almost before they're conceptualized. They may pop up in a conversation, often being pushed there by an inquisitive child. The answer is, too often, "I don't know. What do you want for dinner?" The iPhone changes that.
Is my iPhone making me dumber?
I love my iPhone. It goes with me everywhere. Leaving my house without my iPhone would feel just as unnatural as leaving without my pants (although I'd probably get fewer stares). There are so many things my iPhone is able to do that it's become an indispensable part of my daily life... and that's actually beginning to worry me. Sometimes I wonder if my iPhone is making me dumber. This didn't start with my iPhone; it started with my first cell phone (and the only phone I owned before the iPhone), a monstrous Sanyo SCP-7200. Suddenly, once I was able to store all of my friends' and family members' phone numbers in my phone and dial them with just a couple of button presses, I became virtually incapable of remembering their phone numbers on my own. That was just the beginning of my cognitive downslide, though. Since getting my iPhone, it seems like it's been getting exponentially worse. Read on to find out how the iPhone may be damaging my brain. Hint: it's not the cell phone radiation.
A Mac tablet? Not just yes, but 'heck yes'
Apple's Q3 Financial call may or may not have pointed to a new Mac tablet offering but that doesn't really matter. The Mac tablet isn't a rumor any more, Robert. It's right here sitting in my pocket. If the iPhone isn't a Mac tablet, I don't know what is. It runs OS X. It has a full touch interface. OS X + touch == Mac tablet, any way you look at it. The computing world is changing. We're no longer tied to desktops. We move around, we take our computing with us. Holding a computer in the crook of our arms isn't just a nice idea, it's practical. When you're walking through hospital halls, sitting in on a University lecture, attending business meetings, or specing out a project at a construction site, the tablet computer makes sense. If anything, the iPhone which has been pushed far beyond its original design specs, has proven that people want truly mobile computing. No keyboard, no standard screen -- true portability. And it's not just about people who spend their lives away from their desks. Drawing directly on a screen beats the heck out of drawing on a Wacom tablet. Tablet computing brings the artist directly to the canvas. And it doesn't stop at drawing. How do traditional laptops and computer screens integrate meaningfully in any way into creating music. Sure, we're used to the standard tools but isn't a piano keyboard or a guitar a more natural interface into music? Let musicians jot notes into a portable tablet rather than figuring out how to keep moving between instrument and computer keyboard. Cell phones and tablet computers are all about freeing ourselves. Sure you can bring a laptop on a camping trip or into the grocery store -- but an iPhone or a small tablet mac work much better on the go. So, say "Yes" to tablets. In fact, say "Heck Yes". Because we don't have to wait for Apple to deliver one any more. iPhone and App Store already have.
A Mac tablet? Not just no, but 'heck no'
Since Apple's third quarter conference call, the rumor mill has been grinding its latest batch of corn: or what natives call "the MacBook tablet." The endless list of features, the bad Photoshop: It's already here. Every time Apple has whetted our appetites for new products, the same people keep predicting a tablet-style device, and, since the Newton, they've yet to be right. I know tablets are useful to some, but is Apple going to make one? Not just no: Heck no. Picture trying to drive with your hands in front of your face the whole time. If you design with a computer, a tablet of any kind just isn't for you. Join me for a medium-sized rant about this Mac tablet, why it's a bad for Apple, and why they won't sell it.
