The Apple iPhone 5c Is No Failure

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Sometimes your expectations can really cloud your view of reality.

According to a study from Consumer Intelligence Research Partners, 64 percent of all iPhone buyers in the last days of September chose the iPhone 5s. Only 27 percent went for the 5c, which many analysts (including myself) have said is too expensive to play the role of a "low-cost iPhone."

That has led CNBC, for one, to go with the hysterically false headline "Nobody seems to want Apple's iPhone 5c."

But the 5c is performing comparably with iPhones in its price bracket over the past two years. For the past few years, Apple has always had three iPhones in the market: a new, high-end product for $200 with contract, last year's model for $100, and then the two-year-old model for free.

Apple iPhone 5c (Verizon Wireless)

In the quarter when the iPhone 5 came out, Strategy Analytics estimated that about 39 percent of iPhones sold were the 4s model, which held the same place in the market that the 5c does now. During the fourth quarter of 2011, the new iPhone was even more dominant: according to Consumer Intelligence Research Partners, 89 percent of buyers picked the iPhone 4s, and only 7 percent chose the iPhone 4.

So it's obvious that when a new iPhone comes out, most iPhone buyers want the fancy one. The iPhone is a luxury item, and $100 doesn't make enough of a difference to drive most people to the cheaper model. The 5c is priced just like previous models in this cycle were.

Later in the purchase cycle, more sales may shift to the 5c. A less-expensive, non-flagship product is for later adopters, not the day-one buyers. That's why analyst Ben Bajarin is saying "the time for the 5c is early to mid 2014."

Why the iPhone 5C?

The iPhone 5c may have been a marketing experiment: can you juice up sales of, essentially, last year's iPhone by putting a colored back on it and giving it a new name? It looks like it's been moderately successful, just not disruptive.

Remember that the iPhone 5c is selling - it's just not selling as well as analysts hoped the mythical $300 iPhone would have. An estimate of 11.4 million iPhone 5c sales in a quarter is no mean feat, and according to analysts at Cannacord Genuity, this basically recycled phone is outselling Samsung's Galaxy S4 at AT&T and Sprint, a feat the older iPhone 5 couldn't accomplish over the previous few months. Apple probably couldn't have pulled that off without the new name and look.

There's also no proof so far that the mythically disruptive, low-cost iPhone would actually make money for Apple. Never confuse profit share with market share. Apple makes high-end, high-margin products. As long as it sells enough of them to achieve consumer critical mass - which it has done, consistently, since 2007 - that continues to be a very profitable business.

Apple can take some lumps for fooling itself to some extent here. According to the Wall Street Journal, Apple expected to sell more 5c phones and fewer 5s devices, and has thus had to tweak its order mix. Apple may have had more faith in the reality distortion field than was warranted. But once again, that doesn't make the 5c a failure. Not with 11 million sold.

The iPhone 5c is a tweak of Apple's strategy, not a complete re-envisioning. It's a test to see if more people will buy old wine when it's in a new bottle. It looks like that strategy's successful, just not as much as some people wanted it to be.

But please, let's not confuse "the iPhone 5c is selling as well as previous iPhones at its price point did" with "ZOMG THE 5c IS A FAILURE NOBODY IS BUYING THEM." Nobody is buying the Microsoft Surface. The 5c is a successful, midrange smartphone that could flourish as later adopters pick up iPhones early next year. It's not a disruptor, but given Apple's ongoing sales and profit success, it doesn't have to be.

Report by : Sascha Segan